If you are looking to purchase a home you must be thinking about how to get approved for a mortgage at the lowest possible mortgage interest rate. Different lending institutions offer different mortgage interest rates to applicants based on the risk that they represent as a potential client.
Usually financial institutions that offer CMHC mortgage insurance offer the lowest interest rates. That is because if your mortgage is CMHC insured and you default, CMHC will pay the bank for any shortfall. That’s not to say that CMHC won’t try to collect the money back from you in the future.
This means that if you want to get approved for a CMHC insured low interest mortgage you will have to satisfy CMHC’s requirements as well as the banks. Both CMHC and the bank have common criteria.
1. You must be able to prove your income.
2. You must demonstrate stability.
3. Your income to debt service ratios must be in line.
4. You must have the minimum required down payment.
5. You must meet their credit score requirements.
Generally a financial institution will want to see that you have had the same income source for the past 3 years. They will sometimes request your tax assessments as evidence. If you are employed they may ask for a job letter and paystub.
Your debt service ratios consist of two numbers, your GDS and TDS. Your TDS is your “total debt service ratio” This is the amount of your monthly income that is consumed by your housing payments and payments to debt divided into your gross monthly income expressed as a percentage. CMHC and most lenders will require that your TDS does not exceed 42% (with your new mortgage).
Your GDS is your “gross debt service ratio” which is the amount of your monthly income that is consumed by your housing payments alone, against your gross monthly income, expressed as a percentage. CMHC and most lenders will require that your GDS does not exceed 32% (with your new mortgage).
You must be able to prove that you have the required down payment or if you are refinancing, that you have the sufficient equity.