Buying a house is one of the most exciting steps that many people and families take during their lifetimes. Leaving apartment living behind and building a financial legacy through home equity is one of the milestones that our culture associates with adulthood.
One of the most stressful parts of the process for many of our clients in the cities of Edmonton and Calgary, as well as places like Lethbridge, Grande Prairie, Red Deer and Medicine Hat, is actually finding a mortgage loan in Alberta. Some people have it relatively easy, of course: they have squirreled away a down payment of at least 20 percent, and they have kept pristine credit. They also have worked for the same employer for several years, building a reliable income history. The banks love these sorts of clients and issue them loans at the very lowest rates.
However, not everyone who can qualify for a mortgage fits into that mold. There are many things that can cause a credit score to suffer, such as unexpected loss of income (and increase in expenses) during a divorce, a layoff or a serious illness or injury.
Your income history can take a hit if your company lays you off and you spend six months looking for work. If you’re self-employed, you may not be to the point where you’re taking a regular salary every month or even every quarter. You may have the assets on hand to fund mortgage payments, but they may not be coming in with the regularity that banks like to see.
If you can’t get one of the “A” lenders — the retail banks who offer the lowest interest rates — then we have connections with lenders in what are known as the “Alt-A,” “B” and private lending ranks. The “Alt-A” and “B” lenders operate much the same way as the “A” group, using credit score and income to determine eligibility, but they are used to dealing with clients who are a little rough around the edges in terms of credit and income. You’ll pay a slightly higher interest rate than you would have with an “A” lender, but you’re still starting to build home equity, and if you sign a loan with a short enough term, you can renew at a better interest rate with an “A” lender when your credit has improved.
Private lenders are another source of mortgage loans in Alberta. They are people and companies who want to profit from mortgages that offer returns around 10 percent, but vary depending on position of investment and overall LTV. That’s a fairly high interest rate, but these are short-term loans (maybe 1-2 years) designed to get you into a house now while you repair your credit and build an income history. Private lenders will also look at the equity position to reduce their risk. For example, if the equity is 35% or greater, you may be able to secure a private mortgage for about 6% plus applicable fees. Many private lenders do not like to exceed 75% of the value of the property value; however some will go up to 85-90% in very rare occasions. This can sometimes be achieved by a mortgage with the seller providing vendor take back financing for the balance, however a 10% minimum down payment is generally required in even the most creative circumstances.
An additional advantage to securing a private mortgage is that if you own other real estate via inheritance or gifted that carry very good equity, that can at times be used as security to lower the down payment required to transact on a new purchase.
Most down payments aren’t more than 20 percent, by and large, leaving a lot of money out there for financing. If you think that your savings, credit score and employment history are solid enough to talk about pre-approval for a mortgage, then Amansad Financial stands ready to connect you with the funding you need to buy that house.
How to qualify for a mortgage in Alberta
The first factor for those who want to learn how to get a mortgage in Alberta is your down payment. Lenders will want to know how much of a down payment you have to put toward your new mortgage. However, just having a big stash in your account is not enough. Lenders want to know where you got it. If you borrowed it, that means you have additional debt that factors in to your mortgage approval process. If it’s a gift or you saved it, or if you sold another house or asset to get it, that’s another thing. Another question has to do with just where this money is. Is it tied up in investments that will cost you a hefty fee or tax burden to get out, or is it sitting in a savings account? That all is a part of the considerations with your down payment.
Qualifying for a mortgage in Alberta
A second area in which your potential lenders will have interest is your current income. How do you make your money? Are you a full-time employee of a company, or are you self-employed? How stable is your company? If you are self-employed, how reliable is that income? How stable is your industry? If you work in a seasonal industry, how do you make money the rest of the year? Is your seasonal income enough to ensure that you have enough money to make those mortgage payments the rest of the year? What other debt obligations have a claim on your income? What about child support, other credit lines, and car loan payments? All of these factors play a role, because if your debt load is too high, mortgage lenders have a legal obligation to limit the size of your mortgage to keep your debt-to-income ratio at an acceptable level.
How to get a mortgage in Alberta with bad credit
A third factor that lenders look at is your overall credit history. When you borrow funds, do you pay it back per your agreements, or do you fall into default regularly? This is what your credit report tells your lender. If you have no debt in Canada (and never have), you will need to establish a year’s credit history by taking out at least 2 credit card (trade lines) for 12 months. If you have had credit issues in the past, you are by no means alone, but your lender will want to know if you’ve cleaned up those other issues. Get those other creditors paid before you consider applying for a loan with a conventional source. If your problems are major enough, you may have to come up with a down payment of at least 20 to 25 percent even to get a chance at approval. If 15% is saved, you may qualify for a private mortgage at a higher than posted rate.
A fourth factor is the property itself. Where is the house? What is its current condition? What is its appraisal value? The reason why lenders are concerned about this is that the house is the actual collateral for your loan. If something happens and you go into default, the bank wants to know if it will be able to sell the house for close to the payoff amount on the loan within a reasonably short amount of time. If you are looking at a nicer home in a major city, this is not going to be a problem. If you’re looking at a small, older house in a small town, this can be a little bit more of an issue. After pre-approval for your loan, the appraisal will determine whether you actually get the loan or not in many cases.
Pre Qualifying for Mortgage
Finally, there are some other conditions that can have an influence on your application. If you move around a lot, the bank might wonder if you will be there long enough to make the equity worth it. If you industry is going through a lot of turmoil, that can be another factor if other factors are on the edge of approval. If you are curious about your own financial situation and your likelihood of obtaining a conventional loan, give the pros at Amansad Financial a call today!