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How to Qualify for Second Mortgages in Toronto

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How to Qualify for Second Mortgages in Toronto

A second mortgage, which, as the name suggests, is a secondary loan in addition to your initial mortgage based on the equity you have built up within your home. In order to qualify for second mortgages in Toronto, you will need to ensure you have five checkpoints covered before getting into signing an agreement with your prospective lender.

1. Equity

One of the most important factors in order to qualify for a second mortgage will be your home’s equity. Equity is calculated by taking your home’s current market value and subtracting the amount you currently owe from your original mortgage. Remember, you can only borrow what you already own, so the amount you are able to acquire is dependent on the amount of equity you have available.

2. Credit Score

If you’ve ever wondered why everyone around you encourages you to start building a good credit score, this is a great example of how being consistent can help you down the road. A credit score ranges from 300 to 850, with most traditional banks considering anything below 650 as an unfavourable candidate. Your credit score is calculated by third party groups that analyze your payment history for loans and lines of credit to determine your risk factor. The higher your credit score, the more favourable terms and interest rates your potential lenders will likely offer you. Fear not if your credit score isn’t picture perfect. You can still qualify for a second mortgage if the rest of your application appears promising. If your credit score is a concern, bring it up with your financial advisor so that they can walk you through your different options and answer questions in detail.

3. Employment

Stable and consistent employment is another factor that adds appeal and confidence for a candidate seeking second mortgages in Toronto. The more time you've spent consistently employed and the longer you’ve been with your most recent employer will provide potential lenders the reassurance that you are a good candidate to invest in. Timing is key, so consider booking appointments with various lenders (starting with your current mortgage lender) once you have established yourself at your workplace and are able to demonstrate a steady source of income.

4. Personal Documents

Similar to a standard mortgage, second mortgage lenders will require you to provide paperwork such as a proof-of-employment, bank statements and a social insurance number. Ask your potential lenders what documents they will require to submit an application, so that you can get organized and have all the appropriate details sorted through.

5. Closing Costs and Application Fees

Unlike personal loans or traditional lines of credit, there are additional fees or "closing costs” associated with a second mortgage. For example, since the amount you are able to borrow is dependent on your home’s equity, lenders will require a professional appraisal of your home to ensure that the market value is accurate and up to date. Other fees can include legal fees and title insurance/search. It is important to take the time to create a budget and sit down with a trusted mortgage lender to ensure that you understand all the costs associated with obtaining second mortgages in Toronto. 


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