According to Canadian Real Estate Magazine, Canadian homeownership rates were sitting at 68.5 percent in the first part of 2020. If you’re submitting a mortgage application in the near future, you might be wondering how to get a mortgage on a tight deadline.
Read on to see our must-do tips to get approved for a mortgage.
1. Get Pre-Approved for a Mortgage
Mortgage pre-approval allows lenders to assess how much funding they’re prepared to offer borrowers. Getting pre-approved is pretty similar to getting approved for a mortgage in general. The bank will assess your finances and credit before offering a range and a locked-in rate.
From debt ratios to financial assessments, the pre-approval process will give you a preview of the process involved with learning how to get approved for a mortgage in Canada.
2. Have a Strong Credit Score
Your credit score doesn’t just affect the amount that you can borrow. It can also directly affect your offered rate. Before a lender extends credit to you, they want to see evidence that you’ve got a history of responsible credit management.
If you submit your mortgage application while your credit score is low, lenders may add additional conditions to your approval. You might be asked to provide a larger down payment or be rejected outright.
That’s why mortgage experts will often advise homebuyers to polish up their credit before making mortgage applications.
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3. Don’t Make Any Big Purchases
When you’re pre-approved and preparing to make an offer, the last thing you need is a significant change to your financial situation before your mortgage approval has been finalized.
Avoid buying new cars or taking on expensive leases until after your mortgage has been completed.
In addition to the time you’ll save, you may be able to access lower-interest financing through a home equity loan once the house is officially purchased.
4. Save up for a Larger Down Payment
According to the Government of Canada, minimum home down payments can vary depending on the value of the property you’re purchasing.
For houses selling for less than $500,000, you’ll need to come up with 5 percent of the purchase price. If the property sells for anywhere between $500,000 and $999,999, you’ll be expected to pay 5 percent of the $500,000 and then 10 percent for the rest of the purchase price.
Although you can buy a property with the minimum, a larger down payment allows you to reduce the amount you’re borrowing. In turn, it can make lenders more open to approving your application quickly.
5. Prepare Your Documentation
Many Canadians don’t realize how much the mortgage application process relies on having the correct documents.
If you’ve forgotten to include your proof of employment or if you can’t explain where your down payment funds are coming from, lenders may not be able to proceed with your application.
Double and triple-checking your paperwork can help the approval process go more smoothly.
6. Lower Your Debts
Even after the paperwork is submitted and the paystubs are produced, Canadian mortgage applicants have another hurdle to navigate:
The stress test.
Essentially, this test is a calculation that allows lenders to make sure that you can still afford your property if mortgage rates happen to go up in the future.
If the numbers show that you can handle making mortgage payments at either 5.25 percent or your offered rate plus 2 percent, you have a strong chance of getting approved. But if you fail the stress test, your mortgage application will be rejected.
By reducing your monthly debt payments, you’ll position yourself to pass the stress test with ease.
7. Have Steady Employment
When applying for a mortgage or any loan in general, your lenders will want reassurance that you’ll be able to pay them back on time. Regular paychecks and paystubs will let them know that you have a steady source of income that will allow you to make your payments.
If you’ve been thinking about changing jobs or if you’re planning to launch your own business, you can do so. But you’ll want to keep that plan at bay until after your application has been approved.
8. Prepare Yourself to Shop Around If You’re Not a Traditional Employee
Are you a freelancer or an otherwise self-employed individual? You can take out a mortgage, but you should be prepared to offer additional proof of your financial stability.
Many lenders require to see at least two years’ worth of income statements. However, if you’re a business owner and your income is inconsistent, you may be asked to produce a larger down payment or the lender may want to see proof that your business is doing well financially.
To save time on your application, you may have to speak to brokers and lenders specializing in offering mortgages to self-employed individuals.
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9. Borrow Less
In the fourth quarter of 2020, consumer debt in Canada was sitting at $2.2 trillion. As a mortgage applicant, you can reduce your overall debt burden and speed up your mortgage approval by taking out a smaller loan amount.
You may be able to achieve this by downsizing or making a larger down payment. Either way, however, by purchasing a property on the lower end of your pre-approval range, you’ll reduce the amount of risk your lender is taking on.
10. Don’t Apply for New Credit
Remember what we said earlier about not making new purchases before your mortgage is approved? The same rule applies to applying for new credits.
Extra loans and leases don’t just add to your debts — they can also change your credit score and affect your stress test calculations. Similarly, if you like accessing revolving credit, you can take out a home equity line of credit once the purchase of your new home is complete.
Use These Tips to Get Approved for a Mortgage Fast
Whether you’re refinancing or making your first application, getting a mortgage isn’t easy. You often have to spend months preparing your credit and saving up for the down payment. And even if you get pre-approved for a mortgage, that approval can still be revoked if your financial situation changes.
However, if you use these tips on getting a mortgage approval, you’ll be picking up your new keys in less time than you might think.
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