How To Get Approved For A Higher Mortgage

What Is A Mortgage Preapproval

When youre shopping for a mortgage, you can compare options offered by different lenders.

Mortgage lenders have a process which may allow you to:

• know the maximum amount of a mortgage you could qualify for
• estimate your mortgage payments
• lock in an interest rate for 60 to 130 days, depending on the lender

The mortgage preapproval process may be divided in various steps. It may also be called mortgage prequalification or mortgage preauthorization. Different lenders have different definitions and criteria for each step they offer.

During this process, the lender looks at your finances to find out the maximum amount they may lend you and at what interest rate. They ask for your personal information, various documents and they likely run a credit check.

This process does not guarantee your approval for a mortgage.

Save More For A Larger Down Payment

In Canada, the minimum down payment required is determined by your homes purchase price.

• For homes with a purchase price of $500,000 or less, the minimum down payment is five per cent
• For homes with a purchase price between $500,001 and $999,999, the minimum down payment is five per cent of the first $500,000 of the purchase price plus 10 per cent of the remaining portion
• For homes with a purchase price of $1,000,000 or more, the minimum down payment is 20 per cent

Of course, you always have the option to put in a down payment that is above the minimum requirement. This has a few key benefits:

Check Your Credit Report Before The Mortgage Lender Does

You need to convince mortgage lenders that you’ve got the financial discipline required to pay back your mortgage. One way they investigate this is by searching your credit report to find out if you’ve a good repayment history.

Your credit report lists details from any accounts you’ve had open over the past six years, including:

The three credit reference agencies in the UK are Experian, Equifax and TransUnion. It used to be that checking your credit report would cost you, but these days you can do it for FREE. See how to access your Experian, Equifax and TransUnion credit reports in our Check your credit report for free guide.

It is worth checking that each of them is up to scratch, as you don’t know which one your future mortgage lender will check.

Can I get a mortgage with a bad credit score?

Having a poor credit history might not automaticallyrule out your chances of getting a mortgage, but it certainly runs the risk of scuppering them. To give yourself the best chance possible of acceptance, take the time before you apply for a mortgage to get your credit report into good shape.

For tips and help on how to bolster your credit report, see our guide.

Quick questions

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Have Compensating Factors To Increase Your Max Dti Ratio

Your debt-to-income ratio is what determines how much you qualify to borrow. Your DTI ratio is the amount of your monthly debt obligations such as credit cards, student loans, mortgage compared to your monthly gross pre-tax income. Typically, lenders have a maximum DTI ratio of 43%.

If you have strong compensating factors lenders may be able to accept up to a 50% debt-to-income ratio.

Correct Credit Score Errors Pronto

If your credit file info’s wrong, you have a right to do something about it either having the error corrected or, at the very least, having your say.

Your first step should be to check if the error is on your credit file held with other agencies, then talking to the lender. If this doesn’t work, the free Financial Ombudsman could step in and order corrections.

Here’s our step-by-step help:

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What Else Do Lenders Look At When You Apply

As we mentioned, your credit score is not the only factor lenders examine before they approve or decline your application. They also want to see a favourable history of debt management on your part. This means that on top of your credit score, lenders are also going to pull a copy of your to examine your payment record. So, even if your credit score is above the 600 mark, if your lender sees that you have a history of debt and payment problems, it may raise some alarms and cause them to reconsider your level of creditworthiness.

Other aspects that your lender might look at include, but arent limited to:

• Your income
• The amount youre planning to borrow
• Your current debts
• The amortization period

This is where the new stress-test will come into play for all potential borrowers. In order to qualify, youll need to prove to your lender that youll be able to afford your mortgage payments in the years to come.

Theyll also calculate your monthly housing costs, also known as your gross debt service ratio, which includes your:

• Potential mortgage payments
• Potential cost of heating and other utilities
• 50% of condominium fees

This will be followed by an examination of your overall debt load, also known as your total debt service ratio, which includes your:

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How To Get A Loan With A High Debt

A high debt-to-income ratio can result in a turned-down mortgage application. Luckily, there are ways to get approved even with high debt levels.

1. Try a more forgiving program

Different programs come with varying DTI limits. For example, Fannie Mae sets its maximum DTI at 36 percent for those with smaller down payments and lower credit scores. Forty-five is often the limit for those with higher down payments or credit scores.

FHA loans, on the other hand, allow a DTI of up to 50 percent in some cases, and your credit does not have to be top-notch.

Likewise, USDA loans are designed to promote homeownership in rural areas places where income might be lower than highly populated employment centers.

Perhaps the most lenient of all are VA loans, which is zero-down financing reserved for current and former military service members. DTI for these loans can be quite high, if justified by a high level of residual income. If youre fortunate enough to be eligible, a VA loan is likely the best option for high-debt borrowers.

2. Restructure your debts

Sometimes, you can reduce your ratios by refinancing or restructuring debt.

Student loan repayment can often be extended over a longer term. You may be able to pay off credit cards with a personal loan at a lower interest rate and payment. Or, refinance your car loan to a longer term, lower rate or both.

3. Pay down accounts

Or you can reduce your credit card balances to lower your monthly minimum.

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Find A Lower Mortgage Rate

Getting the best mortgage rate will result in a lower regular mortgage payment, which will reduce the overall cost of homeownership. Finding a lender wholl approve you for a lower mortgage rate will let you put a larger portion of your payments towards the principal, rather than the interest.

There are several ways to find a lower mortgage rate but your best bet is to compare all of the products on the market, from a variety of lenders. Different mortgage providers are comfortable with different levels of risk and profit margins, so may offer vastly different mortgage rates in the same market. Not comparing rates before you get pre-approved could lead to you paying thousands more each year!

