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(August 15, 2022)

With all the talk about interest rates in the past few months there’s been less focus on the actual qualification guidelines. Here are the key qualification points to look out for if you are looking to get qualified for a mortgage in 2022:

The minimum down payment to secure is a mortgage is as follows:

5% down up to $500,000, then
10% on the balance, thereafter up to $999,999
20% down payment on purchases that are $1M or higher, up to as high as $2.25M, then
40%-50% on the balance, thereafter
Once you hit the $3M Purchase point, down payment scales differ from lender to lender…call Marko to find out more

Minimum credit score requirements are ~610 to 620 (beacon scores)

anything lower than 610 often results in sub-prime lending (rates are higher and potential for fees)

Arguably more important than your credit score is the current rating and history of your individual credit facilities. Be aware of and/or avoid the following actions:

PAY YOUR BILLS ON TIME. Lenders won’t fuss about the odd late payment, but if you are 2 payments behind, be prepared to provide a detailed explanation and support documents if possible.
avoid disputes and standoffs with creditors. If anything, pay your disputed payment then argue for the refund after. The resulting damage to your credit score could far outweigh the potential victory. Oftentimes, the outcome of a standoff with a creditor results in a downgraded credit standing, derogatory rating, and a prolonged suspension of mortgage qualification for AAA lenders (lenders with the best rates and terms)…in some cases, the damage is equivalent to that of a bankruptcy. Remember, pay the dispute – argue later.
avoid exceeding 60% of your approved credit limit on your credit cards and lines of credit. If you do, do not allow it to sit for long (more than 2 months)…if you do, your credit score will start sliding

Understand that some mortgage terms and rates will yield higher mortgage qualification amounts than others (i.e. variable rate applicants qualify for more than 5 yr fixed applicants). Currently, the spread between fixed and variable rate mortgages can be as high as 1.5% to 2%, thereby enabling variable rate applicants to qualify for larger mortgages due to the lower qualifying rate. This may seem advantageous and reasonable for some, but not for all. Be sure to discuss all possible outcomes with your mortgage broker before proceeding with your term selection.

Qualify for a mortgage BEFORE becoming self employed, because as soon as you become self employed you are no longer eligible to qualify for a mortgage for at least 2 years (the minimum established tenure for self employed applicants). However, the following circumstances may qualify as exceptions:

if you are transitioning from payroll employment to self-employment, but maintaining the same profession (i.e. transitioning from payroll engineer to independent contractor engineer)
if you are able to provide a minimum down payment of 20% and three consecutive months of business income via bank statements
both of the aforementioned circumstances may be subject to slightly higher interest rates and fees ranging from 1% to 2%

If you are planning on using borrowed money for your down payment, be sure to disclose it to your mortgage broker and ensure that they are aware of it. Otherwise, it may be discovered later on at a critical stage of your closing. Using borrowed money is allowed, but it falls under a different qualification guideline and often requires a re-do of your entire mortgage application, thereby resulting in costly delays and even outright deal collapses

Be clear on the intent of your purchase. Disclose whether you intend on living in the property regularly or if it will be used for investment purposes (rental property). If your intent is misinterpreted or falsely stated in the application, your entire application submission will likely be declined for misrepresentation and will have to be re-adjudicated with the appropriate qualification criteria as per your newly discovered intent.

Be prompt with your document and information submissions. When qualifying for a mortgage within the financing conditions time frame, time is of the essence. Lenders rarely operate in real time, so make sure you are prompt with your documentation from the onset of the submission. Prepare to gather all of your required qualification documents (recent pay stub, employment letter, down payment verification, etc) before you even submit an offer on a property. Furthermore, when your mortgage broker requests any additional documents, reply as soon as possible to ensure the documents are reviewed and approved in a timely manner

ALWAYS complete a formal mortgage preQualification. If your credit report hasn’t been pulled and verification documents haven’t been requested from you, this means you are not preQualified (or pre-approved). Call Marko for a formal mortgage preQualification (aka pre-approval).