5 things banks look at when considering your mortgage application
Buying a home is certainly a milestone for most of us, but getting your mortgage application approved can feel nerve wracking.
Don't worry though - if you go through this checklist (provided by Toronto mortgage broker), your application will be in top shape and you’ll save yourself from undue stress.
Let's look at the top 5 things banks look at before approving your mortgage application.
Income
Needless to say, owning a home is expensive business, especially with the rising interest rates. So, your annual income is one of the most important aspects that banks peek at.
Houses can cost anywhere between $750,000 and $1,513,800 on average in the most popular Canadian cities. This means you definitely need an income to match, first to save up for the down payment and then to maintain the mortgage. Real estate specialists report your annual household income should be in the ball park of $110,000 to $195,000 to get a nod from your bank.
Income to debt ratio for mortgage calculation
Currently, in Canada, the highest income to debt ratio to get mortgage approval from a bank is 40%. However, lower is always better. You can calculate your income to debt ratio by dividing the debt figure by your pre-tax income.
For example, if your monthly debt payment (fixed credit card payments, student loan payments, auto loan, etc.) is $1500 and your monthly income is $4000, your income to debt ratio is 37.5%. For banks, this is an important factor when deciding on your application.
Credit score and history for mortgage approval
Credit score is nothing but a valuation of how good you've been with your bills.
Lenders such as banks definitely need to know that you can pay back the money you're borrowing. So, to avoid back and forth with your bank, take out a copy of your credit history and ensure that it has no errors.
A less-than-desirable credit score can lead banks to
Property value
As lenders, banks also appraise a house for accurate valuation. The process generally involves a visit from an expert (a bank personnel or outsourced to architects/civil engineers) and consequent sharing of detailed information about the property (for example, age of the property, compliance with government regulations, renovations or other major bills, and even cost of other houses in the neighborhood).
Guarantor vs. co-signer
Both a guarantor and a co-signer can help a candidate whose application may get rejected because of low credit score or their inability to pay the full down payment. However, there are similarities as well as differences between the role of each.
For example, while the guarantor and the co-signer would both be responsible for loan repayments if you default, the co-signer's name appears on the title of the property but the guarantor's name doesn't. In essence, the co-signer is also the co-owner of the property.
A guarantor only steps in when an applicant has adequate income but lacks in the credit score department. Ideally, a guarantor should have higher income and better credit score than the applicant.
Our advice? Unless you don't want to sign away your property, loop in a guarantor instead of a co-signer.
Need help with mortgage calculation or your application? Get in touch with our consultants for expert advice - we keep ourselves updated to make home buying hassle free for YOU!
Don't worry though - if you go through this checklist (provided by Toronto mortgage broker), your application will be in top shape and you’ll save yourself from undue stress.
Let's look at the top 5 things banks look at before approving your mortgage application.
Income
Needless to say, owning a home is expensive business, especially with the rising interest rates. So, your annual income is one of the most important aspects that banks peek at.
Houses can cost anywhere between $750,000 and $1,513,800 on average in the most popular Canadian cities. This means you definitely need an income to match, first to save up for the down payment and then to maintain the mortgage. Real estate specialists report your annual household income should be in the ball park of $110,000 to $195,000 to get a nod from your bank.
Income to debt ratio for mortgage calculation
Currently, in Canada, the highest income to debt ratio to get mortgage approval from a bank is 40%. However, lower is always better. You can calculate your income to debt ratio by dividing the debt figure by your pre-tax income.
For example, if your monthly debt payment (fixed credit card payments, student loan payments, auto loan, etc.) is $1500 and your monthly income is $4000, your income to debt ratio is 37.5%. For banks, this is an important factor when deciding on your application.
Credit score and history for mortgage approval
Credit score is nothing but a valuation of how good you've been with your bills.
Lenders such as banks definitely need to know that you can pay back the money you're borrowing. So, to avoid back and forth with your bank, take out a copy of your credit history and ensure that it has no errors.
A less-than-desirable credit score can lead banks to
- approve the application with a higher mortgage rates
- only approve if you have a larger down payment
- approve a lower amount
- reject your application
Property value
As lenders, banks also appraise a house for accurate valuation. The process generally involves a visit from an expert (a bank personnel or outsourced to architects/civil engineers) and consequent sharing of detailed information about the property (for example, age of the property, compliance with government regulations, renovations or other major bills, and even cost of other houses in the neighborhood).
Guarantor vs. co-signer
Both a guarantor and a co-signer can help a candidate whose application may get rejected because of low credit score or their inability to pay the full down payment. However, there are similarities as well as differences between the role of each.
For example, while the guarantor and the co-signer would both be responsible for loan repayments if you default, the co-signer's name appears on the title of the property but the guarantor's name doesn't. In essence, the co-signer is also the co-owner of the property.
A guarantor only steps in when an applicant has adequate income but lacks in the credit score department. Ideally, a guarantor should have higher income and better credit score than the applicant.
Our advice? Unless you don't want to sign away your property, loop in a guarantor instead of a co-signer.
Need help with mortgage calculation or your application? Get in touch with our consultants for expert advice - we keep ourselves updated to make home buying hassle free for YOU!