Contents
Breaking into the housing market is an especially exciting time for first-time buyers. It’s a process that follows a similar pattern, even if you are a veteran homeowner. But before you get the keys, and ideally before you start house hunting, you’ll want to qualify for a mortgage. In simple terms, this is a loan that allows you to purchase a home at an agreed price, and over a period of time, you will make payments on the amount you borrowed to the lender with interest.
Some calculation tools exist online to take into account similar factors that a lender considers before approving you. However, they usually only focus on that specific institution. For example, some tools may only cover a specific bank’s requirements for a mortgage. This can be stressful if your results say you aren’t qualified.
If you’re asking yourself, “how do I qualify for a mortgage in Ontario?” then know that I’m here to provide answers! Let’s go over the details that lenders are most interested in.
One of the first things lenders will take into consideration is your income. Many prefer a stable, full-time position that can reasonably demonstrate your ability to afford the necessary payments that come with owning a home. This benchmark also acts as a way to acknowledge your debt as it relates to your earnings.
Lenders may hesitate to approve you for a mortgage if your income is fixed and you have a considerable amount of debt. This is because you may not have enough money left over to make additional monthly payments. Your wages should also be well documented to ensure your current role will not be eliminated or unprofitable in the future. In addition, your income can set a precedent for how much you can afford when buying a house, which is usually set at four times your annual salary.
When it comes to any kind of loan, credit is a vital indicator that lets banks and other lenders know how reliable you are. Credit is accumulated by paying bills on time and oversees accounts that you’ve opened, closed, and the ones that you are making ongoing payments towards. Generally, lenders look for a credit score of 680 and above as an essential component of conditions to get a mortgage. The higher your score, generally the lower your interest rate, which can save you thousands in the long run.
My advice is to get your debt on track as best you can and really focus on alleviating significant amounts of it before entering the market. While the amount you owe doesn’t have to be at zero, the fewer monthly payments you have to make will make a difference when you decide to start looking for a home.
Saving for a down-payment is often the first step that future homeowners make when they decide to buy. Putting away a little every month can really add up, which is important considering that you’ll need a minimum of 5% of the purchase price for a home under $500,000. After that, you’ll need an additional 10% for more than $500,000. This percentage increases again for properties over $1,000,000. Lenders consider this amount your personal investment into the house or what you are willing to put on the table. They also want to ensure you put aside another 1.5% for closing costs and other fees. If you have a good standing in other areas but are missing this component, you may consider a gifted down-payment as an option.
Regardless of the lender you work with, they likely have types of properties that they consider acceptable for mortgage purposes. While you might be interested in living off the grid on an undeveloped piece of land, some lenders may hesitate to approve a mortgage for this kind of property. In general, single-family homes are ideal for first-time buyers as there will be more competition and available lenders, allowing for more mortgage rate options and real estate inventory accessible to you. These dwellings also have finer details that can be readily assessed by the lender, such as their condition, comparable pricing, and location.
Navigating the waters of qualifying for a mortgage can be stressful. Dealing with the details all on your own could leave you shopping around for the best interest rate or searching for someone who will approve you. However, with an experienced mortgage broker in your corner, you’ll feel supported by a more diverse group of lending options. A comprehensive look at these choices will save you valuable time, especially when it comes to searching for your new home.
I am happy to provide my expertise and advice if you're wondering how to qualify for a mortgage in Ontario. Whether you have recently changed jobs, are dealing with unpaid property taxes, or are struggling to pass the stress test, we can work together to find a solution that works for you. Ready to get started? Contact me today.
Andrew Thake is a seasoned mortgage broker with over 15 years of industry experience. He’s assisted more than 2,200 clients in finding their ideal mortgage solutions. Recognized for his excellence, Andrew has received high honours and awards, including the National Rookie of the Year from TD Canada Trust and recognition as a Top 10 Ottawa Mortgage Broker in 2023. He has also been inducted into the Hall of Fame at Dominion Lending Centres and has consistently received their Platinum Award during his tenure as a mortgage broker.
Andrew’s dedication lies in serving his clients and prioritizing their needs with an empathetic approach. Throughout the application process, he provides tailored, informed, and efficient services to ensure the best mortgage solutions for his client’s unique circumstances. The best part of Andrew’s job is when he gets to see the joy on his clients’ faces following their mortgage approval.