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.
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.
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!
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
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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