As a home buyer, what do you do if the appraisal value of the property is too low? In this post, we discuss your next steps.
What factors impact your mortgage approval?
As you prepare for the mortgage approval process, make sure you take some time to consider the factors that will affect your experience. The more you understand about the approval process, the better you can prepare for it. Here are five items that impact a borrower’s mortgage approval!
Potential lenders will be closely examining your credit score. This piece of information gives lenders a view into your financial situation. As you likely know, your credit score can fall anywhere between 300 and 850. The higher your score, the better, because high scores imply you have good credit habits. This includes things like repaying loans and making payments on time.
For most lenders, a score of 650 or above is required to secure a mortgage with lower rates. High scores provide reassurance in your ability to make mortgage payments. If you’re not sure what your credit score is, you can check on Equifax or TransUnion. Many banks also allow you to see your score on your online account. If your score is on the lower end, it’s worth taking some measures to bump it up before applying for a mortgage.
Similar to your credit score, your credit history can also tell a lender a lot about how you manage your finances. Your history will reveal how consistent you are with making payments, whether you make payments on time, and if you ever miss payments. Your credit history, of course, heavily influences your credit score. If your history is dotted with late or missed payments, this tells a lender you may not be the most reliable candidate for a mortgage. It’s important to build up a solid credit history before applying for a mortgage. You can always take some time to focus on creating a strong credit history for lenders to look at before you approach one for a loan.
A mortgage is a debt, and it’s one of the largest debts you will ever have to pay off. With that in mind, lenders want to know you have the ability to manage your mortgage payments. Part of that depends on what other financial obligations you have. The more debts you have, the more you need to prioritize your money and the riskier it is for lenders.
Most of us have some form of debt, whether it is a mortgage, a car, or credit cards. The key is being able to manage your debts so lenders won’t see you as a potential red flag. It’s important to limit the debts you have, particularly around the time when you want to secure lender financing. If you have any big buying plans apart from your future mortgage, consider putting them on hold if they aren’t absolutely necessary. Generally, your debt-to-income ratio should stay below 40 per cent. This tells lenders you have the ability to take on another loan.
Income and employment
It’s no surprise that lenders want to know how much money you have before they can give you a mortgage approval. Your income reveals how much you make, and your job history shows whether you have steady and consistent employment. Someone who has had the same job for several years and makes consistent income is a good candidate for a mortgage. Lenders like predictability when it comes to mortgage financing.
If you are self-employed or are not sure how your income and job history fit in with traditional lender requirements, it’s important to reach out to us. We can discuss your mortgage options and the different types of financing that might be appropriate for you.
Finally, we arrive at your down payment! This upfront cost must be at least five per cent of your home’s purchase price (with some exceptions). Higher down payments mean lenders are financing a smaller mortgage, and will likely give you more favourable rates on your mortgage approval. You will often find that those with larger down payments have the most mortgage options. Buying a home with a smaller down payment is certainly possible, and it likely means cutting down on the time you need to spend saving. However, keep in mind that down payments below 20 per cent require the purchase of mortgage default insurance. It may also limit your mortgage approval options somewhat. Each borrower is unique, so we recommend using a mortgage professional to help you design the right path.
Your mortgage approval depends on many moving factors, many of which are related. If you have excellent, or poor, credit history, for example, that may affect the other factors lenders consider. Building a strong borrower profile and presenting the best financial version of yourself will help ensure you secure a mortgage approval.
If you have any questions about your mortgage, give us a call at Centum Home Lenders! You can reach us at 506-854-6847, or get in touch with us here.