When you decide that it is time to purchase a house for you and your family it can be an incredibly exciting time, but the process of being approved for a mortgage so you can have the funds to buy that home can be complex and even a little stressful. Getting a pre-approval for a mortgage before you make any offers is a great way to know exactly what a lender is willing to give you and how much you can spend.

Here are four tips to help you better prepare for qualifying for a home purchase.

Get all your documentation together (and make copies)

A lender is going to want to check, and double-check, almost everything about you to make sure they know exactly to who they are lending this money. You will need to gather a bunch of important documents, like

• Proof of income
• Any current mortgage or rental documentation you may have
• Proof of any other large assets you own (like vehicles or other properties) to help the lender ascertain your net worth
• Recent financial statements about investments and your bank accounts
• Statements about any debts you may currently owe
• Documents about any long-term financial commitments you may have like child support or alimony

Make sure you have a good credit score

When it comes to borrowing money, your credit score will be everything you need to secure money – or it could hurt your chances of borrowing. This is essentially a report on how well you’ve handled your other financial obligations to make sure you pay the bills you currently have.

If you don’t have a good credit score you may end up having to borrow the money at a higher interest rate, at least for the first term of your mortgage until you can establish better credit.

Start by checking your credit report with the major credit bureaus Equifax and TransUnion and if there are any errors, report them so they can be cleared up. Maintain and build your credit by ensuring that you are making at least the minimum payments on your debt obligations each month and that you are making those payments on time.

Understand your debt service ratio

This calculation shows how much money you are bringing in versus how much debt you have. The lender takes this information into account when determining the maximum mortgage payment you can afford to have every month. This calculation also takes into account obligations like maintenance and property taxes. If you have too much debt, the lender may determine that you cannot borrow enough money to buy a house. There are regulations in Canada as to how high the debt service ratio can be and where lenders are not allowed to give borrowers that much money.

Figure out how much your down payment is going to be

With any home purchase, you will need to kick in a down payment. This is cash that you have in your bank account or readily available to transfer, You will need to have at least 5% of the purchase price as a down payment, and you can then finance the remaining 95% of the purchase price.

If you have 20% or more of the purchase price as a down payment, then you can avoid having to pay the CMHC insurance fee. If you have less than 20% then you may be considered more of a risk to the lender, so your mortgage is then insured by CMHC.

Call me today

If you are ready to take the plunge into homeownership, I can help you get pre-approved for a mortgage. Call me today to set up an appointment.