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Arranging a mortgage
Securing a Mortgage
Applying
When applying for a mortgage, provide prospective lenders with enough information
about your work history, debts and assets. They're looking at the state of your
personal finances. They will look at your gross income and potential mortgage payments
and property tax expenses to come up with a Gross Debt Service ratio (GDS). This
is usually limited to 30-35% of your gross income. To that lenders will add all
other debts to come up with a Total Debt Service ratio (TDS), which can't exceed
more than 40 percent of your gross earnings.
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What Lenders Look For
Lenders are looking at the risk factors from two points. First, will you be able
to make your scheduled monthly payments? Second, if you default (don't make your
payments) can the financial institution get enough money from the sale of the house
to repay the loan?
Approval Process
You'll be asked about your net worth, the difference between the value of everything
you own and the amount you owe. Lenders take into account your bank balance, any
types of investments, other real estate, cars and boats, other loans, credit card
balances and many other things. Remember to be as specific as possible. So if you
have a coin, significant stamp or art collection, have it appraised!
Your credit rating is your history of loan repayment and will be used by lenders
as an indicator of your ability to repay your mortgage. It covers how you've managed
past debts or if you've filed for bankruptcy. You'll be asked to sign a form allowing
your financial institution to gather information from your employer, creditors and
credit rating agencies.
If you've had credit problems, it may be a good idea to check and clean them up before
you apply for a mortgage. You can check your own credit rating by contacting a company
that compiles the information. One source is the Trans Union Customer Relations
Department, P.O. Box 338-LCD1, Hamilton, Ontario L8L 7W2. Simply send a note asking
for your credit rating along with photocopies of two pieces of ID with your current
address, plus a photocopy of a utility bill or credit card invoice. The process
takes about two weeks and you'll get a good idea of how you'll be evaluated by the
banks.)
If there is an outstanding debt, contact the creditor and resolve it. If you notice
an error, report it immediately in writing and get it resolved.
Although your credit may not be perfect, it does not mean you are unable to purchase
a home. Make sure you talk to a mortgage broker about your situation before you
give up on your dream. Even if you can't buy now, your mortgage broker can help
you re-establish your credit so that one day you will be able to live your dream
of owning a home.
Insurance - Mortgage Loan Insurance
As a first-time home buyer, chances are, you're not walking into your deal with a
huge down payment. As you may have already discovered in other areas of the site,
you can purchase a home with as little as 10% down, or even a 5% down payment if
you qualify with CMHC's First Home Loan Insurance.
Bottom line, if your down payment is less than 25% of the value of the home, you
must purchase mortgage loan insurance. In Canada, most lenders are legally required
to insure these high risk mortgages. This insurance means that if you default on
your mortgage, your lender receives their money from the Canadian Mortgage and Housing
Corporation (CMHC) or other insurer. And it's coverage like this that gives most
lenders the confidence to finance up to 90% of your purchase.
Insurance - What Does it Cost?
The actual premium of the loan ranges between 0.5% and 3%, and is based on the size
of the loan and value of your home. You can make your premium in two ways: as a
lump sum when you make your purchase or as part of your monthly mortgage payments.
But keep in mind, if you're paying it monthly, you're also paying interest on the
premium!
Bottom line, if your down payment is less than 25% of the value of the home, you
must purchase mortgage loan insurance. In Canada, most lenders are legally required
to insure these high risk mortgages. This insurance means that if you default on
your mortgage, your lender receives their money from the Canadian Mortgage and Housing
Corporation (CMHC) or other insurer. And it's coverage like this that gives most
lenders the confidence to finance up to 90% of your purchase.
Of course, there are always additional fees:
(If you provide your own appraisal, the fee drops to $75, but neither cost covers
the actual inspection or appraisal service.)
Application Fee $25
Appraisal Fee $235
Insurance - First Home Loan Insurance
This is a special product for first-time purchasers. It allows you to mortgage up
to 95% of the value of your home. Any type of home is eligible, as long as it meets
the following criteria:
- The home must be occupied by you and be in Canada.
- You can't have owned a home in Canada during the past five years. (If there is more
than one owner, only one has to meet this criterion.)
- All housing payments - mortgage principal and interest, property taxes, heating
(and if applicable, 50% of your condominium fees) can't total to more than 32% of
your gross household income, or be more than 40% of your entire debt load.
