Our mortgage specialist explains how to boost your credit rating

Learn about the information you need to get a mortgage pre-approval, the steps you can take to improve your credit rating, and the better choice between fixed and variable interest rates in our interview with Paul Davies, Senior Sales Associate and In-House Mortgage Professional at Partners Development Group.

What information do I need to have ready for my appointment to get a mortgage pre-approval?

The process is incredibly simple and can be done completely via email correspondence. Some standard items needed to complete the process are the last two years of T4s/NOAs/T1 Generals, a job letter from your employer and your latest pay stub. These are generally the most important items needed to see how much you qualify for. 

How do you recommend I build a credit history? What are good ways to borrow and pay back money?

The two biggest factors in keeping a solid credit score are:

    1. Making sure to pay everything on time; and
    2. Keeping your credit balances below 50% of total credit (this is known as utilization).

If you have had blemishes on your bureau in the past, it’s important to try and build new credit as fast as possible. It’s good to have a few lines on your credit bureau, but just make sure that you don’t have too many credit sources with outstanding balances or loans, including student loans, because they can affect your score too.

What can I do to improve my credit rating and get approved for a bigger mortgage?

Credit rating generally doesn’t affect the amount that you are qualified for, but moreover affects whether or not you will be approved. See above on ways to keep your credit score solid. In regards to how much you qualify for, the biggest factor is going to be your income. When you are looking to be approved for a higher amount, you may need more income and that might mean getting a co-signer. Increasing your down payment can also benefit you in regards to being approved for a higher mortgage amount. Always put down 20% if you can to skip out on the mortgage insurance fees! Also, if you’re thinking about getting a new vehicle, make sure to get it after you purchase a home. Car payments can be very large issues in calculating your total buying power. 

Once I get a mortgage pre-approval, how long can you hold the rate for?

Approvals can be good for as few as 60 days, all the way up to 12 months. I have a 3.75% (5-year fixed) 12 month hold for my Partners Development Group clients who are building homes that won’t be ready for a year! It’s important to understand that a pre-approval and a full approval are not the same thing. When you have an actual deal in place, that’s when the lenders will do all of the standard underwriting to make sure the deal is a fit. Pre-approvals are not underwritten -always let your mortgage broker know what kind of home you are looking at so we can add in all the variables to get you the proper approval amount.

Can you explain the difference between variable rate and fixed rate?

Fixed rates are set for a term (usually 5-years) and variable rates adjust according to the prime rateset by the lender. Variable rates are established as “Prime – X %”. For instance, I’m offering Prime – 1.0% right now, and since Prime rate is at 3.95%, you would be looking at 2.95% for your interest rate, until the bank of Canada raises or decreases rates again and Prime is changed. Variable can be a great option, but in this increasing rate environment, I find that fixed is the best direction to go!

What’s the difference between getting a mortgage approval from a broker compared to a bank?

When working with a broker like myself, you are not working with just one product, but with all the lenders that I have at my disposal. I work with 40+ mortgage lenders, so it’s easy for me to find which mortgage product fits you best. When dealing with a bank, they will try to sell you on their one single mortgage option, whether it works for you. Their mortgages come with collateral charges, high payout penalties, and low flexibility or higher rates, so they are usually not the best fit. Allow me to do all of the shopping around for you to give you the best option!

To discuss your mortgage needs, contact Paul on Paul.Davies@advancedmls.ca