Here I am, right on the coattails of an article about which direction the mortgage market may take in the next 12 months. Let’s talk about how to make sure you stay at the top of the “borrowing ability” game! Mortgage lending is simply risk assessment and lenders are constantly scrutinizing the risk of lending out hundreds of thousands of dollars and how that one application affects their overall portfolio of lending. Below is a list of the most common application elements that our lenders pay attention to that may add or detract from the strength and likelihood of approval of your mortgage application;
Credit (past repayment habits)
This is a big one; the lender will be looking at your credit score and credit history to determine your previous repayment habits. How you pay on your $1500 credit card helps your potential mortgage lender judge the likelihood that you will pay your mortgage on time. If you have great credit, yay! If you have some bruised credit in the past, it’s not a huge deal, just make sure you have some good credit history to mitigate your hiccups from the past. Not only is how you have paid your credit important, but the length you have had it and how much you owe in relation to available limits makes an impact as well.
Collateral (your home is the lenders house)
Your potential lender will want details on the property they will be financing; what kind of shape it’s in, location and is it a property that is appealing to a large portion of the population. For instance, is it a single family home located on a cul-de-sac in a major city, or is it a 10 acre farm with 2 barns and a shop located 10 kms from Vegreville? A lenders ideal property is in good condition and located in a desirable location. That doesn’t mean it is a minimum requirement for approval, it just means the lender will be looking a little more closely at the other strengths of your application.
Capacity (how are you going to pay your mortgage)
Along with a mortgage approval inevitably come’s a mortgage payment. It is no surprise that lenders would like to confirm how you will afford your mortgage payments. Depending on your employment type, the documentation requirements will vary. Most of our lenders are pretty common sense and are just looking to gain a comfort level with your income to ensure your mortgage payments are manageable for you.
This element of an application consists of mainly your down-payment amount and whether your net worth is positive or negative. Simply stated, the more down-payment you have, the better it looks. Also considered is your net worth which is your asset amount minus your liabilities (for example – if you have $15,000 in cash, a car worth $5000, and credit card debts totaling $10,000, your net worth is $10,000.) If you have a positive net worth, it shows you have a bit of a cushion in the event of a cash-flow emergency. This looks a bit more favorable than if you don’t have access to extra resources to make your mortgage payments in the event of an income sabbatical.
Character is the overall determining factor in determining if the mortgage application is approved or declined. It is up to us, your broker, to inform the lender what kind of person you are and based on all of the other points detailed above, are you a reasonable risk to lend money to? If you don’t have a down-payment, tell us about how you put yourself through school without student loans and bought your car in cash. Or if you have some bruised credit, let us know the reason. Was it a result of a relationship breakdown or an illness? Please tell us the story as it helps us paint a picture of what kind of borrower you are on and off paper.
The above things considered, how your whole application is structured also impacts the likelihood of approval. If you would like to find out how good you look on paper, or how you can look better, don’t hesitate to contact the MortgageGirls.