With expectations of lower mortgage rates on the horizon, homebuyers are gearing up for what promises to be a robust spring housing market. As anticipation builds, many prospective buyers are eager to seize the opportunity to secure a mortgage and purchase their dream home before the market rebounds.
Qualifying for a mortgage can be challenging, but there are several strategies you can employ to improve your chances of success. From boosting your credit score to saving for a larger down payment, and understanding debt servicing ratios, you can enhance your eligibility for a mortgage and position yourself to capitalize on favourable market conditions this spring. Let’s review the strategies available:
Boost Your Credit Score: An effective way to improve your chance of qualifying for a mortgage is by boosting your credit score, an important part of mortgage qualifying that is entirely within your control. This can be achieved by:
- Make timely payments on existing debts. Set up automatic payments or reminders to avoid missing payments.
- Keep credit card balances low. Aim to keep credit card balances well below the credit limit. Avoid maxing out credit cards, as high credit utilization can lower your score.
- Try not to apply for new credit. Be cautious, as each application can be a hard inquiry on your credit report. Space out credit applications to minimize the impact on your credit score.
- Use different types of credit responsibly. Maintain a mix of credit types such as credit cards, loans, and lines of credit.
Lengthen your credit history. Keep old accounts open to demonstrate a longer credit history. Avoid closing old accounts unless necessary. - Regularly check your credit report for errors and work to address any discrepancies.
Have a Larger Down Payment: Saving for a larger down payment can significantly improve one’s chances of qualifying for a mortgage. Lenders often view larger down payments favourably, as they demonstrate financial stability and reduce the lender’s risk. By saving diligently and maximizing your downpayment, you can increase your likelihood of securing a mortgage with favourable terms. Ways to boost your downpayment include:
- Gifted downpayment – a gift letter must be signed by the family member stating that the money is a gift and doesn’t have to be repaid. This is a lender requirement.
- Early inheritance – discuss potential inheritance with family members to better understand timing and amounts.
- RRSP Home Buyer’s Plan (HBP) – if you are a first-time home buyer, take advantage of the HBP to withdraw up to $35,000 from your RRSP ($70,000 for couples) for a downpayment. You’ll need to repay the withdrawn amount into your RRSP over 15 years to avoid tax penalties.
- Sell assets – Liquidate assets such as stocks, bonds, or other investments to generate funds for your downpayment. Consider selling high-value items like a second vehicle or recreational equipment if feasible.
- Get a side hustle – Explore opportunities for additional income through side gigs, freelancing, or part-time work.
Understand Debt Service Ratios: When determining how much you can borrow for a new home purchase, lenders rely on two primary debt service ratio calculations: the Gross Debt Service ratio (GDS) and the Total Debt Service ratio (TDS). These calculations help lenders assess your ability to manage mortgage payments along with other debt obligations.
To calculate your Gross Debt Service Ratio (GDS), lenders look at the percentage of your income that would be allocated each month to cover homeownership expenses – mortgage payment, property taxes, cost for heating, and 50% of your condo fees (if applicable). These expenses are divided by your gross annual income.
To calculate your Total Debt Service ratio (TDS), lenders use the same calculation as the Gross Debt Service ratio (GDS) but also include additional monthly payments you may have, such as loans or the minimum payments on credit card debt. The total is then divided by your gross annual income.
In general, lenders like to see 39% or GDS and 44% for TDS ratio. However, some lenders may allow for higher ratios based on your credit and income and their risk preferences. To enhance your mortgage debt service ratios for qualification, consider several strategies like increasing your income, and paying down debt. Or opt for a less expensive home purchase.
Get a Co-Signer: If you can’t meet the eligibility requirements for the mortgage you need on your own, having a co-signer can be a viable option. A co-signer with a strong credit history and stable income can bolster your mortgage application and increase the likelihood of approval. However, both parties should fully understand the responsibilities and implications associated with co-signing a mortgage.
Consider Co-Ownership: Co-ownership, where two or more individuals jointly own a property, can also improve mortgage eligibility. By combining resources, co-owners can increase their purchasing power and qualify for a larger mortgage. Co-owners need to establish clear agreements regarding ownership shares, financial responsibilities, and potential exit strategies.
Rent Part of the Home: Renting out a portion of the home can generate additional income, which can be used to offset mortgage expenses and improve eligibility. However, you should carefully consider local rental market conditions, zoning regulations, and potential landlord responsibilities before pursuing this option.
Look at Alternative Lenders: In some cases, you may want to turn to alternative lenders if you have difficulty qualifying for a mortgage through traditional channels. Alternative lenders, such as B or private lenders, may have more flexible eligibility criteria and offer specialized mortgage products tailored to unique financial situations. However, it’s important to thoroughly research and understand the terms and conditions associated with alternative lending options before proceeding.
Position Yourself Favourably with the Best Mortgage Broker in Brampton, Rakhi Madan
If you need expert guidance to navigate the complexities of mortgage qualification, look no further than top-rated Brampton Mortgage Broker Rakhi Madan. With her wealth of experience and expertise across various market conditions, Rakhi is equipped to tailor mortgage solutions to suit your unique needs. Whether you’re a first-time buyer, refinancing, or exploring investment opportunities, Rakhi can review your situation and discuss the most effective mortgage-qualifying strategies for you.
Don’t let uncertainty hold you back in your homebuying journey. Trust Rakhi Madan to provide the clarity, insight, and personalized assistance you need to achieve your homeownership goals. Schedule a consultation today and take the first step towards securing the ideal mortgage solution for your future.
