4 Crucial Things Traditional Lenders Want to See

Welcome to the Guardian Financing June 2017 monthly newsletter. This month’s issue is on the other crucial things that lenders usually want to see in every mortgage application. Most people have always known that the most weighted factors to getting approved include credit score, the amount of down payment, and the debt service ratio. Well, there are others of great importance as highlighted in this edition.

4 Crucial Things Traditional Lenders Want to See (It’s Not What You Think)

Every mortgage applicant is always keen to ensure that they meet the threshold of requirements to have their applications approved. The greatest concern to them is their credit score, the down payment and the debt service ratios, as they believe these are the three most important things that traditional lenders look for in their applications.

It goes without saying that the higher your credit score, the higher your chances of getting approved, and the same is the case with the down payment. If you have a larger down payment, the risks on the bank’s part will be substantially reduced and they may be inclined to consider your application. Additionally, a healthier debt service ratio will imply that your income is not choked, and you are likely to find your repayment obligation manageable.

In as much as these three factors are of fundamental importance and every bank will be keen to consider them deeply, you will be surprised to know that they are not the only significant considerations in the eyes of Canadian lenders today.

Here are four things that will add value, which every bank will want to see, and are often surprisingly neglected when applying for mortgages:

1) Employment History Spanning over two years

A stable employment history is like a staple for the approval of your mortgage application. A stellar job history is not just reassuring to a primary lender that you have a source of income, but also, it is an assurance that there is less likelihood of the source not dwindling any time soon. From a lender’s perspective, it shows that you are likely to continue making repayments in the near future, and as such, lending you the money comes with relatively lower risks. Ideally, you should present an employment history spanning over two years in your specified field to increase the chances of your application getting approved.

2) Your loan records

You may have a convincing employment record but it is possible that despite having a stable source of income, you are still very poor when it comes to repaying loans. Most traditional lenders in Canada, in addition to other factors, will consider your loan records, just to see how faithful you have been in meeting your past loan obligations. Suppose you have current loans or mortgages, they will have to evaluate those, in comparison with the one you are applying for and determine whether you will still be able to meet your obligations, should you be approved for the mortgage. In the event that your past loan records are not pleasing, lenders are likely to be discouraged from signing off on a mortgage with you.

3) The Paperwork

Currently, every traditional mortgage lender is interested in seeing detailed documentation to verify your claims on financial status. They will want to see actual proof that you are making the amount of money you have claimed to make in the application and they will also be interested to see whether you have any savings or a retirement account. Most applicants tend to ignore the importance of these items, but they offer lenders crucial insights into your finances, which will either reinforce or deteriorate their trust in you or your client, as a worthy borrower.

4) Your savings

It may not make sense to you why your savings would be of great concern to traditional lenders, but be advised that significant savings may increase your chances of getting approved for the mortgage. To begin with, applying for a mortgage is not cheap. You will need to have a down payment, which will amount to tens of thousands of dollars, and then there are other costs such as closing costs, which may also be fairly high. You will need to have money in reserve to handle these and other costs.

However, a bank’s primary interest in your savings is to determine whether you will still continue meeting your obligations, should your source of income dry up suddenly. Without adequate savings, you may have to halt the repayment as you work on another source of income and this is what most bankers dread – defaulting on loan repayment. Though the amount of savings required to be granted the loan will vary from one lender to another, it is advisable for you to have over three to six months’ worth of mortgage repayments available in your savings.

Private mortgage lenders are more flexible as they base approvals mainly on the equity available in the property, by way of assessing the loan to value ratio (LTV), the percentage of the loan requested compared to the value of the property. As a result, private mortgage lenders offer a much better chance of getting approval.

Guardian Financing is a direct mortgage private mortgage lender. We serve the greater Montreal area providing short term residential mortgage loans, typically ranging from $50,000 to $500,000.