| Mortgage SERVICES – GETTING STARTED |
We believe that each and every client has exclusive home mortgage needs and our goal is to ensure our expertise creates a mortgage loan that’s right for you!
The first step in getting the mortgage process started involves understanding what lenders are looking for in order to get mortgage approval.
All lenders underwrite and approve mortgage loans using the same criteria and it is important for you to understand what is reviewed in order to provide you with the best features and available rates.
The approval process is called the Five C’s of credit and they consist of:
- Collateral– the property itself
- Credit – the borrower’s repayment history for all loans
- Capacity – the borrower’s ability to pay
- Capital – the borrower’s net worth
- Character – the borrower’s willingness to repay the loan and their reliability
Collateral reflects the strength of the property itself. Lenders look at if the property is owner occupied (do you live there) or is it a rental dwelling? Is the property a home, condominium or cottage? Is the property located in a metropolitan neighbourhood or a rural area? Is there a single family living in the home or multiple families?
All these factors are considered by the lender for marketability when rating your property.An appraisal is one of the tools that will be used to assess the value of the property.
When you borrow money, your repayment history is reported to the credit bureau - this rating is called your BEACON score. How you pay … always on time, maybe sometimes a few days late, will determine what type of credit rating will apply. Some other factors that affect your credit rating are if your credit card balance is greater than 85% of the credit limit, if an account has gone to collection, or if there have been multiple inquiries into your credit.
What is capacity? You may have heard the terms GDS – Gross Debt Servicing Ratios and TDS – Total Debt Servicing Ratios …. these ratios indicate how much debt you can carry based on your household income. The lenders focus on your employment status - if you are salaried, commissioned, self employed, full time, or part time - to determine what types of documents are required to confirm your income and how to qualify your capacity.
Capital refers to your personal net worth and how much equity you have in the property. Your equity is calculated using the current market value of your home divided by all outstanding mortgage balances. There are different types of mortgage products to facilitate the amount of equity in your home - conventional or high ratio mortgages.
Character is a subjective rating and basically reflects a combination of all of the above factors. Some other points to consider are how long have you lived at your current residence? How long have you been at your job and how long in that specific industry? What is your martial status? Do you have any payment obligations for child support? Your character tells a story to the lender about your unique situation.
