How To Get The Best Possible Mortgage!
Polish Up Your Credit
Your credit report will impact your borrowing capacity, and you’ll want to make sure you have the best credit score possible.
- Use credit reporting agencies to monitor your credit. If there’s any inaccuracies, you’ll be able to catch it right away. Besides seeing how your credit score improves over time, you can easily provide your credit report information to banks when they need it.
- Pay off smaller debt. Even though credit card debt and car leases don’t seem huge, they can make a dent in your credit score. By reducing these, you’ll be able to get a significantly larger mortgage amount, which brings you more benefits.
- Minimize credit checks. When you open up new accounts like phone lines, companies may be running soft credit checks on you. Reducing these types of activities before you get a mortgage can bump up your credit score.
- Provide your credit report to the bank. Along the same lines as the last point, each time the bank runs a credit report on you, your credit score gets reduced. When you provide your credit report to the bank, you can bypass this process. Once terms and rates are confirmed, they can run the necessary credit reports to confirm what you provided.
Get Proof Of Existing Finances
Your lender will want to know your borrowing capacity. If you are prepared for this beforehand, you can speed up the mortgage approval process. Banks typically ask for proof of:
- Your income: This number is comprised of your salary, cash flow from existing investments (e.g. stocks and real estate), and if you own a business, your business income.
- Your assets: This includes your cash, your investments, other existing assets (e.g. real estate, vehicles), and your business assets. Note that lenders need to make sure the value of your assets do not fluctuate significantly, so you will likely need to provide a 90 day history to them.
Provide Financials For Your Rental Property
Lenders look at two debt service ratios in order to determine how much refinancing you qualify for – the lower, the better. If you want to increase your refinancing amount, you’ll need to compensate it with higher income.
Because rental income counts towards your annual income, it is in your best interest to maximize your rent in order to get the highest refinanced amount possible.
Here are some of the key financials banks need about your rental property:
- Rent
- Property Insurance
- Property Tax
- Utilities
Find The Right Bank
Banks are not all the same! Each bank has their own lending policies, so choosing the right bank for your personal financial situation can maximize your borrowing power. Here are some guidelines in terms of how banks can vary.
General
- Some lenders account for 100% of your rental income, others may look at 50% of your rental income, and some others might not look at your rental income at all.
- Risk-adverse lenders only allow you to own up to 2 investment properties with them, whereas other lenders allow you to own up to 16 investment properties.
- Some lenders have special policies for “high net worth” clients which do not take into account income at all, whereas others only deal with mortgages based on your income.
- Residential mortgages have better terms than commercial mortgages, but the definition of a residential property may vary by bank.
Self-Employed Individuals & Corporations
- Some lenders help corporations purchase investment properties, whereas others only deal with personal mortgages.
- Some banks aggregate your business and personal income and assets to get you the best possible mortgages.
- Some lenders allow self-employed individuals to provide “stated income”, whereas others require you to provide 6 months to 2 years of proof from paystubs and tax returns.
- Some lenders understand that self-employed individuals deduct more expenses to lower their income on their notice of assessment, so they improve the borrowing power for these clients.
Canadian Non-Residents
- Some lenders help non-residents purchase investment properties in Canada, whereas others only help Canadian residents.
- Going to a mortgage broker can help you get the best pricing between various lenders. However, it’s important to note that mortgage brokers do not work with all of the tier one banks. Currently, mortgage brokers do not work with RBC, CIBC, BMO, or National Bank. This means you will need to go to the bank’s mortgage specialists to access specific policies that only apply to these banks.
Get A Pre-approval
Once you start shopping for properties, things can move quickly. Depending on how attractive the market is, you might not be able to enter a purchase with financing conditions or your financial condition must be met within a short period of time. If that’s the case, it may be hard to get a mortgage approved in time.
A seller will also give preference to offers without any conditions. So, if you have a mortgage pre-approval on hand, you will be able to act quicker and be more competitive when going into an offer. Ultimately, a mortgage pre-approval will help you get a better purchase price on your real estate investment.
Note that a bank may lend you up to 95% of your property’s purchase price if it’s your first property. However, if you want the best terms and interest rates, most clients only borrow up to 80%.
How We Can Help
If you don’t know how to choose the right banks or mortgage brokers, talk to us. We know the in’s and out’s of mortgage policies from different lenders, so we can point you in the right direction and help you get the best possible mortgage:
- We examine your financial situation to offer recommendations for improvement.
- We provide you with projected financials of rental properties that fit your profile. This includes the purchase price, projected rents and projected expenses.
- We’ll use our bank selection guide to direct you to the right banks based and brokers on your individual circumstances.
