5 Key Elements To a Mortgage Pre-Approval

Calgary Retirement Income Planning

The 5 key elements of a mortgage pre-approval! 

Guest post by Paul Traptow, Mortgage Agent

Are you being declined by your banks, confused about mortgage guidelines, or feeling overwhelmed by the process?

We often receive calls that include these kinds of comments- " I went to my bank for financing and it didn't work out,  I feel like I can afford the new house but the pre-approval is too low and the bank says I can only afford a condo, I have some issues on my credit, etc."

Our skill is in digging deep, really getting to the know the entire situation and the property, the client and their goals, and to quickly mitigate any issues around credit, income, or down payment. Getting ahead of problems is the fastest way to solve them!

I encourage you to start with a mortgage broker! Our neighbourhood bank branches are not what they used to be - there is an incredible amount of turnover and often young and inexperienced staff. Mortgage financing is a job for an expert not a part-time staffer with little experience. And should we need to source multiple lenders obtains that option is the click of a button so "declines" are unnecessary. It's also a job for someone with many, many options and no brand bias as to which option and solution is the best fit.

We are here to help and here are the most important elements we look at when we complete a mortgage pre-approval.

Income - from a lender's perspective the more stable the income the more preferable. Guaranteed salary and guaranteed hourly are very strong sources of income. Part-time or casual hourly, commission, or overtime income can be used if there is a two-year history of consistency in this income. Consistency is the key word! Along with the type of income and consistency lenders are also looking at the amount compared to the mortgage amount required. Is there enough income earned to support the mortgage payment, property taxes, utilities, and all other consumer debt payments?

Down Payment - The amount and source of down payment are important. Many buyers use savings, RRSPs, investment accounts, gifted funds from family etc. No matter is the funds are coming from the sale of a vehicle, an insurance settlement, a bonus, or from divorce agreement the lender must verify the source with documentation and be able to see that the funds remain available. If grandma plans to give her grandson $20,000 for a down payment she needs to be prepared to sign a gift letter detailing her gift of $20,000 to her grandson for the purchase of X home. Documentation really does matter.

Credit - Credit scores range from 300 to 900, the higher the score the better in the eyes of a lender. For the majority of lenders and to obtain best interest rates a score over 680 is preferable. The types of credit, history, and repayment details are very important. Any late or missed payments or collections are negative marks on credit scoring. A lack of credit or no credit is as much of an issues as poor credit. Every potential home buyer should have two pieces of credit - one credit card and a second piece - a student loan, line of credit, auto loan, even a second credit card.

Debt - Too much debt is a major problem when it comes to a mortgage pre-approval. Credit card debt is on the rise and many, many Canadians now have lines of credit - easy to use, and much hard to pay back. Auto loans have a huge impact on mortgage pre-approvals. But the inverse isn't true - auto loans are given out quite freely so it's best to buy the home first and then the new car! Often high interest debt can be consolidated into a lower interest rate line of credit in order to get the pre-approval in line.

Property - Mortgage pre-approvals are completed before finding that perfect property. So they do no take into account the location, condition of the home, home inspection, appraised value, zoning, square footage, number of acres, or any other unique element of the property! Lenders prefer highly marketable properties - location, square footage and condition are so important. Pre-approvals are a deep dive into the buyers personal financial situation, live offers determine the property and ultimately if the lender will approve the mortgage based on both the buyer and the property.

Give me a call, I can make the road to home ownership  smoother for you! It also helps with headaches and your liquor bill :)

Paul Traptow
Mortgage Agent
Dominion Lending Centres Elevation Mortgage
paul@elevationmortgage.ca P. 403-701-7878 F.1-888-874-2406

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