If you are an aspiring homeowner or property investor, the world of mortgage approval may feel daunting at first. Nowadays, it is more difficult than ever to get a mortgage loan. Banks require higher down payments and loan-to-value ratios and certain mortgages have been banned. The government has tightened its lending rules further, making mortgage approval even more challenging. This guide covers the essentials of mortgage approval to equip you with the knowledge you need to succeed in the 2022 market.

The following are the most important steps you should take when obtaining a mortgage.

Apply for a Mortgage Pre-Approval.

Before beginning the house-hunting process, it is wise to get pre-approved for a mortgage. A pre-approval is a commitment from a lender stating that it will lend you a certain amount and outlines the monthly payments and associated interest rates. By knowing these figures in advance, you can search for properties within your price range and narrow down your lenders before committing to a mortgage.

Pre-approval can be a useful step in the home buying process; it is optional but doing so has many advantages. When you receive an official pre-approval, the interest rates remain valid for 90 to 120 days. If interest rates rise in that period, you can save thousands of dollars over time. Additionally, getting pre-approved shows sellers that you are serious and willing to go the extra mile.

If you decide to get pre-approved, Orchid Financing will work one-on-one with you to look over your financial portfolio and vet it against a vast network of over 80 lenders to find the perfect mortgage product for you. Contact Us today to schedule a free consultation with our professional team.

Finding a Property.

Once you have received pre-approval for a mortgage, it is easier to find a property. While searching in your price range, it is important to consider the location, size, and neighborhood dynamics of any home you select. Once you find a property that suits your needs and wishes, it is time to make an offer.

Finalizing the Details.

To approve you for a mortgage, your lender will conduct a financial background check to gauge your eligibility. You may be able to skip this step if you have a pre-approval, but each lender’s decision is at its own discretion. The factors that can affect approval include:

Proof of income – your lender will ask you to provide several types of documentation, including your employment history and income tax statements. If you are self-employed, you may also need to provide a business license, tax statements, incorporation documents, and T1 general forms. Your lender is trying to ensure that you have the means to make your monthly payments by looking for stable cash flows.

Credit score – Your credit score is an important factor in obtaining a mortgage. Whilst a high score seems attractive but score alone doesn’t mean anything to the lender as they are looking for a combination of score and number of enquires as well as your history of repayments etc. Lenders want to see that you pay your bills on time and don’t have a history of excessive borrowing. A low score makes you a riskier borrower in the eyes of lenders. In Canada, credit scores range from 300 to 900, the higher your score, the better. However, some private lenders may waive score requirements for borrowers who hold lower scores; these borrowers may be charged more significant interest fees to justify the increased risk.

Debt-to-Income Ratio (DTI) – The Debt-to-Income Ratio is the total sum of your minimum monthly debt payments and your gross monthly income, divided by twelve. It is a metric used by lenders to determine the strength of your cash flows and predict your ability to make your monthly payments successfully.

Closing the Deal.

After you receive lender approval, you will attend a closing meeting with your solicitor, where you can ask last-minute questions about the agreement. You will need to bring a valid form of ID and a Closing Disclosure. Reviewing the contract and signing completes the purchase process, officially making the property yours.

Tips for Increasing Your Chances.

Save money for a down payment.

When you purchase a home, you will need to put down a sum of cash upfront. This is called a down payment.

If the home you purchase is worth less than $500,000, you must put down 5% of the price. If the home you purchase is worth more than $500,000 but less than $1 million, you must put down 5% of the first $500,000 and 10% of the amount that surpasses $500,000. If the value of your home is over $1 million, you must put down at least 20% of the asking price.

Although homes under $1 million allow you to put down a smaller percentage of the asking price, any down payment under 20% of the home’s value must be accompanied by mortgage insurance that protects lenders if you default on your loan but can cost thousands in long-term costs to consumers.

The best way to save money on your payments is to put down as much down payment as you can afford and give yourself extra time to save up some more money before purchasing your new home.

Maintain a stable income.

When a lender approves your loan application, he or she wants to know that you will be able to make the required monthly payments. The most important factors in making this assessment are your income and employment history. Having a stable job or being with the same employer for a long time demonstrates that you have access to a steady cash flow; it also proves your commitment to your job because senior employees are less likely to be let go from their jobs.

If you are self-employed, you may have a harder time proving the stability of your income. The best advice in this case is to gather all company documents, including documents of incorporation and quarterly income statements, and work directly with a Orchid Financing team to find the best lender for your situation.

Pay off your existing debt.

Lenders will consider your debt-to-income ratio when evaluating your mortgage application. The greater the debt you have, the less money you’ll have for your monthly mortgage payments. Paying off existing debts prior to applying for a mortgage will greatly increase your chances of success. Additionally, timely repayment of debts will improve your credit score, which will make it easier for you to obtain future loans and credit.

Review your credit report.

To improve your chances of getting approved for a mortgage, it is important to understand how your credit score will be used by lenders. A credit score is a number that represents the likelihood that you will repay a loan according to the terms and conditions set out in your mortgage contract. Credit scores range from 300 to 900, but 680 or higher is ideal because it shows that you have the capacity to repay debt.

If your credit score is lower than you’d like it to be, you now have the opportunity to raise it before applying for a mortgage. The easiest way to improve your score is by using 10% of your credit limit on a credit card and then immediately paying the balance in full. You should repeat this action several times to ensure timely repayments while watching your credit score rise over time.

Consult with an expert.

Working with a professional mortgage broker can mean the difference between getting the right loan and getting into trouble. We’re here to help you find the right mortgage lender, whether you’re buying a home or refinancing your existing property. Our team is highly skilled and has access to over a hundred different mortgage products through our network of lenders. We will work with your best interest in mind and find a loan that meets your unique requirements.

If you are ready to begin looking for a mortgage, Contact Us today for a free consultation!