By: Chris Cleghorne

The Mortgage Application Process And Your Credit Score. How Does It Work?

Tags: mortgage application, credit score, buying a home, MIssissauga

Lenders have a specific set of rules to determine whether an individual qualifies for a mortgage or not. These rules include several less or more complex steps that mortgage applicants have to take. Most potential homebuyers have heard about credit score and credit history and that it plays a significant role in the application process, but what does it actually mean and how is it assessed? Read the following tips to find out what you can expect once you decide to get a mortgage.

Your Income
Your credit score will depend on your income, expenditures and how much you owe. In general, the housing costs should not exceed 32% of the total household income (combined income of all members of the household) and they include the mortgage (principal and interest of course), taxes and heating as defined by the CMHC. You will need to submit an employment letter which includes data on your salary and pay stubs that prove how much goes into taxes and insurance. Lenders will also take a look into your savings for the past 90 days to check on the amount for the down payment. This means that getting the money from someone else and putting it into your account won’t work. Lenders insist on knowing the source of your down payment. This doesn’t mean that you are not entitled to borrow from family/friends, but you just have to disclose it.

Credit Score
Your credit score is pretty important in the process as it proves how you handle your finances. Based on it, the lender can see how responsible you are with your money and if you pay your bills and credit card debt on time. Going more than 35% over your credit limit will not be appreciated at the lender’s office.  For example, if your credit limit is $2,000 and you owe over $700, it could pose a problem for lenders. Keep your credit limit close to the minimum or at least work on reducing your debt by paying more than the minimum. Luckily, you can improve your credit score with time. Before you go to the lender, check your credit score yourself by ordering a credit report from TransUnion or Equifax so you know where you stand at. Moreover, if the credit bureaus made any mistakes you can have them corrected before the lender even gets to see them.

The Mortgage Lender
All mortgage applicants have the same goal - to spend as little as possible on interest. While this seems only reasonable, homebuyers should know that certain lenders impose hidden fees which can turn out costlier than higher interest rates. So, when you find a lender with the best rates, make sure to read the terms and conditions in detail and don’t be afraid to ask questions. Having a mortgage broker on your side would probably help you make an informed decision. For mortgage advice based on your individual needs go to

The mortgage process can get complicated and there are certain mortgage traps that should be avoided  by all means possible, especially if you are a first-time homebuyer with no prior experience.