If you are applying for a Canada Mortgage, the mortgage lenders will expect that you have four things in place. You need to have a good monthly income and your credit history should not be tainted. You also need to have a good property and a solid down payment.
The first information lenders want to know about is your income. Are your earnings high enough to support paying a new mortgage? Are you making enough to pay your bills? Lenders are not strict when it comes to the nature of your livelihood. What they are strict about are the requirements like the certificate of employment, two months latest pay subs and Notice of Assessment Forms from Canada Revenue Agency.
The Notice of Assessment validates your regular earning and timely payment of taxes. If you are working for a company, the mortgage lender will make the necessary employment verification at your office.
By having a stable income, you are assuring the mortgage lenders that you have the resources to pay the mortgage payments should you be approved for mortgage loan. Lenders also evaluate your capacity to pay by analyzing your employment history, monthly disbursement, and number of dependents.
To appropriately determine the amount of the mortgage loan, lenders use a financial formula. They view your Gross Debt Service Ratio or GDS, and your Total Debt Service Ratio or TDS to determine if your finances are sufficient for a Canada Mortgage approval.
The percentage allotted for your monthly sustenance, payment of property taxes, and principal and interest of mortgage are what constitute your GDS. Simply put, it gets the greatest percentage from your gross income. To be approved for a mortgage, make sure that your GDS is below 32% of your total gross income.
The maximum amount of your gross income allocated for GDS constitutes your TDS. It sets aside money for payment of utility bills including credit cards, all types of loans and other disbursements. To ensure approval for Canada Mortgage, your TDS should be within 40% of your total income.
The mortgage lenders also review your credit score. In fact, whenever the subject is about loans and finances, the credit history is a major consideration. If you are not sure of your credit standing, there are websites that you can use to find out what it is. If your credit score is not good, you can use the programs created for re-building your credit history.
The property that you want to buy is important to the lender. Your property needs to be of good quality. When it is appraised it needs to have enough value to support the mortgage. Most mortgage lenders will also do a property inspection to see what condition the property is in. If they have to foreclose on the property, they want to know if they will be able to resell it for the remaining mortgage.
The real estate property to be mortgaged is the only collateral that lenders have for the mortgage loan. Hence, a property appraisal is necessary to ensure that the house and lot, condominium or townhouse will still be fit for re-sale in case you default.
The down payment has the least importance, since there are mortgage programs that guarantee financing as much as 100% of the total purchasing price. But, if you have the financial resources to provide 20% or more of the overall purchasing value, then the Canada Mortgage lenders will not require default insurance.