Nothing is more rewarding than home ownership. Along with the pride that comes with owning your own property, you also have the freedom to renovate and design the home the way you like it. More importantly, you have an asset that will increase in value and bring you enjoyment and equity for years to come.
So you want to take the plunge but you’re either renting or living with your parents? In a nutshell, this is what you need to find a lender willing to give you a mortgage:
- Steady employment
- Good credit
- A minimum down payment of 5% of the purchase price
Lets explore these in more detail.
A bank knows you have the willingness to pay, but they’re more concerned with your ability to pay. A steady job with income that has been filed with Revenue Canada will give the lenders the confidence of your capacity to make mortgage payments. Most often a recent employment letter from your employer as well as your last pay stub will be required along with your recent Notice Of Assessment (NOA) and possibly your T4.
If you’re self-employed, fear not because you can also get approved for a mortgage – your process is just slightly different. Go here for more information on applying for a mortgage as a self-employed individual.
Having good credit is crucial not only in qualifying for a mortgage, but also snagging a lower interest rate. Even the smallest drop in the interest rate could literally save you thousands of dollars over the lifetime of the mortgage. Your credit will be determined based on your credit bureau report that is obtained from either Equifax or Transunion. If you’ve never checked your credit score before, visit either link and contact them to obtain your own free report via request in writing. If you’d like an immediate report, you have the option to order a report at a minimal fee.
The strength of your credit score will rely heavily on your payment history (late payments negatively affect your score) and your ability to keep your balances away from their maximum amounts. For example, if you have a credit card with a credit limit of $1,000, be sure to keep it below at least $750 (75% of the limit). Other variables that will affect your score are the type of credit you have, any history of collections, and the number of recent inquiries to your credit file. Go here for tips on how to improve your credit.
Minimum 5% Down Payment
It’s important to save money for a down payment to demonstrate to the bank that you will have invested risk into the purchase. The higher the down payment, the easier it is to obtain financing – however, 5% is enough to satisfy the lenders. In Canada, any purchaser who is borrowing money with less than 20% down payment is required to pay CMHC insurance. This insurance is designed to protect the lender, not you, in case you are unable to make your mortgage payments. The total cost of the mortgage insurance is included into your mortgage payment, however make note that the PST portion of this insurance will be due on closing day (be ready). You can easily calculate your CMHC insurance by going here.
You will be required to provide 3 months of bank statements to prove that you have saved up this down payment on your own. If your parents or relatives are giving (not lending) you money for the down payment, a gift letter will be required stating that the money is being gifted.
What if you have a good job, great credit, but no down payment? We do have a zero-down mortgage program that can help you. Please click to read more.
We are experienced and friendly mortgage brokers in Mississauga, and we’re ready to answer all your questions and help you get approved. Contact us today and get started now!by