Save up to 50% on life insurance.

Qualifying for a Mortgage: The 4 Factors Lenders Consider (and WHY!)

Preface: As most readers know I take a dim view on Guest Posts, however Sean Cooper is a friend of this site, and this content is topical.

Imagine this: after weeks and weeks of house hunting, you finally find the “one,” your dream home. You make and offer and it’s miraculously accepted. Congrats, you’re finally able to call yourself a homeowner! Well, almost. Unless you’re able to pay for your home in cash (can you adopt me?), you’ll have to take out a mortgage. If you’ve never applied for a mortgage before, you’re probably wondering how the process works (unfortunately, they don’t touch this stuff in school).

Let’s look at the four main factors lenders look at to qualify you for a mortgage and why.

1. Your Income

A mortgage is a lot of dough, even for banks. Lenders won’t just approve anyone for a mortgage. The banks are looking for someone earning a steady paycheque over at least the last couple years (someone who’s a salaried employee). If you’re a self-employed or contract employee, you’ll have a  lot tougher of a time qualifying for a mortgage. (Although a talented mortgage broker can help you find a lender well suited to you.) The reason for this is simple. The banks only want to lend to someone who will be able to afford to consistently pay their mortgage.

However, there are things you can do to help qualify for a bigger mortgage if you’re buying in a pricey real estate market like Toronto or Vancouver. By earning more income, you can qualify for a bigger mortgage and afford a more expensive home (all things considered equal).

If you aren’t able to qualify for the mortgage you were hoping, you might want to consider applying for a mortgage with a partner. It doesn’t have to be your romantic partner, it could be a brother, sister, aunt or uncle. If you have two incomes when applying for a mortgage, it will be a lot easier to get it approved to buy your dream home.


2. Your Down Payment

Similar to your income, the larger your down payment, the easier it will be to qualify for a mortgage. Ideally, we could all afford to make a 20 percent down payment, but that’s just not realistic, especially in cities like Toronto. Even putting 10 percent down can be challenging in pricey markets. Your down payment matters to lenders because they want to know that you have skin in the game.

If you’re unable to save up 20 percent towards your down payment, aim for a minimum of 10 percent. Besides, if you’re buying a home for under $1 million, you’ll be required to put at least 10 percent down on your portion of the sales price between $500,000 and $999,999. By putting more than 5 percent down, your mortgage will be smaller, helping you save on mortgage interest over the life of your mortgage.

But coming up with a larger down payment is easier said than done. How can you do this? By boosting your income or cutting back on expenses. To earn extra income, you could start your own business in your spare time. For example, if you’re skilled at photography, you could become a wedding photographer. Ways to save on expenses include carpooling and taking public transit more often and brown-bagging your lunch. If you could save yourself $50 a month extra, that’s more money you could put towards your down payment.

Click here to read 2 more important factors

{ 1 comment }

Get Your Taxes Done Dammit !

In Canada, you should have your taxes and in to the CRA by April 30th. Occasionally there are extensions, but it does not appear to be the case for this year. Get on with it, and get your taxes done.

If you are ill, disabled or unable to file your taxes, you can ask for an extension, but it is better to get your taxes done on time. Why is it important? Let me quote the Canada Revenue Agency directly:

If you do not file your return on time (see exception to the due date of your return), your goods and services tax/harmonized sales tax (including any related provincial credits), Canada child benefit payments (including related provincial or territorial payments), and old age security benefit payments may be delayed or stopped.

I know a few folks who don’t usually submit their taxes on time and here are some of the excuses I have heard about not doing your taxes on time.

I didn’t get my T4

Doesn’t matter, you are supposed to go to the CRA site and see what data they have for you. Yes, employers not getting important data to you on time is annoying, but this is not a valid excuse. You can log onto your CRA account on line and see if they have your T4 information.

If you get incorrect information, all you can do is file with the information you have and send in a correction later. This year many Civil Servants are getting Phoenix’ed again, by getting T4 receipts with incorrect information (including CRA employees). Not ironic, but interesting.

The dog ate my T4 is also not a valid excuse.

Saying you are waiting for data so you can get a bigger refund is foolish as well. You can always file for a correction later, get it done now.

I don’t owe money, so I can do it later

So you enjoy making long-term no-interest loans to the Government? You also enjoy not getting your Government benefits? Are you really sure that you don’t owe money? The assumption that your employer did your tax forms correctly is admirable, but are you sure? If you are a Civil Servant I would never make that assumption.

Not enough time to get it done

So you are one of the 1% and your taxes are really complicated? If you have a job, a wife, kids and little or no investments, your (and your spouses) taxes can take less than an hour to do. There are plenty of free community workshops that can help you get it done. Spend the hour or two and get it done.

It is far too complicated for me

When I first did my taxes, I was petrified of the whole process. I had to manually calculate and fill out (in pen) my entire tax form. These days, you can get free software to get your taxes done. You can do it all for free, and most of the software are relatively straight-forward to use.

You don’t need a calculator, white-out, erasers, pencils or anything else, just a computer or access to someone who can do it for you. Ask a family member who may have a copy of Quicktax, they can typically submit for you (at not extra charge). Our Church offered a tax clinic that helped you fill in your tax return (if you make < $40K).

Fast Cash Back?

Please don’t go to the Fast cash back scams run by a few companies. Wait for your refund, and get all the money you deserve, when you get your taxes done!

I Can’t Get Into My CRA!

Yes, as I have run into many folks can’t log into My CRA. Most folks should have access now, if you don’t guess you’ll be on the phone with the CRA for a while? Sorry.


%d bloggers like this: