Tips To Getting A Mortgage
Before diving into the home buying process, it is beneficial to be prepared at every step. Keeping track of interest rates and hunting for the perfect home are very important, but applying for a mortgage is the biggest step in the process. Knowing what you can afford might seem stressful, however, it can be made much easier if you get your financial affairs in order ahead of time. Here are some tips to help get your mortgage application approved. I can definitely help you with this process!
Check Your Credit Score
In Canada, credit scores run from 300 to 900. You will be in either the Poor, Fair, Good, Very Good, or Excellent category. Your credit score is a snapshot of your overall financial health, so it’s important that you know what yours is.
Mortgage lenders will use your credit score to gauge your financial situation and your ability to repay your debts. The higher your credit score, the more likely you’ll be offered the lowest mortgage rates. You should set a goal to keep your score to be at least 660, but a higher score is always better.
You can check your credit score for free via some online companies. Online credit checks will pull your score from one of Canada’s two credit bureaus, Equifax or TransUnion. It’s a good idea to check your score each quarter, and do everything you can to increase your credit score.
Save A Larger Down Payment
Buying a home will always require some sort of money upfront, known as a down payment. The bigger your down payment is means, the less you’ll need to borrow, and the less interest you’ll pay. However, just getting approved for a mortgage relies on the down payment as well.
In Canada, the minimum down payment requirements are based on the home’s price. The minimum down payment is 5% of the purchase price for homes less than $500,000. For a home purchased between $500,000 to $999,999, you’ll need 5% of the first $500,000, and 10% for the portion of the purchase price above $500,000. For homes purchased over $1 million, 20% of the total purchase price is required as a down payment.
If a down payment is less than 20% of the home’s purchase price, then the buyer is required to buy mortgage loan insurance. Paying these insurance premiums will increase your monthly mortgage payment, but not to worry, these insurance payments will be amortized over the life of the mortgage.
Get a Mortgage Pre-Approval First
Even before contacting a realtor, the first thing you should do is apply for a mortgage pre-approval. After all, if you find a home you like, you’ll want to move quickly. Being pre-approved for a mortgage removes an extra step in the process. Your realtor will be able to help you get a pre-approval.
A mortgage pre-approval is when a lender evaluates your financial situation and pre-approves you for a set mortgage amount, interest rate, and term. Mortgage pre-approvals are valid for 90 to 120 days, giving you time to find a home without losing a great mortgage deal.
Getting pre-approved helps you know how much you can afford to spend and takes away a lot of the stress of knowing what you can shop for and put you at ease that you can afford the home you really want. Mortgage pre-approvals can be done very quickly if you have your documentation together. Get in touch with a mortgage broker near you to get started.
Get a Great Pre-Approval Rate
You should shop around for the best mortgage rate. Don’t just go to your local bank branch and expect to receive a great deal. Do your research and compare mortgage rates, or use a mortgage broker who will negotiate on your behalf. Getting a great rate is generally the outcome of a mortgage application, but it goes both ways. By shopping around or using a mortgage broker, you’ll often find lenders offering lower rates. With a better mortgage rate your monthly payments will be lower, making it easier for you to pay your mortgage.
Even half a percentage point can make a huge difference in your regular payments and the amount of interest you’ll pay over time.
Once your pre-approved, generally, you’ll have a 90 to 120 day period where your offered rate will be held for you. This is when you should start house hunting! Happy Shopping!
Assemble Your Documentation
Collecting the documentation needed for a mortgage pre-approval can take some time. It’s best to get started early. Ask your mortgage broker what documents are required to finalize your mortgage, and start gathering it all in one place. Typically, your asked for:
- Personal Identification
- Bank account and investment statements
- Proof of assets – like a car, cottage, or boat
- Proof of income – pay stubs or a letter from your employer will do. A notice of assessment will be needed if you’re self-employed.
- Information about your current debt – includes any loans you may have, credit cards, etc.
Read The Fine Print
Once you’ve been pre-approved, you should receive a pre-approval document. This document will detail the interest rate you’ll receive, the loan terms, and the mortgage amount you’ve been pre-approved for. It may seem like financial jargon, but it’s important to read the fine print on every page carefully. If you have a family lawyer or accountant, it’s a good idea to have them take a look as well.
- Olivia & Kevin Da Costa - Bolton, Ontario
- Maurizio and Lina Mazzola - Toronto, Ontario