Being pre-qualified in writing is a critical first step to buying a home. While this does require a full application and an in-depth review of your financial history, once your lender has this information on file, you can shop and negotiate worry-free, and from a position of strength. Here are a few things you can expect during the Pre-Approval process:
You may be surprised at the number of lenders who will look at all levels of credit: Excellent (score over 680), Decent (600-680) and Bruised (under 600). Some lenders will even consider ex-bankrupt as long as you have been discharged and have re-established some credit history.
The amount required will vary according to your lender, and your credit score. If you have an ‘excellent’ credit rating, you may require a lesser down-payment. Canada Mortgage and Housing Corporation or Genworth Financial will insure loans where the buyer has a smaller down-payment. This insurance premium is charged according the the size of the down- payment. For example, with 5% down, the premium is 2.9% of the purchase price, and with 10% down, only 2% of the purchase price. The bigger your down-payment, the lower your premium. The premium is factored into your loan, so you will not need to have separate funds to cover it. Lenders will require confirmation of your down-payment by way of bank statements showing the money in your account for 90 days, or a GIFT letter from a family member.
If you are a salaried/hourly-paid employee, you will be asked to provide a T4, and 2 recent paystubs. In some cases the lender will also ask for a letter from your employer, and in almost all cases, your employer will be contacted by the lender to confirm your employment. If you are self-employed, you will need two years income tax returns.
Once your income has been confirmed, your debt -to-income ratio is determined. This compares how much money you pay toward your debts each month, relative to your overall income. If your debt level is high, there may be an option to consolidate some or all of your debt into a special type of mortgage so that you can afford a home loan.
The lender will also ask questions about your comfort level for payments, taking into account expenses such as property taxes, strata fees and heat, as well as other income from other sources, such as rent from a suite.
The rate that can be secured for you, will be dependent on a combination of the all of the above; your credit score, the amount of your down-payment, and your income-to-debt ratio. A fixed rate can be held up to 120 days and will include a float down benefit whereby the lowest rate during the 120 days will prevail upon funding.
This takes place after you have chosen a home and your offer has been accepted. Depending on the amount of your down-payment, a home appraisal may be ordered.
This vital step will determine how much you can borrow, and therefore your ‘looking’ price range. Knowing your approximate monthly payment in advance will help you decide how much you can comfortably afford to pay, without putting yourself under financial stress.
If you already have a contact at a bank or credit union - great! Make an appointment with them for pre-qualification. However, it is important to be aware that today's mortgage market is more flexible than ever. There can often be a big difference between how much various lenders will allow you to borrow. Interest rates can also vary quite a lot depending on the financial institution and the type of financing you go for. A good option to consider, is to use the services of a Mortgage Broker.
A Mortgage Broker works for you not the bank. You don't even have to pay for their service! Except for rare circumstances where private money is involved, the mortgage broker gets paid by the institution where the mortgage is placed. We have been using the services of Janette Roch from Slegg Mortgage for some time now, and have many very satisfied customers.
Janette can help with tools such as a Mortgage Calculator, Rent vs. Buy Tool, educational videos and much more, all at her website: www.janetteroch.ca
Janette puts you in the driver’s seat with choice and control by having the Canadian lenders and banks compete for your mortgage business, ensuring you will get the rates and terms that meet your needs, not theirs. Receive EXPERT advice regarding:
First time buyer, new immigrant and low downpayment programs
Residential, second & commercial mortgages, plus secured lines of credit
Renewals, switches, refinances and tax efficient loans
Low Document Programs
Self Employed/No Income
Bruised Credit, discharged bankrupts, bank turned-down & credit counseling
Contact Janette direct: phone - 250 881 8811 or email - email@example.com