To say that your requirement for visiting a mortgage broker is to get qualified for a mortgage would be stating the obvious. What is not obvious is the process the mortgage broker goes through to get you approved. Mortgage qualification is not an exact science, there for it is important to deal with a mortgage planner that understands the intricacies of the process. The lender is in a position where they are trying to do everything they can to get you approved, however they must protect their investment by analyzing the risk factors present. It is difficult, if not impossible to determine each risk factor for every customer, so the lender will lend based on some general rules and regulations they impose on their customers.
Understanding your credit bureau
This 3 digit number may be the most important number in your life. Your credit score ranges from 300 to 900 and may be the single largest risk factor the lender will evaluate. Your credit bureau tells the lender what your payment history looks like, including past delinquencies, and derogatory behavior. It will also indicate how much credit you have required to carry on day to day life, any current credit conditions that need to be repaired, in addition to many other factors. Put simply, that 3 digit number can determine if you get approved, what your rate is, and who your lender is. Your Axis Mortgage planner will analyze your credit score and indicate what it means for your qualification.
Poor credit is not something to hide from, it is something to tackle head on and try to repair. The fact is poor credit does not go away, or at least not quickly. Most credit (good or bad) will remain visible on your bureau for up to seven years. The fact that you may have past or current credit issues does not mean that you cant be approved. In today’s competitive mortgage landscape there are many lenders who specialize in products for credit challenged customers. If an approval occurs you may be faced with a higher rate than if you had clean credit, or you may have a minimum time frame requirement as a customer of that particular lender. It is important to understand the restrictions that may be placed on you as a result of credit risk. It is also very important that you are willing to work with your Axis Mortgage planner to help repair your credit so you are in a better position the next time you need to qualify for financing. Our unique “Dollars and Sense” program may be exactly what you need to help get you on the right track.
Our mortgage planners know that customers often have credit issues for short time frames in life. Whether it be because of school, emergency, job loss, divorce, or other factors your mortgage planner will make the necessary arguments to the lender to convince them it was an isolated time in life and it will not be repeated. The bottom line is if you have had a short time frame in life where credit issues occurred don’t give up, we are likely to get you approved.
If you have a beacon score of at least 620 you are likely eligible for our “A” products and rates. If your beacon score is 680 or higher you are most certainly in a position to receive these “A” products.
Your type, length and position will be a factor in determining your approval. If you are paid salary and have worked consistently with the same employer or at least in the same industry the lender may look more favorably on your employment than if you are paid hourly, work inconsistent hours, and have moved from company to company or industry to industry. This level of inconsistency is viewed by the lender as an indication you may not be able to meet your mortgage requirements.
Similarly you may be punished if you are self employed or commissioned. Most self employed or commissioned employees are aggressive with their tax deductions with Revenue Canada. As a result their taxable income is often much lower than they actually make. This taxable income is what will be used to qualify you.
On the other hand, based on a larger down payment (min. 10-15%) and good credit (680 beacon score) you may be rewarded for being self employed. In this scenario your Axis Mortgage planner may be able to attain an approval from a lender that allows you to “state” your income in order to qualify. This will eliminate the problem of taxable income. Most lenders require that you be self employed for a minimum of 2 years in order to be eligible for this type of package.
We have already determined that your beacon score may be the most important number in the qualification process, however once we have determined you are credit worthy the debt service ratios become the most important thing in determining how much you can qualify for. Debt service ratios are determined by your combined household (including cosigners or guarantors) income and your combined household debt and projected house related expenses. Your credit score will determine what debt ratio guidelines we are able to use for your qualification. A general rule of thumb is that your monthly housing expenses, which include the mortgage payment, property taxes, and heating costs can’t exceed 35% of your gross monthly income. In addition to these housing costs the lender will also add your monthly commitments to other debts such as car payments, credit card payments, or personal loans and that total amount can’t exceed 42% of your household income.
If you visit your bank they will look at your potential debt and use the estimated monthly payment on that potential debt to calculate your debt ratios. At Axis Mortgage we look at your actual debt load and use that for qualification. Example: A $10 000 credit card at your bank will carry a $300/month payment regardless of what you owe. If you only owe $4000 we will use a monthly payment of $120 to determine what you qualify for. This is a dramatic difference and may allow you to qualify for the mortgage you need or not.
Your ability to borrow is directly influenced by how much down payment you have if you are purchasing a home or how much equity you are leaving in the home if you are refinancing. Less than 20% down/equity means that you are subject to default mortgage insurance. This form of insurance is provided by CMHC or Genworth and carries an expense to you. By putting less than 20% down the lender will determine that you are at greater risk to not pay your mortgage if times get tough. People are more likely to walk away from smaller values of equity than larger values. It is this risk that determines the lender’s requirement to have the loan insured. If you are able to put 20% down or greater you will invariably increase your chances of qualification and will also avoid the expense of this default insurance.
Down payment can come from many sources such as savings, rrsp’s and other investments, sale of goods, sale of home or gift from a family member. At Axis Mortgage we are also able to offer unique forms of down payment such as borrowed funds and cash backs from lenders. If you are concerned that you may not have the required down payment contact our office for clarification.