An Overview of the Home Buying Process
The four big questions lenders ask, and how to get ready for each one.
The quick version
Credit: have an established credit history and pay on time.
Income: lenders want stable income they can verify.
Down payment: at least 5%, plus about 1.5% of the price for closing costs.
Affordability: what you qualify for and what is comfortable can be very different.
Start early. A pre-approval and a plan make everything easier.
Buying your first home, or your next one? Either way, it does not have to feel overwhelming when you have the right people on your side. Book a call and let us start your plan.
This article gives you the big picture. The finer details come once we review your pre-approval application together.
1. Are you credit-worthy?
Lenders want to see that you have a history of borrowing and paying it back.
What "established credit" usually looks like:
At least two trade lines (credit cards, loans or lines of credit)
Each with a limit of at least $2,500
Reporting for at least two years
Pay on time, every time. Think of it from the lender's side: why lend you more money if your current payments are not made as agreed?
Missed a payment? Mistakes happen. Catch up as quickly as you can. A late payment generally only shows on your credit report once it is 30 days past due.
2. How will you make your payments?
A mortgage is a lot of money, so lenders want to feel confident you can pay it back over time.
Stable employment helps. Lenders generally prefer permanent positions past any probation period.
Variable income (commission, overtime, bonus, seasonal or contract work) is usually averaged over two years.
Self-employed? Expect to provide more documents, usually two years of tax returns and Notices of Assessment.
3. How much skin do you have in the game?
You will need to bring some of your own money to the table.
Minimum down payment in Canada:
5% of the first $500,000
10% of the portion between $500,000 and $1.5 million
20% for homes $1.5 million and over
Where it can come from:
Your own savings, with a 90-day history in your account (this is the strongest)
Your FHSA, RRSP (through the Home Buyers' Plan) or TFSA
A gift from an immediate family member
Sale proceeds from another property
Do not forget closing costs. Lenders want to see that you have at least 1.5% of the purchase price set aside for things like legal fees, title insurance and adjustments.
4. How much can you afford?
Here is the thing: what you can afford on paper and what you can afford in real life are often very different amounts.
What you qualify for depends on many factors: your income, debts, credit, down payment and the property itself. Everything has to be backed up with documents. That is why it is never too early to get professional advice.
How I can help
Review your credit and how lenders will see it
Explain how lenders will view your income
Plan your down payment and closing costs
Work out what you can comfortably borrow, not just the maximum
Build a written plan to improve your situation, if you need one
In most cases, my services come at no cost to you.
Let us build your plan together
Whether you are buying in a few months or a few years, the best time to start is now. Book a call and we will get your pre-approval and plan started.
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