As you browse the mortgage market, you may quickly learn that mortgage terms can vary based on your credit status, income, down payment or available equity in the home, location, property type, and more. You might wonder, is it actually possible to negotiate for better mortgage terms? Lenders are often quite willing to discuss rates and terms with potential borrowers they see as low-risk, and even in some higher-risk scenarios. However, negotiating successfully requires that you know what you’re bringing to the table, and know how to state your case.
Here are the ways your initial mortgage terms are determined, and how you can get the best deal possible for your needs.
Your Credit Status: Everything You Need to Know
Your credit status is the sum of the factors that lenders consider when assessing a potential borrower. Lenders consider several factors during a mortgage application, including:
Personal Credit Score
Your personal credit score is the first thing lenders look at. That’s because your credit score is essentially your credit “grade” that sums up your credit history. A good credit score is a sign that you have borrowed money in the past and have paid it back on time.
A good credit score in Canada, according to Equifax, is 660 to 724. If your personal credit score is in this range or better, you should be able to get average or above average rates for your mortgage.
This is the ratio of your total debt against your income. For example, if you earn $10,000 a month and have minimum monthly debt payments of $2,000 per month that you need to make every month, than you are considered to have a debt-to-income ratio of 1:5.
Owing too much money relative to your income is a red flag for lenders. They prefer to lend money to people who appear to have their accumulated debt situation under control.
In certain circumstances, your debt-to-income ratio can be changed far faster than your credit score can. If you can pay off a significant portion of your debt immediately, you can reduce your debt-to-income ratio faster and therefore may be able to qualify for a better mortgage rate and term, and even a higher mortgage amount.
Major traditional Canadian lenders, such as banks and credit unions, are typically willing to consider borrowers with ratios of less than 43%. This means that if you currently have more than 43% of your annual income in debt, many AAA lenders will either reject your application or request extraordinary collateral or high interest rates. In this case, you may be best served by an alternative lender such as a trust company. Even some credit unions offer alternative mortgage solutions for people with higher debt-to-income ratios.
What if my Credit Score is Too Low or Debt-to-Income Ratio is Too High?
At Clover Mortgage, we understand the challenges faced by borrowers suffering from low creditworthiness or too many debts. Sometimes, life circumstances lead to responsible people having poor credit or high levels of debt.
Clover Mortgage can help borrowers in any credit score range. We offer a guide and unique service for people who want to acquire a home or refinance their existing mortgage, but are currently struggling to do so. Our high level of service is the same for all of our customers, and we know how to navigate the often-difficult field of bad credit mortgages.
How to Find the Best Lender
The best lender for you is the lender that offers the best deal given your credit and income status. The way to find the best lender is to compare different lenders’ rates and terms.
You can go through multiple mortgage pre-qualifications to compare offers thoroughly, however this can be a time consuming and tedious task. Pre-qualification means you submit your documents to a mortgage lender, and they will return to you with an offer and a “rate hold” for up to 120 with some lenders provided that you meet their qualification requirements. Having a rate hold means that you can submit a formal application for the offer they return to you within the accepted time frame once you’ve successfully purchased a home.
Pre-qualifying for a mortgage does not oblige you to take a mortgage from that lender. It also doesn’t negatively affect your credit score.
You can pre-qualify with many lenders online, but that too can take a long time and be a tedious undertaking. Should you like an offer you receive and choose to submit a formal mortgage application, you will have to go through the much longer and more thorough formal mortgage application process once you are ready and have a committed purchase and sale agreement on a property.
Tips to Strengthen Your Chances of Getting the Best Deal
To get the best deal possible for a mortgage, you can improve your creditworthiness and pay down some of your debt ahead of time. You can do so by increasing your credit score, making your payments on time, and paying off your debts.
The other way to make sure you get the best deal possible is to negotiate for better terms. In many cases it is possible to negotiate with lenders, and there are a few things you can do to improve your chances.
If your lender, whether it be your bank or another lender, doesn’t offer the lowest rate, you can try to talk the rate down. Ask your lender if they can make a better offer - asking them to “do better” won’t always work, so you can let them know that you know of better rates. Let them know another lender has offered a lower rate, and see if they’re willing to beat it.
Some lenders are willing to lower their rates to gain new business or to keep old business. If you’ve been a good long-term customer at your bank, you can remind your bank of that fact. A mortgage is a very profitable thing for a bank or another lender to provide. That’s why most lenders provide some leeway for negotiation.
To best position yourself to negotiate, it’s important to understand your position at the bargaining table. This is why comparing different mortgage products is so helpful.
Getting the ideal mortgage is stressful; having to negotiate with people who lend money for a living doesn’t necessarily make it any easier. People looking to buy a home often need a helping hand. That’s why Clover Mortgage helps people find the best mortgage deals that they can qualify for.
Clover Mortgage can help you get better loan deals in a few ways. We help our customers strengthen their applications to get started on the right foot, and we compare offers and negotiate with lenders to ensure that the best deal can be reached.