Its also important to consider the terms and conditions of your mortgage and mortgage rate. Depending on your circumstances and the current market conditions, a 5-year fixed mortgage rate and a 3-year variable mortgage rate could each wind up costing very different amounts. As such, its important that you know the differences between different mortgage products, and pick the one that is best for you.

Apply With Care And Attention

Making mistakes on your application form can be a key stumbling block. Take your time to fill it out carefully – donât just guess answers to questions, like how long youâve lived in a property or how much your partner earns, and make sure that the address you give is the same as the one on your credit report.

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Consider A Longer Mortgage Term

Your debt-to-income ratio is the key factor in deciding what youre approved for. The lower you can get your mortgage payment, the more house you can afford to buy. An adjustable-rate mortgage will have an initial term of a very low-interest rate and payment.

After the initial five year period, the interest rate and payment will increase annually. You can always refinance later on before your payment increases. This will give you the lowest mortgage payment allowing you to qualify for a more expensive home.

Some lenders now offer 40-year fixed-rate loans. This will give you the lowest payments allowing you to qualify for a more expensive home. Again, you can always pay a little extra each month to pay off the mortgage quicker than 40 years.

Homeready & Home Possible Loans

HomeReady and Home Possible Loans Fannie Mae and Freddie Mac created the HomeReady and Home Possible loan programs to have a low down payment program for first-time buyers. Both loans require a 620 credit score and just a 3% down payment, they are strictly for first-time homebuyers with low income. The income limit is 100% of the area median income.

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What Are Todays Rates

Mortgage rates are low, and its an ideal time to get a rate quote. Low rates mean its easier to qualify, even with a high debt load.

Connect with a lender to learn whether you qualify for a mortgage at your current DTI, and what rate you might be eligible for.

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Make A Larger Down Payment

One of the most important factors in how big of a mortgage you can be approved for is the size of your down payment. In Canada, every property purchase requires a minimum cash down payment, ranging from 5% to 20% of the purcahse price. If you want to buy a more expensive home, it will require a larger minimum down payment. While it can be tough to save more money before you buy a home, this is one factors thats within your control, for the most part.

Lets look at this in a little more detail. Here are the minimum downpayment rules in Canada:

• For homes priced under $500,000 a 5% down payment is required.
• Home costing more than $500,000 but less than $1 million require 5% of the first $500,000 plus 10% of the remaining purchase price.
• For home that are $1 million or more, the minimum down payment is a flat 20%.

If you can make a larger down payment, youll be able to get a larger mortgage and spend more on a home. For example, a $500,000 home only requires a 5% minimum down payment of $25,000. However, on a $800,000 home your minimum down payment will need to be $55,000, which is an effective rate of 6.9%.

To understand more about how increasing your down payment will affect your mortgage affordability, have a look at the Ratehub.ca Down Payment Calculator. This lets you try out different purchase scenarios, and understand how much your down payment will need to be in each one.

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Get A Subprime Mortgage

The term subprime mortgage has a negative connotation because of the housing bubble and financial crisis its often associated with, but subprime mortgages can actually be a gateway to home ownership for some people.

A subprime mortgage is a home loan with higher interest rates than their prime mortgage counterparts. The higher interest rates are in place to offset the risk of loan default by subprime mortgage borrowers who are risky customers because of poor credit. These mortgages can be either fixed or adjustable.

The benefit of a subprime mortgage is that people with poor credit dont have to wait as long to own a home. They can repair their credit by paying their mortgage each month, rather than waiting years to repair their credit and then buy a home.

The obvious disadvantage, besides higher rates, is that closing costs and fees associated with home loans will be usually higher for subprime borrowers. Although credit score requirements arent as stringent for subprime loans, borrowers must still show proof that they can afford the mortgage payments each month.

Apply For A 7/1 Arm Fha Or Va Loan

A hybrid loan, such as a 7/1 adjustable-rate mortgage , could enable you to borrow more than you would with a 30-year, fixed-rate loan. A 7/1 ARM offers a fixed rate for the first seven years. After that, the rate changes.

If you feel comfortable with the rate risk of an ARM, or if you plan to sell your home or refinance your mortgage before the seven-year mark, this option could help you get a lower interest rate and a bigger mortgage.

The initial rate for an arm is usually 0.325 to 0.625 of a percentage point lower than for a conventional 30-year fixed-rate loan, Fleming says.

Two other options: FHA loans, which are insured by the Federal Housing Administration, and VA loans, which are guaranteed by the U.S. Department of Veterans Affairs, have more flexible guidelines that could allow you to borrow more.

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What To Do If A Lender Refuses Your Mortgage Application

A lender could refuse you for a mortgage even if youve been preapproved.

Before a lender approves your loan, theyll verify that the property you want meets certain standards. These standards will vary from lender to lender.

Each lender sets their own lending guidelines and policies. A lender may refuse to grant you a mortgage if you have a poor credit history. There may be other reasons. If you dont get a mortgage, ask your lender about other options available to you.

Other options may include:

• approving you for a lower mortgage amount
• charging you a higher interest rate on the mortgage
• requiring that you provide a larger down payment
• requiring that someone co-sign with you on the mortgage

Find A More Affordable Property

When people set their minds on something, they do everything to acquire it. This is especially true for properties, as some villas cost more than a townhouse or a condo unit with fewer amenities, bedrooms, and bathrooms. Some properties are located in a neighborhood far from prime locations. However, some choose a different part of the country to find a more affordable home.

If your finances improve, you may put up your property up for sale and attempt to acquire a property that you hope to own.

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