If you are planning to purchase a home in Canada, a mortgage will probably make things easy for you. However, simply comparing the mortgage rates isn’t sufficient. You are required to deal with a lot of things to get your mortgage application approved quickly. However, if you ensure the right preparation, the mortgage application approval process can become easy, smooth, and straightforward.
While there are no shortcuts or a guarantee of mortgage approval, you can make things easier by following the tips listed below. If you are looking for a mortgage in Canada, you can rely on professionals like Alpine Credits.
1. Improve your credit score
A credit score is any number between 300 and 900, indicating the creditworthiness of an individual. When you default on a loan or apply for credit, the same is reflected in your credit score and history. The reporting agencies will mark your credit score based on your credit history.
A high credit score means you have repaid all your loans promptly in the past, whereas a low credit score means default repayments. Individuals with good credit scores can easily get a mortgage in Canada.
The different credit score range in Canada is as follows:
- Poor credit – Below 599
- Fair credit – 600 to 679
- Excellent credit – 680 or higher
Most lenders avoid approving mortgage applications of individuals whose credit score exceeds 600 because of their poor credit history. Before applying for a mortgage, take the following steps to achieve a better credit score –
- Take a look at your credit history and measure your credit repayment score. There are various free online tools available for the same.
- Ensure timely payment of your bills, especially for loans and credit cards.
- Use 70% to 80% of your credit limit to play safe.
2. Save as much as you can for the down payments
The down payment in Canada for home purchases depends on the property’s overall value. Check the table below to calculate your minimum down payment value for buying a home in Canada.
|Residential Property Value||Minimum Down Payment %
|$500,000 or less|| 5%
|$500,001 – $999,999|| 5% for the first $500,000 of the purchase value
10% for the remaining value of the home
|$1,000,000 or more||20%
If you choose to make the down payment for the amount higher than the minimum requirement, you’ll be facilitated with the following benefits –
- Increase in maximum affordability of the home buyer
- Increasing the size of the down payment means you’ll need a small amount of mortgage, which will eventually help you save money in the form of lower interest.
3. Clear your debt to achieve a higher debt-to-income ratio
Mortgage lenders check the debt-to-income ratio of the potential home buyer during the mortgage approval process. The ratio helps them determine whether the applicants have sufficient income to cover their mortgage payments after clearing the existing debt. Hence, the existing debt such as car loans, credit card balance, student loans, lines of credit, spousal or child support and other debts significantly impact the mortgage application approval.
Income is a primary element that plays a crucial role in a person’s debt-to-income ratio. So the trick to keeping your ratio high is maintaining a stable income source. First, make sure you have a full-time job to help you pay off your debt. Then, increase your income sources if your current earning source isn’t sufficient for paying off the existing debt.
When applying for a mortgage, clear off your debt to maintain a high income-to-debt ratio. High income and low debt mean high chances of mortgage application approval.
4. Make a realistic budget for the home purchase.
Budgeting is the first step to buying your dream home. Make a realistic budget to look for the home purchase deal that fits your affordability. It will save you from disappointment when looking for potential deals and help you calculate the mortgage value accordingly.
Moreover, it will give a better idea of the down payment you can afford, considering all the costs associated with buying a home, such as legal fees, land transfer taxes, home appraisal costs, provincial sales tax, and others.
5. Get a pre-approval to learn what mortgage amount you can get and submit your application accordingly
Mortgage pre-approval will help you determine the amount of loan and interest rates you can get from the lender. Though it doesn’t guarantee mortgage approval, you’ll get a rough idea of your affordability. Then, you can find the home purchase deals accordingly.
The good part is that you can improve your affordability and financial condition if you don’t get a positive response in mortgage pre-approval. In addition, it will increase the approval chances of your actual mortgage application. Pre-approval will leave you with the following benefits:
- It will prepare you for the actual mortgage application as you’ll need to arrange all the necessary documents and prepare yourself for the mortgage.
- Generally, lenders hold the pre-approved mortgage rate up to 90 – 120 days. So even if the mortgage rate goes higher within the given time frame, you can buy a home at the pre-approved rate without worrying about the increase in rates. And if the mortgage rate goes down, the providers usually offer loans at a reduced rate. So it’s a win-win situation for you in both conditions.
- A pre-approval mortgage will help you determine your buying budget accurately.
- You can find the best mortgage deals and rates based on your pre-approval status.
- You won’t have to bear any cost for mortgage pre-approval.
Getting approval for a mortgage in Canada may feel like a daunting task, but the process isn’t as stressful as it seems. If you follow the tips listed above, you can quickly get through the process. However, it’s best to be mentally prepared for every challenge you could face during mortgage approval. Make sure to research and compare interest rates before finalizing a lender for a mortgage in Canada. It is best to get in touch with a mortgage professional who can help you streamline the approval process.