The main factor in your mortgage application that interests lenders is the extent, to which you can pay the loan back. Lenders look at your income, credit and job history, assets, and other aspects to determine whether you are creditworthy and capable of fulfilling your loan obligations. Lenders are interested in the debt-to-income ratio – namely the amount of your income and your debt, and how they measure up to one another. This ratio determines the home loan amount you qualify for, as well as the monthly mortgage payment you can make. Lenders vary with respect to their guidelines where debt to income ratio is concerned.
Of course, every lender is going to be interested in your credit score. This could very well define the rates and programs you qualify for. The interest rate will determine, to an extent, the amount of the loan, the term you will be offered, and other terms and conditions.
The lender may require that the applicant presents a list of all outstanding debts, including student and car loans, credit cards, child support payments, mortgages, etc. The list should contain all outstanding balances, the amount of monthly payments, and account numbers, if any.
Why is there so much paperwork involved in the mortgage application process? A lot of it is needed just to substantiate everything you said about your income, credit, and employment and housing situation. This is why, lenders are entitled to require as many documents as they need to complete your file. If you submit false or misleading information, they have every right to reject your application immediately.
Another key factor is what is known as the loan to value ratio. The LTV is a figure comparing your loan amount to the sale price or value of the home. The value is established following a professional evaluation. The ratio is based on the lower of the two amounts. If the value is lower than the sales price, which is usually the case, then that is what will be taken into consideration where the LTV is concerned.
Be informed that if you have not held down a job without interruption in the past two years, you probably will not qualify for a mortgage. The issue of how long you have been employed is of paramount importance from the lender’s viewpoint. If you are frequently changing or are between jobs, you should plan to provide extra income documentation. You will also be expected to provide the names, addresses, and telephone numbers of all of your employers in the past two years. In case that is insufficient, you may need to find a cosigner with a decent credit history.
Finally, lenders also look for the reserve funds of the applicant. Many banks inspect the client's personal bank statements to determine whether he or she has enough money for the down payment, closing costs, and between three and six months of regular mortgage payments. Needless to say, those who apply for a mortgage in Canada should be Canadian citizens or landed immigrants.
Basically, what interests lenders most are three aspects: collateral, repayment capacity, and credit.