How Lenders Evaluate You

When you come to a mortgage broker like RateMiser, you gain access to upwards of 40 major mortgage lenders - not counting the growing list of private mortgage lenders.
Each group of lenders has guidelines for lending; with those by the lenders offering the lowest rates and greatest lending power usually the most stringent.  These are good reference points for any potential mortgage borrower.

Here is a list of some of the key points mortgage lenders look for, in order of priority:

Credit – Credit quality is by far the most significant factor that the best lenders look for. Today, where decisions are often made by computer analysis of statistics, a strong credit rating can help you gain access to an increasing array of borrowing options. The most important criteria is a history of “healthy credit relationships”.  The indexes measure things like:

• Have you been making the minimum payments on your bills right on time, or are you unpredictable?
• Are your revolving credit balances close to the maximum credit available, or can you leave some capacity for a rainy day? 
• Do you have very high total debts vs. your income?

The Ratios
Loan-to-Value (LTV), Gross Debt Service (GDS) and Total Debt Service (TDS) ratios indicate the amount of security backing the loan, the borrower’s ability to service the mortgage expenses and the ability to service all the debts carried by the borrower.
1. The LTV ratio is the inverse of the way we normally think about a loan. If you were buying a house with 25% down payment, your LTV ratio would be 75%. The lower your LTV, the more likely the lender would get their money back if they had to foreclose. This makes them much more comfortable giving you a mortgage.

2. The GDSratio is calculated by:

(principal + interest payment) + monthly property taxes, heat, and condo fees (where applicable)
/ monthly gross income.  (do like math equation)

Most of the best lenders and mortgage insurers like CMHC require the GDS ratio to be 32% or less.

3. The TDS ratio is calculated like the GDS ratio, but with the total minimum payments on all other debts added to the house and mortgage payment expenses.

(principal + interest payment + minimum debt payments) + monthly property taxes, heat, and condo fees (where applicable)/ monthly gross income.  (do like math equation)

Most mortgage lenders are looking for a TDS of 40% or less.

There is a little leeway and a few commonly accepted assumptions that your RateMiser Mortgage Advisor can help you take advantage of.

Employment
When the lender has verified your good credit habits and ability to pay your bills, the next thing they want to know is your ability to keep paying your bills in the future.

Lenders look for at least 3 years of work history and 2 full years of self-employment history, preferably in a field you have worked in for many years.

Liquid assets are appealing to lenders because they represent savings and other investments that are easy to value, easy to access to cover bill payments in emergencies, and indicate that the applicant has the self-discipline to resist the urge to spend.

Net Worth is the amount of money you would have left over if you sold everything you own and paid off all your debts. Lenders see net worth as your back-up resources to keep your mortgage up to date.

The Nature of the Property is a key factor with most lenders.  Single family houses in urban areas with a strong property market give mortgage lenders a lot of comfort vs. say, a commercial automotive repair shop or fixer-upper in a rural area for example. There are lenders for any viable property investment, but some properties have more lenders available to them than others.

If you are considering buying or refinancing a property in the near or distant future, your next step should be to contact your RateMiser Mortgage Advisor.  Your Advisor can help you see your mortgage application through the same lens that an excellent lender might use, and help you refine your borrowing position to your advantage.

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