How to qualify for a mortgage

The housing market is hot — so hot, that you don’t have a lot of time to think before putting in an offer. So you want to make sure you’ve got all your details ready to apply for a mortgage before you fall in love with your dream house … or you may discover too late in the process that you can’t get the financing you need. 

To secure a mortgage, you’ll need to provide financial documentation and go through a credit check. According to the Financial Consumer Agency of Canada, starting the mortgage process early allows you to: 

• know the maximum amount you could qualify for 

• estimate your payments 

• lock in an interest rate (which is commonly held for 90 to 120 days) 

Here’s what you need to know to prepare for the mortgage process before you start house hunting: 

Know the truth about mortgage pre-approvals  

Just because you’re ‘pre-approved’ for a mortgage — especially one that only took a few minutes online — doesn’t mean you’re actually approved for a mortgage. Rather, a pre-approval only gives you an idea of the amount you could get for a mortgage, though it doesn’t guarantee anything. In fact, even if you’ve been pre-approved, you could still be refused for a mortgage if the property you’re bidding on doesn’t meet certain standards or if there are issues with your documentation. 

Get a mortgage commitment letter 

Instead of looking to get a pre-approved mortgage, ask your lender if they are able to provide a mortgage commitment letter. While the process is more thorough (and takes a bit more time), it will provide you with th assurance that they’ll be able to provide you the funds. In this document, the lender commits to a loan amount based on fulfilling a certain set of mortgage conditions. Also be sure to ask your lender how long they guarantee the rate and — in the event interest rates go down while you’re in the process of house hunting — if they’ll give you a lower rate. 

Protect your deposit during bidding wars 

With fierce competition and bidding wars, some buyers are tempted to put in an offer with no conditions. But that isn’t what the lender agreed to, so you could be on the hook for the financing — without a mortgage. 

For example, if you put an offer on a heritage home but then discover the foundation needs to be replaced, the lender could turn down your mortgage ‘pre-approval’ because the home doesn’t meet their lending criteria. And if you waived conditions, you could potentially lose your deposit, which could be tens of thousands of dollars. That could mean you may have to go to a private lender and pay a much higher interest rate. 

Don’t just look for the cheapest mortgage rate 

There’s a lot more to a mortgage than the rate. This is where it’s really important to read the fine print. Aside from the rate, also look at your penalties for getting out of the mortgage early and whether you can pay off your mortgage faster (along with any associated fees). If your financial situation changes (for example, if you receive a large inheritance), you’ll want flexibility with your long-term mortgage obligations. 

Also, keep in mind you might qualify to borrow more money than you expected — or feel comfortable with. Just because you qualify for a bigger mortgage doesn’t mean you need to look at bigger houses. (There are other things to consider, including the amount of down payment you’ll need to make.)  

Figure out the budget for your down payment plus a monthly budget you’re comfortable with — and limit your search to houses that fit within that budget. It’s easy to get caught up in the moment and put in an offer that’s above and beyond what you wanted to spend, but you don’t want to end up becoming house-poor. 

What lenders look for 

A mortgage lender, broker or Wyth Mobile Mortgage Specialist will look at your income, assets and debts or financial obligations based on the lender’s policies and requirements. Debts could include loans (including lines of credit, car loans and student loans), as well as credit card balances, child support or spousal support. 

You’ll also need to provide proof of your down payment and that you can cover your closing costs. For salaried employees, you’ll need to provide proof of salary and length of employment, plus your notice of assessment from the Canada Revenue Agency.  

If you’re self-employed, you also need to provide notices of assessment plus more documentation required by your lender. You may also have other ways available to qualify as a self-employed person, so consider all your options. 

Get ready to start house hunting 

Housing inventory is low in markets across Canada, including non-traditional markets. And properties are flying off the shelf. But it’s important not to get caught up in the moment and make rash decisions, like waiving conditions or inspections for fear of losing out on a deal — just because everybody else is waiving conditions and inspections. 

By preparing all documentation, having your credit properly reviewed and securing a mortgage commitment, you’ll have a better budget—and comfort level. And by working with the right lender, you can avoid common pitfalls to find the home of your dreams. 

How Wyth can help 

• Wyth can help with mortgage advice and solutions, whether you’re looking to refinance your current home or find a new one. 

• Talk to us if you’re self-employed or looking to buy a second home or rental property. We can help with that too.