Posted by: MonsterMortgage.ca
Home ownership is one of life’s most significant milestones, and whether you are an established immigrant or a Canadian native, you will need to consider whether or not you can qualify for a mortgage once you are ready to take this big step. Lenders will be mindful of three main factors when considering whether or not you qualify: your credit score, down payment, and debt servicing capacity. Read on for a beginner’s introduction to each of these vital measurements of mortgage viability!
1. Credit Score
Credit scores in Canada range from 300-900, with ideal candidates falling between 680-900. Canadians who find themselves in this top-tier credit range will easily satisfy the requirements of any major lender. Canadians falling between 600-680 have average credit, and their chances of qualifying for a mortgage depend on the other details of their applications. Canadians with a score resting below 600 can still qualify for a mortgage, though they will often be relegated to B-level lenders at higher rates.
What determines your score?
There are two main factors that determine your credit score. The first factor is relatively simple, depending entirely on how prompt you are with bill payments. If you pay your monthly bills on time, you are well on your way to achieving a strong credit score. The second factor involves the ratio between your credit balances and credit limit. Essentially, you want to be sure that your balances are low; if you have a $1,000 dollar credit card limit, you want to keep your balance under $500, or 50% of that limit.
2. Down Payment
Down payment amounts can vary wildly depending on your citizen status, and your intentions for the property. If you are looking to avoid paying CMHC insurance, or are treating this property as a rental or investment, your down-payment percentage may stray as high as 20%. Conversely, if you are an immigrant qualifying for new-to-Canada mortgages, and plan to occupy the home yourself, you may be eligible for a mortgage down payment percentage fo 5%. It is important to research your down payment thoroughly, as a number of criteria exist to qualify for a new-to-Canada mortgage. Visit MonsterMortgage.ca to learn about how your down payment will be calculated.
3. Debt service ratios
The third and final factor that lenders look at when considering whether or not you qualify for your mortgage is your debt service ratio. First, your household’s total annual income will be calculated. The lender will then compare this income to the monthly expenses that the household incurs, such as student debt, car payments, or credit card debts. The lender will create a ratio by comparing your income and expenses to discern whether or not you will be able to service the purchase of a home once mortgage payments and property taxes begin to add up.