Getting a Residential Mortgage
There are many things to consider when purchasing real estate; your wants, needs, and financial situation all play a part in your decision making. Curious to what the banks and lenders are interested in?
Mortgage lenders have 4 main aspects of a mortgage application which they consider:
Income, Loan-to-Value, Credit History, and the Subject Property.
Income
Are you a salary or an hourly employee, self-employed, or receive a pension income? Whatever your income source may be, we can help clients who make their living in a variety of ways! The lender simply wants ensure that you can afford the mortgage payments and the associated costs to owning a home.
There are two equations that are used in assessing affordability: the Gross-Debt Service Ratio (GDS) and the Total-Debt Service Ratio. The GDS is about 35% of the borrower’s income that is needed to pay all required monthly housing costs (mortgage payments, property taxes, and heat and condo fees, if applicable). The TDS is about 42% of the borrower’s income that is needed to cover housing costs (GDS) plus any other monthly obligations that an individual has, such as credit card payments and car payments. These percentages can vary slightly, particularly with credit score.
Loan-to-Value
This is how much of a mortgage loan you are seeking in relation to the value or the purchase price of the subject property. In other words, how much of a down payment do you have or what is the amount of equity in your home? If you are purchasing a home, you can use as little as 5% as a down payment. We even have solutions for those who don’t have a down payment! For those who are looking to refinance, then a minimum of 20% equity is required.
When using a mortgage broker, you can look at all your options and all under one roof!
Credit History
Credit history is a good indicator on how a person handles their debts. The credit score (aka beacon score) can help determine one’s access to the best rates. Scores range from 300-900 with scores of 680+ being the best. There are a number of factors that go into making up your credit score: payment history, current debts, age of accounts, type of credit, and the amount of credit inquiries. They’ll also look at how debts have been handled; whether they’ve been paid on time, if there are any collections noted, etc.
For those who have bruised credit, we may still have solutions to get you into home ownership! Plus, we can make suggestions to mend your credit. We don’t just say “NO” as banks would, we work with you so you can improve your financial situation!!!
Subject Property
There is a wide range of properties available which can vary in type and location. A lender will assess the overall marketability of the property. In simple terms, they will look at how easy it would be for a property to sell. The further the property is away from a city can make a difference, as well as the property itself, for instance a mobile home vs. a single-family dwelling. We have lenders that will lend on properties that the banks will decline, so contact us to take care of you during your purchase!