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Ways to get approved by a Lender.

What is a Lender?

To put it simply, a lender can be a person or institution that loans a certain amount of money that needs to be repaid—usually with interest—within a predetermined time. In many cases, it’s a bank, credit union, corporate entity, but sometimes, it may be an individual, a group of individuals, or an investor. In the case of mortgages, these payments are traditionally made monthly and come with different interest rates.

Mortgage Lender

The mortgage lender is a financial institution or organization that loans out money for the buyer. After the mortgage is secured, the lender may sell the mortgage loan to another entity who would then become the mortgage holder.

Mortgage lenders also offer refinances.

Refinances - These are loans designed for existing homeowners, allowing them to essentially replace their old mortgage with a new one.

In Canada, there are five banks (the Big Five) that comprise 60% of the residential mortgage lending market. They are:

  • Bank of Montreal

  • Bank of Nova Scotia

  • Canadian Imperial Bank of Commerce

  • Royal Bank of Canada

  • Toronto Dominion Bank

The percentage seems to sound high on these five banks, which are also called “the Big Five.” But, it also means that 40% of the remaining mortgage lending market is controlled by numerous mortgage lenders.

Now, here are some tips on how to get approved for a mortgage:

1. Build your credit score

Mortgage lenders will use your credit score as a reference and gauge your financial trustworthiness and ability to repay your debts. You can qualify for a mortgage loan with a score of as low as 620. A credit score of 740 or higher qualifies you for the best interest rate. Making loan and bill repayments and not using too much of your available credit will generally leave you with a higher score.

2. Save a larger down payment

Being prepared and knowing what the lender requires is one of the best ways to impress a mortgage lender. Buying a home will always require some amount of down payment. Don't apply for a home loan if you don't have enough cash for a down payment. The bigger your down payment is the better. The main reason is simple, the larger your down payment, the less you’ll need to borrow, and the less interest you’ll pay. Conventional loans require 5% down, but you can get an FHA mortgage with only 3.5% down. If you really want to impress a lender, bring 20% to the table.

3. Keep your income stable

A full-time job is the best way to prove that, as it guarantees your source of income long-term. Mortgage providers won’t approve your loan without proof you can make your payments. Some lenders ask for bank statements and require applicants to have a two or three-month cash reserve. This financial cushion is helpful in the event of a financial emergency. The more cash you have saved, the easier it is to qualify for a home.

4. Pay off your debts

Taking on a mortgage means taking on some long-term debt and to minimize your existing debt. To qualify for a mortgage, take steps to pay your balances. Don't take out new debts and pay more than your minimum on your credit cards. Keeping debt at a low level is also good for your credit score in general.

5. Get a mortgage pre-approval

A mortgage lender will not approve your application without reviewing your income history. Besides, credit score and the size of your down payment, mortgage lenders will also consider your income and employment status, debt-to-income ratio, and your assets and liabilities. Mortgage pre-approvals are valid for 90 to 120 days, giving you time to find a home without losing a great deal. This is a good thing to have because it allows you to house hunt within your price range, and also means you can move quickly to submit an offer when you find your dream home.

The bottom line

Before applying for a home loan, go online and do some research about the process. Mortgage approval is about getting your financial life in order. Keeping your credit score high, paying debt, and saving money are all worth doing, whether you’re applying for a mortgage or not. Applying for a home loan is likely the greatest financial move you'll ever make. This is a huge investment and an excellent way to jump-starts your net worth. Even if you’re not looking to buy a home now, look after your finances today and you’ll be in a stronger financial position tomorrow, on whatever you decide to do.

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