In a competitive housing market driven by low rates and bidding wars, an understanding of underwriting is a key advantage. Here is some solid advice from one of our lead underwriters that can help you get the answers you need – and seal the deal – sooner and hassle-free.
The first step is to work with a mortgage professional, says Andy Posgate, leader of technical underwriting with Genworth Canada. “They’ll ask you the right questions to help you determine the type of home – and budget – that’s right for you.”
Working with a mortgage professional also helps ensure you are pre-approved for a mortgage and ready to make an offer when the opportunity strikes. Your mortgage advisor will help you obtain your credit report and all other documentation required by the lender or mortgage insurer to review and approve your mortgage application.
Lenders and mortgage insurers will take a close look at your financial history, including sources of income and employment experience. They are quick to identify red flags and may ask for further information if you have a history of changing jobs or homes frequently, for example. “You’re going to feel like you’re telling them more than you ever expected,” said Posgate.
A history of missed bill payments or frequent lateness is also an important red flag and could stop a mortgage application in its tracks. It is therefore important to supply sufficient documented proof of your income level and creditworthiness.
This documentation can include a letter of employment from your current employer, recent pay stubs, bank deposit statements, notice of assessment or other evidence of sources of income. “Required documentation may vary depending on the financial institution you deal with,” said Posgate. It may also vary depending on your age, employment status, income level and other factors.”
For self-employed borrowers, the process is more rigorous. Self-employed applicants should be prepared to prove a consistent level of income over at least two years, validated through their most recent notice of assessments.
The same applies for homebuyers who work part-time, on contract or on commission. “Stability is what we’re trying to see evidence of with part-time employment or contract jobs,” said Posgate. “You’d want some history behind you and the documentation to back it up.”
The preapproval process determines the size of mortgage you may qualify for, including any savings or “gifts” for the down payment. If relying on gifts for your down payment, you may be required to provide a letter stating the money is a gift and not a loan. And co-signing may be required if you lack sufficient credit history.
Even once pre-approved, the process isn’t over. “You have about five days from the date you signed an offer to arrange your financing on the mortgage,” said Posgate. “If the offer is accepted and there is a financing condition, your mortgage broker and real estate professional will guide you through the next steps.”
While applying for a mortgage can be emotional and time-consuming, being well-prepared in advance can help make the experience more pleasant and help you obtain the keys to that dream home sooner than you think!