Skip to content
Mortgage Schedule

Qualifying for a Mortgage: The 4 Factors Lenders Consider (and WHY!)

Preface: As most readers know I take a dim view on Guest Posts, however Sean Cooper is a friend of this site, and this content is topical.

Imagine this: after weeks and weeks of house hunting, you finally find the “one,” your dream home. You make and offer and it’s miraculously accepted. Congrats, you’re finally able to call yourself a homeowner! Well, almost. Unless you’re able to pay for your home in cash (can you adopt me?), you’ll have to take out a mortgage. If you’ve never applied for a mortgage before, you’re probably wondering how the process works (unfortunately, they don’t touch this stuff in school).

Let’s look at the four main factors lenders look at to qualify you for a mortgage and why.

1. Your Income

A mortgage is a lot of dough, even for banks. Lenders won’t just approve anyone for a mortgage. The banks are looking for someone earning a steady paycheque over at least the last couple years (someone who’s a salaried employee). If you’re a self-employed or contract employee, you’ll have a  lot tougher of a time qualifying for a mortgage. (Although a talented mortgage broker can help you find a lender well suited to you.) The reason for this is simple. The banks only want to lend to someone who will be able to afford to consistently pay their mortgage.

However, there are things you can do to help qualify for a bigger mortgage if you’re buying in a pricey real estate market like Toronto or Vancouver. By earning more income, you can qualify for a bigger mortgage and afford a more expensive home (all things considered equal).

If you aren’t able to qualify for the mortgage you were hoping, you might want to consider applying for a mortgage with a partner. It doesn’t have to be your romantic partner, it could be a brother, sister, aunt or uncle. If you have two incomes when applying for a mortgage, it will be a lot easier to get it approved to buy your dream home.

2. Your Down Payment

Similar to your income, the larger your down payment, the easier it will be to qualify for a mortgage. Ideally, we could all afford to make a 20 percent down payment, but that’s just not realistic, especially in cities like Toronto. Even putting 10 percent down can be challenging in pricey markets. Your down payment matters to lenders because they want to know that you have skin in the game.

If you’re unable to save up 20 percent towards your down payment, aim for a minimum of 10 percent. Besides, if you’re buying a home for under $1 million, you’ll be required to put at least 10 percent down on your portion of the sales price between $500,000 and $999,999. By putting more than 5 percent down, your mortgage will be smaller, helping you save on mortgage interest over the life of your mortgage.

But coming up with a larger down payment is easier said than done. How can you do this? By boosting your income or cutting back on expenses. To earn extra income, you could start your own business in your spare time. For example, if you’re skilled at photography, you could become a wedding photographer. Ways to save on expenses include carpooling and taking public transit more often and brown-bagging your lunch. If you could save yourself $50 a month extra, that’s more money you could put towards your down payment.

Read More »Qualifying for a Mortgage: The 4 Factors Lenders Consider (and WHY!)
Straight Talk on Your Money

Straight Talk on Your Money

Straight Talk on Your Money is an excellent read to teach folks about how no matter how well you plan financially things can go wrong, and what you can do about it.

e-series orders rejected

Risk Profiles and Rejected Orders

If you have a TD Mutual Funds account how do you do to stop having your e-series orders rejected ? It is not as easy as you would think, and it has to do with your TD Mutual Funds investment risk profile.

Counterfeit Realities

Mothers Day, Counterfeit Reality, Higher Stress and #MoneyTalk

It is Mother’s Day on Sunday, normally the day with the most long-distance calls (if that data is still being collected). Traditionally, Father’s Day was when the most collect phone calls happened. To paraphrase Keith Hampshire “Be Good to Your Mother!”, remember everything she did for you?  Time to start paying back a little.

Counterfeit Reality

Do you realize that many articles you read are AI-created? Not here, as you can tell by my bad grammar and punctuation no computer could easily recreate my awkward writing style. Gartner in their Top Strategic Predictions for 2018 pointed to the dawn of Counterfeit Reality 1 (analysis by:Daryl Plummer, David McCoy). The funny part of this analysis is that with the explosion of fake news via AI will be tools to combat it. It will all become an AI arms race, with your brains being the target. The best recommendation was, “…Do not underestimate the number of counterfeit reality sources that exist in the world today….”. This is very important in the world of Financial News. So much of Financial Documentation in general and Financial Media in specific is becoming AI based.

How can you tell you are getting a Real Financial Reality? For lack of a better term, guess you will have to do some research. Just because it is on Face-hole doesn’t mean it is the truth.

A more telling statement about Counterfeit Reality is from the same report, “By 2022, most people in mature economies will consume more false information than true information” (research by Magnus Revang & White Andrews). If this is true, we end up with the liar paradox of “All financial blogs are liars, and I write a financial blog“. Good luck figuring out what is the truth, and what is fiction in the coming years sums it all up.

What might Counterfeit Reality in the financial world look like? Maybe we can talk about how investing in any of the 900 cryptocurrencies (at last count) is a great idea. I’m just saying, folks, if I was going to send Hype to pump up an investment, that is where I would start.

If you believe that this is in the future, think again, the Associated Press is already augmenting their writing staff with AI (according to the MIT Tech Review). Maybe Financial Blogger won’t be a job of the future?

The Bank of Canada announced a 20 basis point increase on the Stress Test Rate, that is to be used to figure out whether you can afford a mortgage. The rate is now 5.34%, according to the CBC. This means if you want a mortgage you will have to prove that you can live with a mortgage rate of 5.34%, can you?

I did enjoy a Twitter discussion this week about Financial Media Whores, well worth checking out and I will be talking more about this soon.

1. [“Counterfeit Reality” is the digital creation of images, video, documents or sounds that are convincingly realistic representations of things that never occurred or never existed exactly as represented (according to Gartner)]↩

My Recent Writings

I did write about Get Your Taxes Done Dammit ! However, you are late now. That doesn’t mean you shouldn’t file your taxes, just that you might have to pay penalties if you owe money. It really isn’t that hard, time to get that done, and if you are due a rebate, think how next year you can stop loaning the government money (for free).

Micro Blogging for Motivation

I do wander around the financial internet and found a very interesting article outlining a long list of things to do. Normally, I hate list articles, but this one was OK by me.

Read More »Mothers Day, Counterfeit Reality, Higher Stress and #MoneyTalk
get your taxes done

Get Your Taxes Done Dammit !

In Canada it is time to get your taxes done , or the CRA will start making your life miserable, or, worse, you will be loaning the government money long term.

Verified by MonsterInsights