If you are going to buy a new home and this is your first time as well, then it is really important for you to understand the basics of qualifying for a mortgage so you can get the deal that is best suitable for you.  Getting a suitable mortgage is not a piece of cake in today’s disproportionate market conditions, so it is important to have an understanding  of mortgage terms and conditions to prepare your financial profile.

Mortgage lenders consider multiple factors when approving a client’s application, but the three important factors that play the major role in this respect can be classified into three “C’s” i.e. capacity, collateral and credit.

Capacity

Your strength to pay back your loan comes under capacity. You should have a stable monthly income to pay back your mortgage. Self-employed income is considered riskier from lender’s perspective because it can vary from month to month.

Another important factor that’ll be considered by lenders at this point will be your debt-to-income ratio. This is the amount that you pay every month to pay off your debts. If you have a higher debt-to-income ratio chances are the lender will not borrow you money because you are already facing tighter finances. Mortgage lenders won’t want to see a high DTI ratio, which means that not more than 45 to 50% of your income should be going to debt service.

Credit

Your credit score plays an important role because it represents your ability to manage the debts. Mortgage lenders require your credit report for mortgages, personal loans, auto loans, credit cards and any other information such as foreclosures, bankruptcies, charge offs etc. A good credit score helps to build the trust of your lenders on you, therefore it is crucial for them.

Credit score ranges from 300 to 850, sore below 600 is considered bad and score above 700 is considered good however most people fall in the mid of 600. Therefore you should aim to get a credit score in mid 700 to get the best mortgage deals.

Collateral

As the property you’ll buy will be become collateral for the mortgage, the lender would like to see the condition, type and quality of the property. This is because lenders will measure the risk associated with the property through loan-to-value ratio (percentage of the value of the property that you are borrowing). Low LTV loans are better than high LTV loans because lenders are not likely to bear any loss in case the borrowers stop making the payments.

Therefore if you are planning to apply for mortgage or refinance your mortgage keep these “3Cs” in mind and always work on making things better. If you need any further information you can call us today at: 905-216-5563

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