How It Works

Your Income:

When applying for a mortgage, a lender will review your income. This can be from many sources as long as the income is plausible, such as income from full or part-time employment, self-employment, rental properties, support or alimony payments, or pensions.

The lender will require a letter from your full or part-time employer to confirm income, especially if you have had the job for less than two years. You should have copies of your last two year’s tax returns and be up-to-date with any outstanding taxes.

Your Debt:

The lender will also look at your debts, including your proposed house payment, as well as monthly payments for loans, credit cards, car leases or child support. It is important that you include all debts you have on your mortgage application as they can impact your ability to borrow.

Your Employment History:

Evidence of regular income is another critical factor lenders consider. They are more inclined to favor applicants who have worked at one job continuously for several years or have remained in the same field. However, you can still qualify for a mortgage if you’ve changed jobs recently as long as your new employer can prove your income with a Letter of Employment to confirm your:

• Date of hire
• Position
• Rate of Pay

They may also ask for recent pay stubs to confirm your rate of pay.

If you’re self-employed or have worked at a job for less than two years, lenders may ask for additional information, such as bank statements, to verify your income.

Your Credit Score and Credit History:

To qualify for a mortgage, usually a good credit rating is essential. In addition to reviewing your debt and income, a lender will also pull your credit report. The report details your payment history and how you’ve handled your past obligations. You can get a copy of your credit report before you apply for a mortgage to verify its accuracy or correct any errors before you apply for a mortgage. However, each credit “pull” will negatively impact your credit score for a short period of time, so avoid pulling your credit too often. One of the advantages of working with a mortgage broker is that multiple credits pulls are not necessary.

Your Down Payment:

If you are purchasing a property, and depending on your status as an employee or a self-employed individual, lenders will want to see the size and source of your down payment. A down payment for an employed individual can be as little as 5% of the purchase price of the property. If you are already an existing homeowner, the lender will review the Loan-to-Value ratio to ascertain the equity in your property.

Your Property (if you are planning to refinance or renew your mortgage):

If you are an existing homeowner, the lender will wish to review a recent appraisal of your property (not older than 30 days), to review the condition and value of your property. As it is being used as collateral, any lender will want to review the market value, marketability, and condition of your property.

Tips To Qualify for a Mortgage in Canada