Seven Tips for Applying for a Mortgage Successfully
Are you looking for a home mortgage? Then avoid the following – they may make it hard to obtain financing.
Don't take on new debt – it worsens your debt-to-income ratio
- Don't buy or lease an automobile. Lenders examine your debt-to-income ratio. Large payments, like those for buying or leasing a car, can worsen that ratio, making you ineligible for the best loan terms or disqualifying you for the mortgage you need.
- Don't finance new furniture, major appliances, or any other big-ticket items for your new home. If these purchases increase your monthly loan payments, this could disqualify you from getting your mortgage, cut down on the funds available to meet closing costs, or force you to settle for less than optimal terms.
Maintain financial stability – sudden changes in personal finances and lifestyle could signal risk to a potential lender
- Don't attempt to consolidate bills before speaking with your mortgage broker. Any unusual financial activity around the time of a mortgage application must be documented and accounted for – needless bother when you'll have lots on your mind. Such consolidation could also negatively affect your credit rating. Your mortgage broker will advise you if consolidating your debts should wait until after your mortgage closes.
- Don't move assets between accounts. Like consolidating your bills, sudden asset movements suggest instability. Transferred funds or securities will appear in your account records as new deposits. To prove the legitimacy of the transferred assets, you'll have to disclose and document their source for each new account. Better to let your mortgage lender verify each account as it currently stands. You can consolidate your accounts later if needed.
- Don't change jobs. A new job may involve a probationary period, which must be completed before income from the new job can be considered for mortgage-qualifying purposes. If you have to change jobs, either out of necessity or because of an opportunity that was too good to refuse, keep thorough records documenting the change and the reasons for it.
Safeguard your credit rating – don't accidentally impair it when dealing with lenders
- Don't let multiple lenders check your credit history and rating. The frequency your credit history is checked can itself downgrade your credit rating, which could impact your ability to obtain financing. So don't let multiple lenders each request a credit check. A qualified mortgage broker will check your credit score only once and supply this information to multiple lenders as needed.
- Keep the information you'll need at your fingertips – be prepared to document any information provided to a lender
- Don't pack or ship information needed for the mortgage application. Physically preparing for your upcoming move is prudent, but don't go overboard when archiving your records. Important records, such as T4s, divorce decrees, tax returns, and account statements, should be kept aside and readily available. Duplicate copies can take weeks to obtain, which could delay the closing date of your transaction.
Finally, once you get your mortgage, don't buy mortgage insurance. It represents overpriced protection and a poor investment. If your assets wouldn't pay off your mortgage should you die, consider buying lower-priced term life insurance to give yourself and your loved ones peace of mind. For further details, see our article on mortgage insurance.
Lots of useful information on home hunting and applying for mortgages is available on the web. A good information source for Canadians is the Canada Mortgage and Housing Corporation (CMHC–SCHI) website. CMHS is a crown corporation "committed to helping Canadians access a wide choice of quality, affordable homes." Their website is at www.cmhc-schl.gc.ca.