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How to Get a Mortgage in Canada ֠Mortgage Math #1 with Ratehub.ca

How to Get a Mortgage in Canada - Mortgage Math #1 with Ratehub.ca

When you’re ready to buy a home, one of
the first things you’ll have to think about is whether or not you can qualify for a mortgage. Lenders will look at three things: your credit
score, your down payment, and your debt servicing ratios. We’ve brought in mortgage broker James Laid
to walk you through each in more detail. The first factor that we’re going to discuss
is credit scores. Credit scores in Canada range from three-hundred
to nine-hundred. Ideally, you’d find yourself in the category
between six-hundred-and-eighty and nine-hundred. Canadians who find themselves in this category
would satisfy any lenders’ credit requirements. The next group is the range between six-hundred
and six-hundred-and-eighty. This group has average credit so, depending
on the rest of the details on their mortgage application, they may qualify for a prime
mortgage or they may not. The final group is those Canadians who find
themselves with a credit score below six-hundred; they will still qualify for a mortgage, however,
it will be with a B-level lender at a higher rate.

So now let’s discuss what determines your
score on this range. And there are two main factors. The first one is fairly simple: simply making
sure that you pay your monthly bills on time. And the second one is insuring that your credit
balances are low in comparison to their limits. For example, if you have a five-thousand dollar
credit card then you should make sure that your balance stays below two-thousand-five-hundred
dollars, or fifty per cent of that credit limit. This is what determines your score on this
range. The second factor for qualifying for a mortgage
in Canada is down payment. And to help us explain this, we are going
to assume that a Canadian has just purchased a home for three-hundred-thousand dollars.

If this person plans on occupying the home,
the minimum down payment is five per cent. Using our example of a three-hundred-thousand
dollar value, that would equal fifteen-thousand dollars. If that person wants to avoid paying CMHC
insurance, or if this is an investment or rental property, then the minimum down payment
goes up to twenty per cent. So, again using our example of a three-hundred-thousand
dollar home value, that would increase our down payment to sixty-thousand dollars. So these are the minimum down payments required
for qualifying for a mortgage in Canada, depending on the specifics of the property you’ve
purchased. The third and final factor that lenders look
at when determining if you qualify for a mortgage is debt servicing ratios. And to help us understand this concept, let’s
look at an example. So we have a household where Mary is earning
sixty-thousand dollars and her husband John is earning forty-five-thousand dollars.

How to Get a Mortgage in Canada - Mortgage Math #1 with Ratehub.ca

So this household has a total annual income
of one-hundred-and-five-thousand dollars. The lender will then compare this income to
the monthly expenses that the household incurs. They likely have existing expenses such as
their car payment of four-hundred dollars and maybe some student debt that’s still
leftover from when they went to university. The lender will look at the income, look at
those expenses, and then determine is there enough income leftover to service a purchase
of a home, because the household would then have a mortgage payment and also have to pay
the monthly property taxes.

We’ll go into detail about how this ratio
works specifically, in a later video. But at a high level, a lender needs to determine
that the household income is enough to service all existing debt and mortgage-related debt
due to a home purchase..


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