When most people start looking for a home, they’re likely to make a list of ideal locations, how many rooms they’d like and other must-haves for their property. Not too many will think about applying for a mortgage or what to prepare to make the process easier. To help prospective homeowners, in this part of the Mortgage Basics series, we’ll be looking at the mortgage application process, what you’ll need and what to expect.
What Mortgage Lenders are Looking for in Prospective Homeowners
A mortgage is typically the largest loan a person will ever receive so applying for a mortgage is a big step on the journey to homeownership. When it comes to qualifying for a mortgage and determining what type of mortgage you’re eligible for, a lender will look at a variety of factors. Mortgage finance companies, banks, and credit unions are more likely to lend to borrowers who have shown a greater likelihood of paying back a loan.
So, how will a lender know you’re the right candidate for a mortgage? This can look like having a steady income, a good credit history or a sizeable down payment. Your debt-to-income ratio, meaning how much of your monthly income goes towards paying off your debts, will also be something potential lenders will consider.
Documents and Information You’ll Need to Provide
When you apply for a mortgage, you’ll be asked to provide personal details like your name, address, employment history and social insurance number. Potential lenders will use this information to verify your identity and match it against your credit bureau records. They will also pull your credit report to view your credit score. You’ll be asked for additional documents to support your application. This may vary depending on your circumstances. Below is a list of commonly required mortgage documents:
Employment & Income
- Copy of recent paystubs
- T1 tax forms
- Notice of Assessment (NOA)
- Letter of employment
- Any other income sources
- Savings or statement of investments from the last 90 days
- Sale agreement of existing property
- Home Buyer’s Plan (HBP) withdrawal from RRSP
- Gift letter if receiving funds from a friend or family member
- List of assets and liabilities
- Banking details for payments
- Mortgage pre-approval (if applicable)
- Purchase and sale agreement
- MLS listing that will include property tax estimates and condo fees (if applicable)
- Full address of the property including legal description
- Well and septic certificates for rural properties
How Your Credit Score Impacts Your Mortgage Application
A credit score is a numerical amount ranging from 300-900 that is determined by your borrowing and payment history. As discussed earlier, mortgage lenders are more likely to approve candidates with a greater ability to pay their mortgage on time, and a high credit score is a good indicator of this. Ideally, you will want to have a credit score of 600 or higher to be approved for a mortgage. A higher credit score may also improve your chances of qualifying for a better interest rate on your mortgage which can save you thousands of dollars over the length of your mortgage.
If you’re not sure of your credit score, you can receive a free credit report from Equifax or Transunion. If your credit score isn’t quite where you’d like it to be, there are a few things you can do to help improve your score and increase your chances of being approved for a mortgage.
Simple Ways to Improve Your Credit Score
- Make all your payments on time and pay at least the minimum if you can’t pay the full amount.
- Don’t go over your credit limit — try to use less than 35% of your available credit.
- Limit the number of times you apply for credit and only apply for credit when you need it.
Applying for a Mortgage with a Broker
For first-time homebuyers or even those who haven’t gone through the mortgage application process in a long time, the process can seem overwhelming. One way to alleviate some of those feelings is to work with a mortgage broker. Rather than keeping track of what documents have been sent to which lender, a mortgage broker will compile all the information and interact with various lenders on your behalf to find the mortgage that’s right for you. They’ll also be able to guide you through the application process and answer any questions you have along the way.
If you don’t have a mortgage broker, check out our find a mortgage broker tool.
If you have an MCAP mortgage and have any questions, contact us!
Learn more about the different mortgage options available in our previous Mortgage Basics post.