Obtaining a mortgage loan is an important step for any aspiring homeowner, but the process can sometimes be overwhelming and frustrating. In this article, we'll cover some key factors that lenders consider when evaluating mortgage applications in Canada, and provide tips on how to improve your odds of approval by choosing the right type of mortgage loan. By following these guidelines, you can increase your chances of securing a mortgage loan and making your dream of owning a home a reality.
When deciding whether to approve you for a loan, one of the first things your lender will look at is your credit score. In Canada, credit scores range from 300 to 900. While you can find a mortgage solution with bad credit and get approved, if you want to get access to the lowest rate, you would want a score of at least 620 or higher. Before beginning your mortgage application, it is a good idea to access your credit score and take note of your current financial standing.
You can access your credit report for free by contacting the Canadian Credit Bureau of Equifax or TransUnion. Once you have received your report, you should carefully examine it to ensure it is free from any errors. Some of the most common mistakes to look out for include: paid debts showing up as unpaid, identity theft (credit card misuse), and confusion of your debt history with someone else’s due to similar names or addresses. If you register any mistakes in your credit report, you should contact your agency immediately to get your records amended. Your mortgage broker can help with that process.
Once you have checked your credit report and found everything to be in order, you can use a free mortgage loan calculator to assess the quality of your credit score. In most cases, improving your credit score will also improve your odds of mortgage approval, and may qualify you for better rates and terms. Here are a few strategies that can help you improve your credit score:
Your debt-to-income (DTI) ratio is a measure used by lenders to determine your overall monthly cashflows, and thereby, your ability to make your mortgage payments. There are two types of ratios commonly used, the TDS (total debt service) ratio, and the GDS (gross debt service) ratio.
The GDS ratio determines what percentage of your gross monthly income is required to service all your monthly mortgage-related costs. These include principal payments, interest payments, mortgage loan insurance, property taxes, condo fees, and some utility costs.
Your TDS ratio determines what percentage of your monthly income goes towards servicing ALL your monthly debt-related expenses. This includes your mortgage expenses as well as car loan payments, credit card re-payments, and any loan or debt obligation.
Typically, the big banks will want you to maintain a GDS ratio under 39% and a TDS ratio under 44%, although exceptions can be made. For even greater flexibility, you may want to consider working with a private lender or an alternative institutional lender, as these lenders often will not have such strict limits on DTI ratios, and can therefore be more accommodating of your current financial needs.
The best way to save on your mortgage is by finding the right mortgage loan program for you. In order to maximize your odds of success, it is encouraged that you work with an experienced mortgage broker who can shop around for different lenders before providing you with a commitment. In fact, the Financial Consumer Agency of Canada recommends comparing rates and terms from at least three different lenders before settling on a mortgage provider.
According to the Bank of Canada research, employing a mortgage broker might lead to a cheaper mortgage rate than working with the major banks directly. This is because the lowest interest rates listed on the big bank websites are known as “posted rates,” but most of these institutions offer lower, “actual rates,” through mortgage brokers. Experienced mortgage brokers are also able to negotiate some of the lowest rates for their customers.
The Clover Mortgage team has experience working with a vast network of over 70 different lenders. Our professional brokers have the expertise, insight, and network needed to connect you with the best loan program for your unique needs. We can also help you negotiate the best rates and terms available. Contact Clover Mortgage to schedule a free consultation and lock in your low rate today!
An adjustable-rate mortgage, also known as a type of variable-rate mortgage, is a mortgage loan where both the monthly payment and the interest rate vary periodically based on changes to the prime rate made by the Bank of Canada. The starting rate for adjustable-rate mortgages used to historically be lower than the rates offered for fixed-rate mortgages (where the interest rate remains consistent for the full length of the term), but as of the start of 2023, fixed-rates have trended to be much lower than adjustable and variable rate mortgages. This can fluctuate depending on market conditions.
While a pre-approval is not always a guarantee of your mortgage application’s success, it is a very good indicator of your borrowing range. In order to get pre-approved, we recommend that you provide a Clover Mortgage broker with information about your credit score, income, and debt history. Your broker will then help you compare different mortgage products across a wide range of lenders to find the best option that they have available for you. Once you have selected a lender, your Clover Mortgage broker will begin the pre-approval process that, if successful, will allow you to lock in a low interest rate for up to 120 days while you shop around for a property. For more information, check out our guide on how to get pre-approved for a mortgage.