Qualifying for a Canadian Mortgage
In the Canadian mortgage and housing market, purchasing a house is a tough job. It is made even more difficult by the fact that mortgage loans are not easy to obtain. The basic reason why getting a mortgage in Canada is more pain staking than actually finding and buying the house is the rules and regulations in this sector.
Even with the attractively low mortgage rates being offered by lenders, the Canadian mortgage and housing industry is known for its strict rules and policies. The criteria set by the government as the qualification standards for mortgage loans are quite strict.
The Canadian mortgage rules have always been tough. These rules were introduced by the government to curtail the high levels of demand in the industry. However, the growth in demand was still high. Because of this reason, the government introduced some new mortgage rules in Canada and revised the qualification criteria further.
As a result, the mortgage lenders need to pay a lot of attention to these rules while they consider mortgage applications. They are monitored by the Canada Mortgage and housing Corporation (CMHC). This organization was set up by the government to regulate the Canadian mortgage and housing industry.
There are a few steps that can be taken while applying for mortgage loans, which can help increase the chances of qualifying for the mortgage loan. These steps need to be taken even before meeting with the lender so that the standards and criteria can be met before-hand and the application does not get rejected.
It is advisable that the applicant for the mortgage loan should save enough money to cover at least 20% of the down payment. According to the Canadian mortgage rules, any down payment below 20% is considered to be a high-ratio mortgage. These have to be insured through the Canada Mortgage and Housing Corporation (CMHC).
Permanent residents can qualify for a mortgage loan with down payment as low as 5%. Non-permanent residents can qualify with a 10% down payment. However, they will have to take up mortgage insurance. The Canadian mortgage trends had shown a high level of dependency on such mortgages and this became one reason why Canadian mortgage rules were revised.
High-ratio mortgages are riskier than un-insured mortgage loans. They have a negative impact on the economy as the high level of risk increases the pressure. Although high-ratio mortgages are still offered, the government is trying to discourage them as much as possible. It is important to note that the insurance taken to secure these mortgages will increase the carrying costs for the applicants as well.
The pressure on the country’s economy caused by the Canadian mortgage and housing industry had become a major source of concern for the government. The global economic turmoil posed another threat and most people feared that the bubble might burst. Fortunately, this did not happen and the economy recovered.
Therefore, the government discourages the high-ratio mortgages. They are not only risky for the economy and the lenders but also for the borrowers. It is best if such mortgages are avoided and insurance is not required.
The next step for the applicant would be to evaluate their own affordability. They need to calculate their monthly expenses and the debt payments. These have to be subtracted from the monthly income in order to find out whether or not a mortgage will fit in their budget.
This self evaluation would help determine if the applicant can afford the monthly housing expenses. These include the interest payment, principal payment, taxes and other miscellaneous expenses. According to the Canada Mortgage and Housing Corporation (CMHC), the mortgage loan can only be provided if the monthly housing expenses are below 32%.
One of the major problems in the Canadian mortgage trends was the fact that many people ignored the affordability factor. Conducting a self evaluation will help them in analyzing their own capacities.
In order to increase the chances of qualifying for a mortgage, applicants should try to pay off other loans they might have taken. If they already have a heavy debt load, it will be extremely difficult to afford a mortgage. According to the Canadian mortgage rules, the total debt load for a month should be less than 40% of the household income. The Canada Mortgage and housing Corporation (CMHC) is very particular about the debt load amounts because they are a major risk factor.
A strong credit history will drastically improve the chances of qualifying for a mortgage. Lenders will always consider an applicant’s credit history as it will help them determine risk and reliability. In cases where an applicant does not have a credit history or it is one that cannot be accessed by the lender, it is advisable to build one.
It is also possible that the mortgage will be provided to a risky borrower if a guarantee is provided by a relative. However, it is better not to go for that option. This is discouraged by the Canadian mortgage rules because this option too has a high risk factor associated with it.
Once all of the other factors have been considered, it is necessary for the applicant to compile their documentation. This has to be done before the meeting with the lender has been set. The important documents required are identification, employment details, bank account details, debt information, a proof of financial assets and also proof of other income sources if any.
The new mortgage rules in Canada have revised the qualification criteria in order to reduce the risk and pressure on the country’s economy. The Canadian mortgage trends had shown signs of exponential growth but this did not seem sustainable. This was also one reason for changing the Canadian mortgage rules and regulations. The steps mentioned above take into consideration the rules and the requirements for the qualification criteria. They will not only improve chances of getting a mortgage but also help in reducing risk for the borrowers, the lenders and the whole economic structure.