How to Get Approved for a Mortgage

How to Get Approved for a Mortgage

Some tricks for getting approved for a mortgage include borrowing less than what you can get approved for, put forward a larger down payment, boost your credit score, and make sure you have a steady income.

Are you ready to become a homeowner but do not know how to get approved for a mortgage? Fear not, because we are about to give you all the information you need to secure that mortgage and purchase the home you desire.

Getting a mortgage to buy a home will make the purchasing process more manageable. However, the application process can be stressful and difficult, especially if you do not know how to get approved for a mortgage. 

If you have not been paying attention to certain aspects of your financial situation, it could damage your chances of obtaining that loan. It is important to cover all your bases to avoid the rejection of your mortgage application.

Let us walk you through the most important factors for your mortgage application and save you the time and anxiety that often goes with securing a mortgage.

Plan for less than what you can afford

The first step to understanding how to get approved for a mortgage is knowing what you can afford. As you list options for your new or second home, be honest with yourself about your current financial state.

These are some questions you should be asking yourself: What are my living expenses? Am I paying off any existing debt? Is my job secure? Will there be a new addition to my family soon?

Answering these questions, and any others that may arise, can help you determine what you can afford. Consider whether you have the funds to take on this new financial burden. And to cover additional costs associated with the purchase, such as legal fees and land transfer taxes.

Knowing what you can afford will help you better understand how to get approved for a mortgage, especially if you look at it from the perspective of a mortgage lender. Granted, they will not take a microscope to certain details of your personal life, but they will scrutinize your overall financial health and your ability to take on additional debt.

Aiming for a property well below your financial limit will prove favourable in the long run.

Ensure a reliable source of income

There is nothing mortgage lenders love more than an individual with full-time employment. This ideal candidate poses no risk of default, and they come with the guarantee of regular, on-time payments.

If you fall within the freelance, part-time, or self-employment categories, you may be wondering how to get approved for a mortgage. Although having a full-time job is ideal, freelancers, part-time workers, and self-employed individuals are not immediately disqualified.

You, however, will need to provide concrete proof of your ability to repay your mortgage. As a freelancer, consider applying for a permanent role during the application process. 

If you are self-employed, there are unfortunately a few hoops to jump through. You must prove that, although you work for yourself, you are still capable of making regular payments. 

As your business will be considered more volatile, you must provide evidence of your income for the past few years, as well as other supporting details. The best way forward would be to contact a licensed mortgage broker to assist you through the process.

Having a stable and reliable source of income communicates your trustworthiness to lenders. Not only that, but your income can also impact your mortgage in terms of how much you can borrow, your agreement, and the interest rate.

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Save up for a down payment

Making a down payment is a requirement when it comes to buying property. A down payment is a lump sum amount you will be required to pay upfront based on the purchase price of your future home. It can range from five percent, up to twenty percent.

When thinking about how to get approved for a mortgage, it is advisable to consider the minimum down payment as merely a suggestion. If you can pay more on your down payment upfront it will benefit you in the long run. 

The larger your down payment, the less you will need to borrow in the end. The lower your overall mortgage the less interest and monthly repayments you will incur. You will likely also save on your monthly home insurance premiums this way too.

Considering the price of houses in Canada, however, one might consider this advice too optimistic. With homes in cities like Toronto priced at over a million dollars, it could be difficult to save for a 20% down payment in a short space of time.

However, that should not discourage you from attempting to save up for as large a down payment as possible.

Maintain a good credit score

Another important aspect that mortgage lenders consider regarding your finances, is your credit score. While building on your knowledge about how to get approved for a mortgage, you should keep this at the top of the list.

Your credit score is a value assigned to your name, which lets potential lenders and credit facilities know how responsible you are regarding the payment of any debt you might owe. Credit scores in Canada range from 300 to 900, with 300 being very poor and 900 being excellent.

Your credit score is an important indicator of your financial health. It is not just a hidden variable monitoring your credit purchases and payments. Lenders and creditors have access to this record, and it gives them a clear image of the level of risk involved when offering you credit.

good credit score reflects your creditworthiness, giving mortgage lenders confidence that you will not go back on your commitment.

