FAQ
FAQ
Frequently Asked Questions
Before you start shopping for a mortgage, take stake of your financial situation. Are you financially ready to purchase a home?
Lenders principally look at three things when considering to grant a loan to a potential borrower:
Financial information of your credit report:
The credit report also contains factual information about your credit cards and loans:
All these factors have a direct impact on your score. The credit score range is anywhere between 300 to 900. The minimum credit score to be approved for a traditional mortgage is around 660, but again, higher is better.
What is the formula for determining how much home can a person afford?
According to Canada Mortgage and Housing Corporation (CMHC), your monthly housing costs should not be more than about 39% of your gross (before deductions) monthly income (GDS). These costs include your mortgage payments, property taxes and heat costs.
Your entire monthly debt load should not be more than 44% of your gross monthly income (TDS). This includes your mortgage payments and all your other debts, such as loan or credit card payments.
Before you start looking for the home you’d like to purchase, let us preapprove you for a mortgage. Once you know what amount you qualify for, you can start looking for the home that is right for you and your budget.
Do not forget to budget for the closing costs. Put aside at least 1.5% of the home’s purchase price to cover things such as: notary fees, welcome tax, title insurance, just to name a few.
A down payment is the amount of money you put towards the purchase of a home. Your lender deducts the down payment from the purchase price of your home. Your mortgage covers the rest of the price of the home.
The minimum amount you need for your down payment depends on the purchase price of the home.
If your down payment is less than 20% of the price of your home, you must purchase mortgage loan insurance.
If you are self-employed or have a poor credit history, your lender may require a larger down payment.
Normally, the minimum down payment must come from your own funds. It is better to save for a down payment and minimize your debts.
When you shop for a mortgage, a lender or mortgage broker provides you with options. Make sure you understand the options and features. This will help you choose a mortgage that best suits your needs.
This includes:
Term
The mortgage term is the length of time your mortgage contract is in effect. This consists of everything your mortgage contract outlines, including the interest rate. Terms can range from just a few months to 5 years or longer.
At the end of each term, you must renew your mortgage if you can’t pay the remaining balance in full. You’ll most likely require multiple terms to repay your mortgage.
Amortization
The amortization period is the length of time it takes to pay off a mortgage in full. The longer the amortization period, the lower your payments will be. Keep in mind that the longer you take to pay off your mortgage, the more interest you pay.
Interest rate
The interest is the fee you pay to the lender for borrowing money. The higher your interest rate, the higher your mortgage payments will be.
Types of interest
Payment frequency
Refers to how often you make your mortgage payments. You can also choose an accelerated payment schedule. Accelerated payments allow you to make the equivalent of one extra monthly payment each year. This can save you thousands, or tens of thousands of dollars in interest over the life of your mortgage.
Open mortgages
The interest rate is usually higher than on a closed mortgage with a comparable term length. It allows more flexibility if you plan on putting extra money toward your mortgage.
Closed mortgages
Closed term mortgages usually limit the amount of extra money you can put toward your mortgage each year. Your lender calls this a prepayment privilege and it is included in your mortgage contract. Not all closed mortgages allow prepayment privileges. They vary from lender to lender.
This is but the type of the iceberg, best to consult a mortgage broker who can walk you through all the ins and outs of which option best suits you.
To fulfil a lender’s conditions before receiving a final mortgage approval, you will need to provide the following documents:
For proof of employment, you may have to provide:
Each lender has its list of required documents. Best to have these under hand before starting the process. Without documented proof, your mortgage will not be approved.
A mortgage pre-approval is a good first step towards getting a final mortgage approval. It is basically a conditional approval that offers you insight into what you can afford. A pre-approved mortgage will allow you to:
You will need to provide the lender with the following:
A lender will assess this information to ensure you meet minimum requirements for a mortgage pre-approval.
There is nothing more disappointment then finding the home of your dreams than realization you do not qualify for the needed mortgage amount. Before starting to shop, know what you can afford.
Before buying a house, you need to consider some of the following:
Once you have answered these and many other questions, and you feel the time is right then start your search…