In today’s day and age, everyone has drastically different financial situations. Whether you’re someone who is an employee on salary, a contractor, or your own boss, the list goes on. All of these situations come into play when you’re applying for a mortgage. Not to mention a list of other things that could negatively impact your ability to be approved.
In this article I go through a brief list of things that will basically guarantee your disapproval. It’s the harsh reality but by being aware of these things, you’ll be able to avoid them and potentially get into that dream home you’ve spent so much time saving and looking for.
1. Your Credit Score
According to a recent study – done by BMO – over 50% of Canadians have never checked their credit score. In addition to those findings, 31% of Canadians have no idea how to check their credit score and another 20% are under the impression that checking their credit score somewhat penalizes them.
The bottom line is that having a bad credit score will have an impact on whether or not you’re approved for a mortgage. This isn’t just a simple case of taking a cell phone plan out in your name, you are asking for a loan worth hundreds of thousands of dollars. If your credit score is low, then you’re at a high risk of defaulting on payments. So, knowing your credit score and maintaining a healthy credit score will increase your chances of being approved.
2. Your Employment
Like I mentioned earlier, you could be an employee on salary, a contractors, or your own boss, either way, these all mean something different when applying for a mortgage. The key is to show longevity. Lenders do not want to see someone who has changed jobs, changed industries, etc. Ideally, they want to see an established individual who is consistent within their career.
If you’ve changed jobs or industries recently, lenders will want to see extensive proof that you are going to be able to keep the job and in turn, pay your mortgage. They will want to see proof of employment, proof that your probationary period has been waived, pay stubs, and maybe more. So if you’ve changed careers or industries, be prepared to provide this information.
3. Your Debt Ratio
Everything you owe leading up to the possession date is going to be brought up. It’s important that your debt to income ratio remain low so the lender doesn’t see any issues with you being able to take on this new debt – your mortgage.
Now I know what you’re thinking, “but I want to buy new furniture and other things for my new home.” Absolutely you can! But, wait until you’ve gained possession of your home. Once you’ve gained possession, then you can go and get whatever you’d like. But if you do it before, it will simply be added to your current debt load and potential cause a disapproval.
4. Verification of Identity
This is crucial. You need to be able to provide the necessary identification at every step. On top of that, your ID needs to match on every form and with every different individual involved in the process. If you’ve provided your middle name to the lender but not the lawyer, this will be considered a red flag.
So, be consistent and always provide the same ID and information to everyone involved.
5. Down Payment
How much? Where is it? How long have you had it? Where did it come from? Who gave it to you? Is it a loan? These are typical questions you need to be able to answer easily regarding your down-payment. Most lenders require you to provide up to a 90 day history of where you have been saving the money, and it all needs to be accounted for. If you don’t’ have these answers then you are on your path to being disapproved for your mortgage request.
These are just simple things that you need to be aware of during your mortgage application process. If you’re thinking of buying a house in the near future, then start thinking about these things now and prepare yourself for what you will need to have. By avoiding these “mortgage killers” you’ll increase your chances of being approved and getting into your dream home.