Mortgage Advice

Falling in love with a new home is easy. But qualifying for the mortgage to buy it can be heart breaking. Mortgage specialists and other professionals involved in the home acquisition field always recommend people get pre-qualified to determine what mortgage they can comfortably handle and the price range they should be looking at with their down payment, before they go looking.

The biggest mistake people make is getting up Sunday morning and saying, “Let’s look at some open houses.” They end up writing a contract they can’t possibly qualify for and set themselves up for disappointment.

Whether you get a pre-approval or wait until you make the offer to purchase, you will need to provide the following in order to prove your ability to repay the loan:

• a letter dated and signed by your employer verifying your job and yearly income
• income tax returns for the past three years may be required if you are self-employed
• details of your assets – cars, bank accounts, RRSP’s, Canada Savings Bonds – and your liabilities, such as credit card debt, car payments and Canada Student Loan

If your parents or other relatives are helping with the down payment, a letter dated and signed by them with the amount of the non-repayable gift is required.

Once you have made an offer, the mortgage specialist will also need to see the purchase contract.By law, lenders are not allowed to lend more than 75 percent of the value of the property unless the mortgage is “insured”. Luckily, however, that does not mean that first-time buyers have to come up with 25 percent of the purchase price as a down payment.

If you are a first-time buyer you probably qualify for a Canada Mortgage and Housing Corporation insured mortgage, which means you will have to come up with a minimum of 5 percent of the purchase price. Often buyers will “buddy up” to qualify. Brothers and sisters, or even three friends will pool their resources, using all three incomes, and all three names go on the title with equal share.

It is at this point that you choose your mortgage options, the term – how long the mortgage contract will run – and the amortization – over how many years the loan will be fully repaid (typically 25 years for first-time buyers).

The other compelling reason to become pre-approved is in order to receive a mortgage rate commitment from a lender. This lasts typically for 60 to 75 days and ensures that, if there is an increase in the mortgage rate during that period, you will be given the interest rate at the time the lender gave you the commitment. Remember, that if rates come down, you will be given the benefit of that new, lower rate.