Owning a home is an exciting experience. Applying for a mortgage—not so much. If you’ve been turned down before, you know it can be tough. If you’ve never applied, know there’s the chance you may not be approved.
You have so many things to think about already: competitive interest rates, saving for the down payment, and finding the perfect home—who has time to worry about the actual application process?
Prepare yourself as best as you can before starting the application process. Good preparation and planning are key to getting approved.
Follow these 7 tips to give yourself the best chance at getting approved for your mortgage.
1. Know Your Credit Score
Your credit score is a glimpse of your overall financial health. Each score falls under one of five categories: Poor, Fair, Good, Very Good, and Excellent. Lenders use your credit score to determine how big of a financial risk you are—the higher your score, the better chance you’ll have at getting your mortgage approved.
When lenders get your credit score, they’ll also have access to your credit report. This is a snapshot of all your accounts, how much debt you have, if you pay your bills on time, and how long you’ve been building your credit for.
To reach a higher credit score—always pay your bills on time, don’t apply for store or credit cards you don’t really need, and try to keep at least 70% of your credit available at all times.
Bonus: People with higher credit scores usually get better mortgage rates.
2. The Bigger the Down Payment, The Better
Having a larger down payment means having to borrow less. The less you need to borrow, the more likely your mortgage application will be approved.
You’ll also need to have a minimum down payment available before the lenders will even consider your application. In Canada, this means having one of three things:
- A home valued less than $500,000 requires a minimum down payment of 5%
- A home valued between $500,000-$999,999 requires a 5% down payment on the first $500,000 and a 10% down payment on the remaining amount
- A home valued over $1,000,000 requires a 20% minimum down payment
Bonus: Borrowing less money means paying less interest.
3. Do Your Research
Yes, it’s more work.
But the extra time and effort you put in to ensure you get the best deal makes it all worthwhile. Compare all available loans, rates, and lenders inside and out, before making any financial commitments.
Bonus: Better mortgage rates means lower monthly payments. It also means having a better chance at getting your loan approved.
4. Don’t Quit Your Day Job
Mortgage lenders want assurance that you can make your payments. And having regular, stable income is the best way to prove it. A full-time job guarantees long-term income—especially if you have several years to show for it.
If you’re applying for a mortgage with your significant other, you can increase your odds of getting approved if both of you are employed full time.
Being self-employed can make the application process a little more difficult. Best advice here is to look into getting a mortgage broker who knows all the ins and outs on preparing the best application possible for the self-employed.
Bonus: You have a better chance at getting approved with lower interest rates if your employment history has been stable (not a lot of job-hopping in short periods of time).
5. Pay Down Outstanding Debt
The amount of outstanding debt you have holds lots of power. In fact, it can make or break your mortgage application: it can determine your eligibility, how much you’re able to borrow, and what your interest rate will be.
If you can’t pay your existing debts in full, always try to pay more than the minimum payment. And when you know there’s a mortgage application in the foreseeable future, try to keep your debt levels to a minimum.
Bonus: Paying down existing debt will make your monthly mortgage payment a little easier on the pocket.
6. Get Pre-Approved
The financial institution you deal with will evaluate your current financial position and pre-approve you for a maximum mortgage amount, length of term, and interest rate.
They factor in several considerations when determining your pre-approval:
- Current employment and amount of income
- Debt-to-income ratio
- Your credit score history
- An evaluation of your assets and liabilities
- The amount of down payment you have
These pre-approvals come with an expiry date: you have about 90-120 days to find a home.
Bonus: Being pre-approved for a mortgage means narrowing your search down to homes that are in your approved price range. And when you find one you like—you can submit an offer without delay since you’ve already been pre-approved!
7. Be Completely Honest with Yourself
Only you know your personal daily/weekly/monthly expenses. And if you don’t, you need to sit down and do your homework.
Your lender may come up with a mortgage that’s higher than what you considered. And although it may be tempting to look at houses at the maximum mortgage amount, keep in mind all the additional expenses that are yet to come: closing costs, home inspections, property taxes, upkeep and unexpected repairs.
Bonus: As long as you’re honest with yourself and make realistic decisions, you shouldn’t have to change your lifestyle or make drastic cuts with things you love or things you love to do.
The Takeaway
The key to getting approved for a mortgage is getting yourself financially healthy. And having a knowledgeable agent can help you get there.
Get your credit score as high as possible, save money, do your homework, try to guarantee your income, pay down existing debt, get yourself pre-approved, and lastly, be honest and realistic with yourself on what you can and can’t afford.
Are you ready to start the mortgage approval process? Let my network of mortgage brokers help you find the best rate possible. Get in touch with me today to get started!
Hi, I’m Joel, a real estate professional based in Toronto.
My approach is simple—I put you first. I believe in open communication, total transparency, and meaningful results. I’ll guide you through the real estate process, market values, and always keep the focus on you—and your needs.