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Qualifying for a Mortgage

Real Estate 101

If you're in the market for your first home, you might be wondering what factors lenders looks at when determining if you qualify for a mortgage. See our quick blog here to learn more about this process.

It’s been said that most lenders look at 5 factors when determining whether you qualify for a mortgage. These include the following:

1. Income

Lenders will look at how much you earn including income from bonuses, commissions and overtime, which can vary from year to year. If these sources make up a large proportion of your income, lenders will want to know how consistent or reliable they are.

Lenders will also look at other sources of income — including retirement or veteran’s benefits, disability payments, alimony, child support, and rental or investment income – provided they can be verified with a two-year history.

2. Debt

Your lender will also consider other short and long-term debts, such as car loans or college loans. Lenders will also review your credit history – aka: Do you pay your bills, loans, credit cards and other debt on time?

Your credit history and credit score also determines what interest rate you pay.

3. Employment History

A history of steady employment, usually within the same job for several years, helps you qualify. But a short history in your current job shouldn’t prevent you from getting a mortgage, as long as there have been no gaps in income over the past two years. Every situation varies and your lender will be able to explain these further to you.

4. Personal assets

Lenders will look at your income, but also your personal assets. This includes (but is not limited to) the following:

  • Current balances and recent statements for any bank accounts, including checking and savings
  • Most recent account statement showing current market value of any investments you may have, such as stocks, bonds or certificates of deposit
  • Documentation showing interest in retirement funds
  • Face amount and cash value of life insurance policies

Value of significant pieces of personal property, including automobiles

5. Value of the Property you wish to purchase.

Your lender will look at the cost of the property versus your income and debt and will determine if you can afford to pay the monthly repayments as well as all your other living costs such as utility bills, child care etc.

The size of your down payment affects the amount of your monthly mortgage payments. A smaller down payment will mean your monthly mortgage payments will be higher, but it may allow you to buy sooner rather than later.

Don't forget closing costs such as land transfer tax, legal fees, building inspection, home insurance and Realtor fees, which can amount to 1.5% of the purchase price.

Again, every situation is unique and that’s why your lender needs to have all this information is order to make the final assessment.