5 Things You Should Do Before Applying For A Mortgage, According To An Expert

Ensure you have a stable and consistent income

Zlatkin made it clear during our phone call that having a stable and consistent income is an essential factor that individuals, especially first-time homebuyers, should carefully consider before applying for a mortgage.

"A lot of people in our current economy work in gig jobs or contractual jobs where they're working a three-month contract or a six-month contract and then it renews. If you're doing that, and you've got contract [after contract coming in] you're only going to be able to use that income if you've been doing it for two tax years," she said to Narcity, before adding that even individuals who earn a substantial amount in a short period of time may not qualify for the mortgage they want if it's not consistent.

"Young buyers [have to] make sure [they've] got consistent income coming in to qualify for a mortgage and many of them don't understand that or feel confused as to why they can't get a mortgage when they've got a great contract for six months where they're making $150,000 and they feel that they should be entitled to a mortgage based on that."

Zlatkin also pointed out that the same rule applies to individuals who have recently started a new job. They may be required to complete their probation period before their income is considered eligible for a mortgage. Zlatkin emphasized that even if someone had consistent employment in the same field before a layoff, it doesn't guarantee mortgage approval.

Don't bite off more than you can chew

Zlatkin outlined the importance of not biting off more than you can chew when applying for a mortgage. While clients may qualify for a certain amount of money, Zlatkin believes that they should only take on a mortgage if they can comfortably afford the payments.

To illustrate her point, she provided an example of young Canadians who rely on parental guarantors and applied for a larger mortgage than they can independently handle. Zlatkin cautioned that if clients can barely manage the payments without parental assistance, it exposes them to potential risks.

'The young couple [were] teachers making good income, but [they told me that] they would be starting a family at some point soon, and that the wife would be going on [maternity] leave," she recalled. "[I] said to them, you know, I've got you an approval for this much money. You just bid on a house and you have a condition of financing."

Zlatkin said she immediately questioned the couple's strategy and inquired whether their guarantors were going to help out with mortgage payments while the wife was away on mat leave, warning them of the reality of their payments.

"Are you [going to] have enough money to buy diapers and groceries? [Are] your parents [going to] give you guys money because, in my opinion, you guys are not going to be able to pay your bills," she added.

In the end, even though the couple qualified for the mortgage when their parents' income was included, they came to the realization that they couldn't afford the house on their own without outside financial help. As a result, they made the decision not to go ahead with the purchase.

Zlatkin advised people to consider their long-term financial stability and avoid signing up for the biggest mortgage they qualify for without considering ongoing expenses and possible income changes.

Do your own calculations

Calculating the mortgage you can afford on your own is simpler than it may seem, despite the complex answers sometimes provided by banks. According to Zlatkin, the process involves a straightforward calculation.

Start with your down payment. She advised it should be 20% for property worth over a million dollars, and can be less if the property price is lower. Then, add four to five times your annual income to determine the mortgage amount you would likely qualify for. The only thing to keep in mind is this calculation assumes no existing liabilities.

"So if you make $100,000 a year, you can qualify for a mortgage of between $400,000 to $500,000 and if you have $100,000 in savings somewhere, that's $100,000 plus the $400,000 or $500,000 that you'll get in mortgage money. So you can afford a property between $500,000 and $600,000," she explained.

However, Zlatkin noted that it's important to consider any existing liabilities, such as child support, spousal support, or significant lease payments, as these factors can impact your borrowing capacity.

Still, if you don't have any outstanding debts and are currently renting without additional financial responsibilities, Zlatkin suggests that this calculation offers a reliable estimate.

So, really, anyone willing to consider their financial situation and carefully evaluate their income and expenses can determine a suitable mortgage amount for themselves.

Review your amortization schedule carefully

According to Zlatkin, an important aspect that often goes unnoticed when individuals sign onto a mortgage is thoroughly reviewing their amortization schedule. She emphasizes that this document plays a vital role in people's day-to-day lives as it outlines the monthly or weekly payment amounts required throughout the duration of the mortgage, which can span several years.

"A lot of people don't do that step. And then for some reason, they feel surprised by the payments that they're having to make for their mortgage, or they don't understand that [they] can't splurge on going on vacation because [they're] paying so much towards [their] mortgage," Zlatkin said.

To prevent any unexpected surprises, Zlatkin highlighted the need for individuals to take the time to carefully examine this document during the mortgage application process. By doing so, they can accurately understand the exact amount they need to set aside for mortgage payments and include it in their family's budget.

This is especially important for first-time homebuyers who may not be familiar with all the details of getting a mortgage.

"For first-time homebuyers, I always make sure to stress: please look at your amortization schedule. Understand how much you're going to be paying each month for the next three years and make sure that you're comfortable with that and that fits your family's budget. That's something a lot of people don't do. So I would highly recommend looking at your amortization schedule and understanding your payment amounts," Zlatkin added.

Consult a mortgage broker

Zlatkin underscored to Narcity the importance of consulting a mortgage expert before applying for a mortgage. According to her, this step is crucial because experts can offer valuable insights and explore unconventional options to help you qualify for a better mortgage or a nicer home.

She also highlighted how the mortgage landscape has evolved recently and now presents various opportunities beyond traditional approaches. For instance, zoning guidelines in Ontario now allow for multiple family residences within a property.

"Let's say you are a young buyer and you really want to get into the housing market, and you're only going to qualify for $400,000 or $500,000 on your own, but you see an opportunity to buy a property for $850,000. And there's an opportunity to rent out both the basement and the upstairs and you could live on the top floor, maybe it's a three-floor home, then potentially you could include rental income in that as well. And you might be able to qualify for more money based on the fact that you're buying a unit that's going to have rents coming in as income," Zlatkin explained.

Financial factors such as car leases and transportation options also come into play when buying property.

"Let's say you've got a car lease and it's an open car lease. [We] can make a recommendation that [since] you're buying a condo downtown, [and] you're going to be able to take the TTC maybe you can get rid of that car," she added. "Then we can discuss [what] happens if you get rid of those lease payments. What are you going to qualify for now? [There's] all sorts of options available to people if you work with somebody who's smart and knows what they're doing."

Zlatkin believes that utilizing these expert strategies can increase your chances of qualifying for a bigger mortgage. That's why she strongly recommends consulting an expert who can guide you through the mortgage qualification process and help you maximize your borrowing potential.