With the recent credit crunch and the sub prime mortgage crisis, it will become more difficult to get a mortgage. However, there are key points that you can work on before meeting with your banker in order to present a clean application. Once you did your budget and that you know how much you can afford for a mortgage payment, the important part is to know what the bank will look for and try to improve those key points.
Cash Down for a house purchase
That will definitely be the first thing to look at if you plan to buy a house. The ear of 0% cash down mortgages is over and you better put money aside before meeting with your banker. A house cost always more than an apartment (for the same size) and saving money will be a good indicator if you can afford a house or not. In Canada, you can withdraw from your RRSP up to 20K per person in the case of a first buy. There are several techniques to increase your cash down and this topic will be discuss in a further post.
TDSR (Total Debt Servicing Ratio)
Your TDSR will definitely be another key point for mortgage qualification. In fact, your debt servicing ratio should not be over 35%, including your new mortgage payment. Some institutions will play with the numbers until 40% depending on the global picture. So you are better off consolidating your credit card into a personal loan and decrease our other debt before going to a banker. In order to calculate your TDSR, I suggest you click on the TDSR title to get a full post on this topic.
Do you make your payment on time? All the time? This is what the bank wants to know when you apply for a mortgage. Even though they are backed by a security, they certainly don’t want to repossess your house these days ;-). I actually created another blog exclusively on credit called The Credit Tool Box. You can go there for a better understanding of your credit bureau. I also write about building, improving or repairing your credit score.
If you are planning to do a career switch, I would suggest you do it after getting your mortgage. Employment stability is something banks love because it shows stable capability of making mortgage payments. The longest you have been in a job, the less (mathematically) chance you have to lose your job.
The next post on this series will be about different ways to have a sufficient cash down.
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