Credit
The first thing that Lenders look at when they review your mortgage application is your credit score and repayment history. Lenders don’t like taking risks and expect that past performance indicates future action.
If you have past credit issues without explanations (e.g. identity theft), fewer lenders will offer you a mortgage and those that do won’t offer you interest rates that are as competitive.
A number of credit tracking services are available. They are a great way to keep an eye out for major transgressions like identity theft. That said, the number you see is not what the Lender will use when adjudicating the file. Lenders see detailed reports that consider a number of factors.
When a lender ‘pulls’ your credit history, it is known as a “hard hit” and it deducts points from your score. Be careful not to have too many hard hits if you are thinking about buying a home in the near future. These include:
- Applications for a car loan
- New credit cards
- Cellphones and other contracts
Income
The federal government has pre-determined ratios that Lenders need to meet before they can lend money for a mortgage. In recent years, a Stress Test has been added to that qualifying. We talk about the stress test in Mortgages 101. The stress test is meant to screen out borrowers that wouldn’t be able to pay their mortgages if interest rates went up.
Another unique area of income-qualifying is for the self-employed. The government has implemented a more rigorous set of qualifying standards and documentation requirements. What a Lender might value in documents from a self-employed person is different from how their accountant might prepare their tax return, so it is good for the self-employed to review their situation with their mortgage professional well in advance.
Property
Lenders evaluate a mortgage for a property in the same way that you evaluate a home’s neighbourhood, history, age and cost. And like two buyers, two Lenders can value the same property differently. This means that each mortgage is unique for each property for each lender.
Lenders can have a lengthy (and private) list of considerations. These can include electrical systems, problematic plumbing to civic and historic property designations. A Lender will normally require an Appraisal (a third party valuation of the value of the home) and may need to see other reports, such as potable water, electrical or other systems.
Borrowers need to understand that the Lender is their “partner” in the purchase – especially early in the mortgage when lenders typically have more invested than the buyer. They want to jointly invest in a property that is reasonably problem-free and that you can make regular payments on without trouble.