My Mortgage Blog

How to Qualify for a Mortgage during COVID-19

Whether it’s for a first home, or refinancing to consolidate debt, or simply renewing your existing mortgage with a new lender to take advantage of a lower interest rate, you need to qualify for a mortgage. It's not all low rates and endless options.

Low mortgage rates are great, but they're low for a reason and that's not good news. With COVID-19 challenges that include layoffs and deferred mortgage payments, getting a mortgage may be a bit tougher for some. It doesn’t mean you’re shut out of the market completely. It means you have to plan ahead and be careful managing your debt load.

Lenders generally look at five variables to determine whether you qualify for a mortgage.

The Five C's of Credit

1. Capacity

Can you repay the mortgage loan? This is the most important of the five and is primarily the gross and the total debt service ratios (GDS and TDS). It’s these ratios that are affected by changes to interest and qualifying rates, income and debt load. The GDS considers just the monthly expenses on the new property (mortgage payment, property taxes, condo fees and heat) and they must be no more than 39% of your gross income. The TDS looks at the monthly expenses on the property PLUS and other debt repayments you have and they must be no more than 44% of your gross income. If you plan to qualify for a mortgage, keeping your debt levels low may be key.

2. Capital

This is your down payment. From a lender’s perspective, the higher the down payment, the more likely it is that you will do all you can to keep up with the mortgage payments. Capital may also reflect your ability and willingness to save money and accumulate assets (ie. net worth). In order to qualify for a mortgage you want, you may require more down.

3. Character

This is subjective: It’s an impression of your trustworthiness. It’s the big picture. Lenders look at how long you’ve been employed and how secure you are. They will also look at your ability to save and manage your credit.

4. Collateral

Yes, your cash flow is important but so is the property you’re buying. In a real estate transaction, the lender needs assurance that, should the borrower be unable to repay the mortgage, the property itself is marketable and can be resold. This is why lenders may require an appraisal to confirm the value of the property.

5. Credit

This is your credit history – the more years you’ve been an active credit user the better. Your past and current ability and willingness to repay credit granters plays a huge role in your ability to qualify for a mortgage. Your credit report is the sole source for your credit repayment history. It also contains detailed information on such things as your active and closed accounts, limits, minimum payments, past missed payments, current balances, and current status of the account.

Rates and Real Estate Market Activity

Currently, we are in a low rate environment and the Bank of Canada suggests rates will stay low for at least another year. Despite the challenges of getting a mortgage, especially in areas where house prices are rising, there is still market activity.

  • The Canadian Real Estate Association reported the following:
  • National home sales rose 63% on a month-over-month basis in June
  • Actual (not seasonally adjusted) activity was up 15.2% year-over-year
  • The number of newly listed properties climbed 49.5% from May to June

So, right now the housing market appears to continue to be strong.

Working with a mortgage professional can be your key to homeownership, so let’s schedule a conversation. Call me today.