The Mortgage Process

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Steps Towards Purchasing Your Home:

1] Determine if you qualify for a mortgage: A mortgage broker can outline your options, advise you on the process and obtain a pre-approval for you.

2] Find a Property You Like and Make an Offer: Once you know how much you qualify for you can begin to search for a home. You'll need the assistance of a good realtor. The realtor is there to protect your best interests. There's usually no cost to use a realtor to purchase as they typically split their fee with the listing realtor. Incidentally, there's usually no fee to use a mortgage broker either as we're typically paid by the lender.

3] Remove Conditions: Almost all offers will have conditions or subject too clauses. The most important ones are subject to financing and subject to home inspection clause. Once your offer is accepted you will usually have about 5-10 days to remove these conditions. If you do not remove these conditions the contract will lapse and the deal will not go through. During the subject removal period I'll need to obtain property information, and will need for a copy of the purchase agreement, feature sheet, and property disclosure statement. Your realtor can typically provide everything that's needed. And as I can work directly with them to get many components, there is less for you to worry about. I may also need to obtain an appraisal to determine the value of the property.

If the lender is satisfied with the mortgage application they will issue a letter of commitment. Once you remove the conditions on the offer, the offer becomes a binding contract and you will need to complete the transaction. At this point, you will also need to provide the seller with a deposit to take their the property off the market.

4] Closing. This is taken care of by a real estate lawyer or notary public. Their job is to make sure you receive clear title of the property and register the mortgage for the lender. Normally you will get the keys to the property a day or two after the completion date.

This can seam complicated which is why I recommend you work closely with a team of real estate professionals, Like your mortgage broker, realtor, home inspector and lawyer to guide you through the process.

What determines if you qualify for a mortgage:

In it´s simplest terms lenders look at your income, credit and down payment. Your income determines your ability to repay the mortgage. Your credit determines your willingness to repay the mortgage and the down payment determines your investment, or the risk you're taking this transaction.

Lenders will want to know how much you make, and your level of stability. If you're income fluctuates, so say you're a business owner or you earn commissions, lenders will want to see 3 years average of your income. If you're an employee, your income is pretty stable, so a lender will want to see an employment letter and recent pay stub. Your employment letter will indicate how long you've worked at a company, how much you earn, your position and your status.

So how much can you spend:

As a general rule a lender will allow you to spend up to 32% of your gross income on housing costs. This will include mortgage payment, property tax, and heat. If you're buying a strata property, lenders will include the strata fees into the calculations. If you have other debts like a car loan or credit card payments, lenders will limit your mortgage so that you're not paying more than 42% on housing costs plus any other debts you're required to pay. These limits can vary depending on the lender.

The next major item lenders look at is your credit report. There are two major credit bureau's in Canada. Equifax and Trans Union. Credit bureau's keep a record of all your debts and your repayment habits. Lenders and credit card companies across Canada, report how you manage your debt payment to the credit bureau.

Your credit report will also indicate a credit score. The credit score ranges from a low of 300 to a high of 900. The higher the score the better. Your credit score is the measure of the probability of defaulting on your debt over the next 2 years. For example someone with a credit score of 650 – 699 has a 14% probably of defaulting on their debt over the next 24 months.

What determines the credit score:

There are 5 factors that determine your credit score:

1] Your debt repayment habits: This accounts for 35% of your score

2] Amounts owned: The credit report looks at your balances relative to our credit limits. For example if you have a limit of $10K and your balance is $9000, your credit score could be effected negatively. The key is to keep your balances low, ideally no more than 35% of your limit.

3] The length of time on the credit bureau: The bureau looks at the average age of your accounts. This means that its not a good idea to close long standing credit cards. Even if you're not using them as this could lower your score.

4] Amount of new credit

5] Your mix of credit.

Down Payments:

When it comes to down payment's there are two types.

1] If you have more than 20% of the homes purchasing price as a down payment you have a conventional mortgage.

2] If you have less than 20% down payment you have a High ratio mortgage. A high Ration mortgage is insured through one of three mortgage insurers and those are The Canadian Mortgage and Housing corporation, Genworth Financial or AIG insurance. You'll pay a one time fee to insure the mortgage and this fee is then added onto the mortgage and paid over it's lifetime. The fee depends mainly on the down payment. The higher the down payment, the smaller the fee.

The minimum down payment amount required is 5%. and ideally that should be from your own savings. This shows that you have the ability to accumulate funds on your own. If you don't have the 5% down, you also get a gift from a close relative or get a cash back. Borrowing the down payment or getting a cash back is very much like getting a mortgage with zero down since you're not using your own money. Lenders will want you to have strong credit if you were to borrow or get a cash back for the down payment.

Interest Rates:

When it comes to interest rates you also have 3 main options. You can get a open fixed rate, closed fixed rate, or a Variable Rate, Of course there are pro's and con's too each.

1] Closed, Fixed Rate Mortgage: With with this type of mortgage you're locked at a specific mortgage rate for a set term. Most lenders offer terms from 1 – 10 years and often have penalties or restrictive conditions for prepayments or additional lump sum payments. This might not be the best choice if you might move before the end of the term, but it does often offer great rates.

2] Open, Fixed Rate Mortgage: With this option, interests rates tend to be a little higher than the closed, fixed mortgage, but you can repay the mortgage at any time without a penalty. This might be a good choice if you think you might sell your home in the near future. The nice thing is that lenders will usually allow you to convert to a closed mortgage at any time.

3] Variable Rate Mortgage: With this type of mortgage the interest rate fluctuates with the prime. As the prime rate moves, so does the interest rate on your mortgage. Although you can generally convert to a fixed rate mortgage when you feel the need to, some lenders will charge a penalty.

Determining the right interest rate plan is the most important decision you can make. Be sure to consult your mortgage broker to determine which plan is best for your situation.

Associated Costs With Home Purchasing:

In addition to the cost of your mortgage, it's important to be aware of the other associated costs with purchasing a home. Some of the most common ones are: an appraisal fee, land transfer tax, survey and title insurance, legal fees, home inspections, property tax, and fire insurance. Of course your mortgage broker will advise you of these costs.

What Lenders Need to Know:

Well, first I'll need to gather information on you as an individual like age, marital status, birthday and the number of dependants that you have. I'll then need to learn about your employment and financial situation, such as your assets, liabilities. With your permission we will pull a copy of your credit bureau to view your credit report and your credit score.

Your qualification amount will also depend on your down payment, amortization, interest rate, and lender. Together, we'll run through scenarios so you that you can see all your options determine the right interest rate terms you, in addition to discussing applicable mortgage programs likes first time home buyer privileges, and self employment programs.

Why Us a Mortgage Broker:

As a mortgage broker, I have access to multiple lenders so I can find you the best rates and terms, while providing unbiased advice. Keep in mind that this is all I do. As I don't work for a bank, I don't sell chequing accounts or mutual funds. Instead, I do mortgage transactions on a daily basis so I have the experience to provide you with the right mortgage solution.

Low rates are just the beginning. I'm here to help make getting the right mortgage easy.



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