So you’re ready to buy a condo, but before you do, if you’re like most people in Toronto, you’ll probably need to qualify for a mortgage first. I sat down with Chris Candusso, a mortgage agent with the Capital Lending Centre to get some insight on the most important things lenders are currently looking for when qualifying a buyer. Here are three of the most important things to keep in mind before you even think about looking at a condo!
1. Income
Know how much you make and how much current debt you have. Start by jotting down your monthly income and then make a list of all your monthly debt payments ie. your car payments or if you’re still paying off your student loans from when you graduated 10 years ago, ugh.
Lenders will want you to send them copies of two weeks of your most recent pay stubs so start saving them now and stop using them as kindling to start fires. If you’re self-employed like I am, or you’ve got a cool Etsy shop that sells T-shirts with dinosaurs on them which only sell in the summertime for some reason, you may have to submit a copy of your latest tax return or two. The reason for this is that the lender wants to get an idea of your average income.
The reason lenders want this income information is to determine if you fall within a certain ratio that lenders use that helps them determine how much of a mortgage payment you can afford. If you’re saddled with big debt like credit card balances, child support, lines of credit or other types of loans, that can negatively affect the size of mortgage you can qualify for.
The best thing you can do here is to pay off your debts and keep your balances to a minimum.
2. Credit Score
Don’t even think about applying for a mortgage before you are able to get a hold of your credit score. While you’re at it, you might as well get your credit history report as well, just so you can see if there are any mistakes. In this day and age, you just never know if someone stole your identity and went on a shopping spree at Club Monaco when you know you wouldn’t be caught dead wearing Club Monaco. Now, because of all this, you can’t buy a condo, and the only person who’s happy is the Club Monaco sweater wearing thief with a new wardrobe. Make sure to verify that the information found on the report is correct and that there are no errors showing that you were late on payments or didn’t pay at all.
Credit scores can range anywhere from 300 to 900. If you’re in the 300’s, just stop. There’s no point in reading the rest. Just focus on working towards paying down your debts on-time and you will build up your score in no time! If you need help, try the Credit Counselling Society for free credit counselling. If your score is above 650 then that is typically considered to be a good score and you are considered a low default risk and lenders will usually work with you! The higher your credit score is, the better. Everyone should aim to achieve a credit score above 680 because that is typically what most “A” lenders look for. If you’re a baller, and your credit score is above 750 that’s even better because that’s when the lenders crawl to you. They literally kiss your feet, feed you grapes, and fan you with those giant leaves just so you’ll consider using them. The moment your score falls under 650 or even 600, you may still qualify, but usually, the lenders will pretend they don’t even know you until you to get a highly qualified cosigner involved and then all of a sudden they’re your best friend again.
The main point is, get your credit score in order and you will reap the benefits like a much lower interest rate!
3. Down Payment
Your mortgage lender will want to see that you have saved enough money for a down payment. There’s really no way around it. The goal is to save 20% of the price of the home for a down payment because mortgages typically will only cover a minimum of 80% of the home’s total cost. Anytime you fall under the 20% threshold, a thing called “mortgage insurance” may be required. Mortgage insurance can increase the amount you pay per month so you definitely want to try to avoid it if possible.
The main thing to remember here is…save 20%!
Want to talk to me more about mortgages and getting pre-approved? Contact me.