A credit score between 660 and 725 is considered “good’. Maintaining a credit score within or above this range is ideal. Not only will lenders see you as less of a risk, but you will also qualify for favourable interest rates. 

When looking at how to get approved for a mortgage, pay special attention to where your credit score lies and how you can improve it.

If your credit score is below 660, you will need to work at improving your record before applying for a mortgage. That said, you could consider approaching lenders other than major banks. But bear in mind that you may be in for a higher interest rate due to the risk involved.

There are a few ways you can improve your credit score, such as paying any outstanding loans on time, reducing your purchases, and not over-extending yourself by applying for more credit than you already have.

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Keep your debt to a minimum

Keeping your debt low and maintaining a good credit score go hand in hand when understanding how to get approved for a mortgage.

Lenders will assess how much you owe to work out your income-to-debt ratio. This is a simple calculation that measures whether your income sufficiently covers your existing debt.

Student loans, car loans, and credit cards create debt commitments. A large amount of debt raises red flags when applying for a mortgage. Lenders might steer clear of an individual who has more debt than they can afford to pay.

What you want to do is repay your existing debt until it is at a manageable level. This does not mean you have to eradicate the debt altogether. However, paying off a large portion will ease the lender’s concerns about whether you have sufficient finances to allocate to your mortgage repayment. 

Bringing your debt down as much as possible will reflect well on your credit score. As you reduce what you owe, you can improve your credit rating and, essentially, take care of two mortgage approval goals at once.

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Consider a pre-approved mortgage

When investigating how to get approved for a mortgage, a pre-approved mortgage could be the way to go.

Obtaining a pre-approved mortgage will give you a clear idea of what you can afford, on paper, and what the bank is willing to lend you. Again, it’s best to aim for a figure below this amount, as this will give you some breathing room for unexpected expenses in the future.

A pre-approved mortgage will stipulate the maximum purchase amount you qualify for and will indicate the interest rate the lender is willing to reserve for you. 

The beauty of having a mortgage pre-approval is that, when you find the perfect property, you will be able to put in an immediate offer. This will reduce the chances of you losing out to another buyer due to delays in getting approval from lenders.

That said, even with a mortgage pre-approval in hand, you will still need to go through a final approval process to guarantee the loan. A pre-approved mortgage, therefore, does not outright guarantee final approval.

Despite this, we would still consider this a helpful step when considering how to get approved for a mortgage. Think of a mortgage pre-approval as training for the big race. If you keep your income stable and maintain your credit score, with a pre-approved mortgage in hand the road to mortgage approval will be easier.

Knowing how to get approved for a mortgage is just the beginning

Given everything you have learned regarding how to get approved for a mortgage, you must remember that buying a home is a big commitment. There are often other expenses that crop up after the purchase that you did not consider before. Ensure that you have some additional funds to work with for these unforeseen costs. 

Your dream of owning a home is within your reach if you follow the above advice explaining how to get approved for a mortgage. Remember to stick to what you can afford, ensure your income reasonably exceeds your debt, and maintain a credit score in a healthy range. Try to save for as large a down payment as possible and consider getting a mortgage pre-approval to set you on the road to success.

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FAQs about How To Get Approved For A Mortgage

What is the mortgage application process?

Before you proceed with the mortgage application process, make sure you save up for a down payment. The mortgage application starts with gathering important documents, compare mortgage loans, submitting an application to a lender and waiting for approval.

What documents do I need for mortgage pre-approval?
  • Proof of income
  • Statements from banks
  • A list of your current assets and liabilities
  • ID such as license or passport
How long does a mortgage pre-approval go for?

Normally, lenders will receive your loan application and it can take them up to two week to complete the pre-approval. In other cases when people’s financial situations and the property market can change, it can take between 3-6 months.

How much can I borrow for a mortgage?

It all depends on how much you earn, your daily expenses, liabilities such as credit cards and your savings history. Make sure to keep your debt to a minimum by reducing your use of credit cards to increase your chances of borrowing.

Can I get approved for a mortgage if I have bad credit?

Yes. There’s always the possibility for the rejection of your mortgage if you have a bad credit. It is recommended that you find ways to improve your credit score before applying for a mortgage.

June 16, 2021
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