Arranging a mortgage
Securing a Mortgage
Applying
When applying for a mortgage, provide prospective lenders with enough information
about your work history, debts and assets. They're looking at the state of your
personal finances. They will look at your gross income and potential mortgage payments
and property tax expenses to come up with a Gross Debt Service ratio (GDS). This
is usually limited to 30-35% of your gross income. To that lenders will add all
other debts to come up with a Total Debt Service ratio (TDS), which can't exceed
more than 40 percent of your gross earnings.
|
What Lenders Look For
Lenders are looking at the risk factors from two points. First, will you be able
to make your scheduled monthly payments? Second, if you default (don't make your
payments) can the financial institution get enough money from the sale of the house
to repay the loan?
Approval Process
You'll be asked about your net worth, the difference between the value of everything
you own and the amount you owe. Lenders take into account your bank balance, any
types of investments, other real estate, cars and boats, other loans, credit card
balances and many other things. Remember to be as specific as possible. So if you
have a coin, significant stamp or art collection, have it appraised!
Your credit rating is your history of loan repayment and will be used by lenders
as an indicator of your ability to repay your mortgage. It covers how you've managed
past debts or if you've filed for bankruptcy. You'll be asked to sign a form allowing
your financial institution to gather information from your employer, creditors and
credit rating agencies.
If you've had credit problems, it may be a good idea to check and clean them up before
you apply for a mortgage. You can check your own credit rating by contacting a company
that compiles the information. One source is the Trans Union Customer Relations
Department, P.O. Box 338-LCD1, Hamilton, Ontario L8L 7W2. Simply send a note asking
for your credit rating along with photocopies of two pieces of ID with your current
address, plus a photocopy of a utility bill or credit card invoice. The process
takes about two weeks and you'll get a good idea of how you'll be evaluated by the
banks.)
If there is an outstanding debt, contact the creditor and resolve it. If you notice
an error, report it immediately in writing and get it resolved.
Although your credit may not be perfect, it does not mean you are unable to purchase
a home. Make sure you talk to a mortgage broker about your situation before you
give up on your dream. Even if you can't buy now, your mortgage broker can help
you re-establish your credit so that one day you will be able to live your dream
of owning a home.
Insurance - Mortgage Loan Insurance
As a first-time home buyer, chances are, you're not walking into your deal with a
huge down payment. As you may have already discovered in other areas of the site,
you can purchase a home with as little as 10% down, or even a 5% down payment if
you qualify with CMHC's First Home Loan Insurance.
Bottom line, if your down payment is less than 25% of the value of the home, you
must purchase mortgage loan insurance. In Canada, most lenders are legally required
to insure these high risk mortgages. This insurance means that if you default on
your mortgage, your lender receives their money from the Canadian Mortgage and Housing
Corporation (CMHC) or other insurer. And it's coverage like this that gives most
lenders the confidence to finance up to 90% of your purchase.
Insurance - What Does it Cost?
The actual premium of the loan ranges between 0.5% and 3%, and is based on the size
of the loan and value of your home. You can make your premium in two ways: as a
lump sum when you make your purchase or as part of your monthly mortgage payments.
But keep in mind, if you're paying it monthly, you're also paying interest on the
premium!
Bottom line, if your down payment is less than 25% of the value of the home, you
must purchase mortgage loan insurance. In Canada, most lenders are legally required
to insure these high risk mortgages. This insurance means that if you default on
your mortgage, your lender receives their money from the Canadian Mortgage and Housing
Corporation (CMHC) or other insurer. And it's coverage like this that gives most
lenders the confidence to finance up to 90% of your purchase.
Of course, there are always additional fees:
(If you provide your own appraisal, the fee drops to $75, but neither cost covers
the actual inspection or appraisal service.)
Application Fee $25
Appraisal Fee $235
Insurance - First Home Loan Insurance
This is a special product for first-time purchasers. It allows you to mortgage up
to 95% of the value of your home. Any type of home is eligible, as long as it meets
the following criteria:
- The home must be occupied by you and be in Canada.
- You can't have owned a home in Canada during the past five years. (If there is more
than one owner, only one has to meet this criterion.)
- All housing payments - mortgage principal and interest, property taxes, heating
(and if applicable, 50% of your condominium fees) can't total to more than 32% of
your gross household income, or be more than 40% of your entire debt load.
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