Lenders approve mortgages based on their impression of your ability and INTENT to pay it back. To figure this out, they look at 5 things: creditworthiness, income, job longevity, job stability, and future income prospects. We'll tell you how to make sure you look good in each of these areas, so that you'll get a "YES" when you want to borrow money for your new home.
Creditworthiness is your history of borrowing and repaying things like bank loans, credit cards, rent-- and whether you've ever filed for bankruptcy. Find out what credit bureau the lender uses, then call or visit that same bureau for a copy of your credit report. In Toronto, the two credit bureaus are Equifax and Trans Union.
This is to make sure that there are no errors or surprises that you'll have to explain to the lender. If there are mistakes, it can sometimes take a few weeks or months to resolve, so it's good to have a compelling explanation ready when the lender sees it! The best way to demonstrate that you are "creditworthy" is to pay your bills in full and on time, particularly for the year or so before you want to get a mortgage.
Lenders want to know that you have a history of sufficient and consistent income so that you'll be able to repay the mortgage. When you submit your paperwork to a lender, make sure to supply a current employment letter verifying your annual income, how long you've been there, and "how much they love you," plus your most recent pay-stub and your last Revenue Can Tax Assessment form or T-4.
3. Job Longevity
Lenders are looking for borrowers who have a stable source of income. If you can prove that you've been employed at least a year in the same company (or in the same line of work) you should be fine.
4. Job Stability
Again, lenders like stability. They tend to think that your mortgage payment behaviour will reflect your employment behaviour. So, don't make lateral moves between companies just for the sake of change. If you do move, do it for promotion, or to earn more money.
5. Future Income Prospects
Because most mortgages are based on a five-year term, lenders are interested in people who will have income for that amount of time. Young professionals, or those with high demand skills, are the most appealing to lenders because their income will only increase over time. If you can demonstrate that you have a career plan that only gets better over time, you'll be in an even stronger position to borrow.
So essentially, be sure to pay your bills on time, stay with an employer, and have a career path that shows potential, and you'll be sure to get a "YES" when you go to apply for your mortgage.