As a borrower, your income, credit history and the quality of the property you are buying are used to determine whether a you can be approved for the mortgage your required. If you are a business-for-self borrower, click on this link for details on business-for-self mortgage.
The following information is applicable to borrowers who are salaried employees applying for a home mortgage.
1). Your ability to make the monthly payment
A mortgage lender examines the past and present annual gross income of a borrower, and the likelihood of him receiving this income in the future. This helps determine whether a borrower can afford to make the monthly mortgage payment for the full term of the mortgage.
A mortgage may be a conventional (with 20% down payment) or high ratio mortgage (less than 20% down payment). Mortgage approval by mortgage lenders involves the examination of a Borrower’s ability to service the mortgage loan:
Gross debt service ratio(GDSR) and Total debt service ratio (TDSR)
GDSR is your monthly payment on housing costs including principal, interest, property taxes, utilities and condo fees if any, should amount to no more than 32% of your gross monthly income. TDSR is your total monthly debts payment including housing costs, credit cards, line-of-credit and loans should be no more than 40% of your gross monthly income.
2). Your credit worthiness
The credit history of a borrower can affect a borrower’s application for a mortgage. All banks review borrowers’ mortgage applications and examine borrower’s credit history and credit worthiness. If you have poor or bad credit history, your bank may not approve your application for a mortgage. Click here for information on repairing your credit.
3). Quality of the property as security
Your mortgage approval is also affected by the quality of the property you are using as security for the loan. The property has to be suitable and offers adequate values as collateral/security against the mortgage loan. Leaky Condos and properties previously used for grow-ops (and not rectified and certified as habitable dwellings) are not likely to be approved for mortgage financing. Properties in poor repairs may also not acceptable as securities for the mortgage loans.
Down payment confirmation
The source of funds for the down payment is required to be from borrower’s own resources. This could be from accumulated savings, sale of existing property or gift money from family members so long as there is no requirement for repayment. In addition a is required to show closing costs in the amount of 1.5% to 3% of the value of the property.