In this post, I will explain how the decision to lend or not to lend is being made, but please understand that each situation is unique.
The mortgage qualification process in Canada is a two-step process
First part is to focus on the person looking to buy a home. Are they able to make the payments on this mortgage? Are they making enough money to make these payments comfortably? What is their credit history? What is the likelihood that they will default on these payments?
Second part is to focus on and evaluate the property to make sure that it provides enough security for the amount of money being loaned.
The buyer is evaluated based on current obligations and credit history. Current obligations are loans which have to be repaid now, like credit cards, car loans or leases, student loans, alimony or child support payments, etc.
The new mortgage payment amount, property taxes, insurance, condo payments and some other expenses associated with owning the house are added to the payments already in place and ratios are used to decide if the amount of income is sufficient to service all these obligations, including the new mortgage and real estate expenses.
The mortgage qualification process in Canada includes credit history reports
Credit history is usually obtained from credit bureau. There are two main credit bureaus in Canada. One is Equifax; the other one is TransUnion. They provide lenders with information regarding past payment history, current obligations and work history.
One’s credit score is calculated based on this information and also provided to the lender.
During the approval process, the lender will ask for additional documentation, such as confirmation of income and employment, detail about the property being financed such as age, heating type, etc. All these details have to be provided to the lender 10 days prior to the closing date.
The mortgage qualification process in Canada includes property value
Then the value of the property is being assessed to make sure the money loaned can be recouped by sale of property in question if the borrower is not able or not willing to make the mortgage payments.
This is usually done via automated valuation systems. These are computer systems with pricing data gathered over long periods of time for wide range of properties in various neighborhoods. If data is not available for the property in question the lender might request partial or full appraisal of the property.
The appraisal will take into account other properties in the area that recently sold. The appraiser will also look at the condition of the property and area’s amenities, as well as projected development plans for given area.
Once all the information on the borrower and property is gathered, the decision is made and the mortgage would ideally be approved.
Get pre-approved for a mortgage before looking for homes
If you just want to know how much you can qualify for to help you narrow the search for your new property, you should request a mortgage pre-approval. Your mortgage agent will be able to advise you on the amount of mortgage you qualify for.
Also, if you have any issues in your credit history that can disqualify you for a mortgage, a knowledgeable mortgage agent will give you advice how to fix it and how much time it will take to have the issue resolved.
Being pre-approved is in your best interest because it demonstrates to the home seller that you are a serious buyer, which in turn can make them more flexible when price negotiations take place.
If you plan to buy or sell a home, visit ComFree.com today.