Exactly, What is a Mortgage?
A mortgage can be seen as a contract between a borrower and a lender. A lender provides money for a borrower under two conditions: first, the lender wants the entire debt re-paid. Second, the lender wants a kind of rent for the use of money, what we call interest.
Lenders don't give money to just anyone. Lenders want to make sure that both the original debt (the principal) and the interest are re-paid. To protect themselves, lenders require borrowers to meet a number of tests. These tests vary between lenders, the role of a BC mortgage broker is to match the best mortgage terms with the borrowers profile.
Borrowers must have strong credit histories showing they have made full and timely payments to other creditors. However, some lenders will consider weaker credit profiles. Your BC mortgage broker will know these profiles and act accordingly. Lenders will require credit reports. Borrowers must have a strong income today and prospects of a strong income tomorrow. Lenders verify employment records and income histories (income tax returns) to measure financial abilities. In the event of self employment some lenders will act on what is known as a “low doc” deal where the borrower provides a statement of income.
Borrowers can have other debt besides a home loan but not too much debt. How much debt is allowed depends on the amount paid down and the specific loan program. Credit reports help lenders measure debt obligations. These calculations are considered part the debt service ratio.
Some lenders will provide 100 percent financing even in the case where the client has poor credit. Most lenders will look at 95% financing, and the borrower will put up the rest in cash. But because most people don't happen to have tens of thousands of dollars handy at any given moment, lenders will gift letters for the down payment. These mortgages will require mortgage insurance.
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