How To Qualify For A Mortgage In An Uncertain Market
When applying for a mortgage, borrowers are often put through a grueling process to prove their creditworthiness. Depending on their financial situations and the type of mortgages they need, lenders impose certain restrictions and guidelines which the borrower must abide by. However, with the widespread impacts of COVID-19 and the downturn of the economy, lending restrictions have gotten even stricter.
The challenges stimulated by the pandemic have caused massive layoffs, deferred mortgage payments, and several other financial crises. This has significantly affected the mortgage market, forcing lenders to tighten their regulations, making it difficult for borrowers seeking first-time mortgages, refinancing to consolidate debt, or renew their mortgage to take advantage of a lower interest rate. Despite the stricter rules, if you still feel capable of managing the responsibilities of a mortgage, with a careful plan, you can manage your debt with ease and assure your lender of the same.
To prepare yourself, you’ll need to pay attention to the five Cs of credit. These include the primary factors by which a lender will determine if you are a suitable borrower. For a complete understanding of the five Cs of credit, mortgage agent Melissa Henderson has explained them below.
This refers to your ability to repay the mortgage amount lent. Your capacity to repay your mortgage is one of the most important aspects for a lender to verify. To determine your capacity to repay, your credit report will be reviewed to check if you paid your past debts on time. If you have one or two missed payments, you should be alright, provided that you have a good explanation for the same.
This is the total amount that you must invest in the property you want to buy. The capital invested needs to be put in by you, the buyer.
This refers to your trustworthiness as a borrower. The lender will consider your employment record and ask questions about your personality at work and ability to hold a job. The lender will even look at your capacity to save and manage debt.
In this case, the collateral will be the house that you are buying. It will be pledged as a security against the mortgage that you acquire.
This refers to your credit history, a detailed account of all your debt over the years. The longer you’ve been active as a credit user, the better your chances will be to acquire the mortgage you need.
Besides these five Cs of credit, your gross debt service ratio “GDS” and your total debt service ratio “TDS” are also considered. Your GDS refers to the amount spent on principal mortgage payments, interest, heat, electricity, taxes, etc. Your TDS is the amount of debt you’ve acquired. For you to obtain an insured mortgage or a high ratio mortgage, your GDS must be lower than 39% of your gross income. On the other hand, your TDS should not exceed 44% of your gross income.
For more tips on how to acquire a mortgage during these challenging times, reach out to Melissa Henderson. As an experienced mortgage broker in Waterloo, ON, I work with you to understand and assess your unique requirements and help you determine what you can comfortably afford. I also guide you through the mortgage market and help you identify mortgage lenders who will gladly lend to you. My services are available to you for free, as I am paid by the lender of your choice. That said, I do not work for the lender. My commitment is to you.