7 Nov
Purchasing a home is exciting, especially if you are a first-time buyer. It is also stressful and nerve-wracking. Unfortunately, getting a mortgage only adds to what is already a stressful process. With that in mind, before taking on the most substantial financial commitment you will ever make, you need to familiarize yourself with how to get a mortgage. We’ve put together a checklist for the steps you must take to get the funding you need for your new home.
Step One: Getting the Down Payment.
The first step of getting a mortgage is getting together enough savings for a downpayment. How much you can save will impact what kind of home you can afford and the type of mortgage the bank will give you.
Once you have your down payment, you will have an idea of what properties you will want to look at on the market. Remember, down payment is only one slice of the pie; banks will also look at your credit score, income, and job status in determining mortgages.
A common myth that many Canadians still believe is that at least 20% of the purchase price is required as a down payment; however, this is not the case. Only 5% is necessary for those looking to buy a home, although mortgage default insurance is required for down payments of less than 20% of the sale price.
To give yourself an idea about how much of a mortgage you can afford based on your down payment, try using an online mortgage calculator to estimate your budget.
Step Two: Determining a Budget
Budget is the next important thing you will need to determine when thinking about getting a mortgage. After taxes and such, what can you realistically afford?
Before talking to your bank, don’t get too attached to a budget. As mentioned above, several elements are going to affect the mortgage the bank is willing to give you. Do your research. Shop around for mortgage rates and familiarize yourself with the average sales prices in the area you are moving to. When in doubt, it is a good idea to speak to a mortgage professional before you commit to a home or price range.
Step Three: Getting your Pre-Approval
After saving for your down payment and setting a realistic budget, the next step you should be taking is getting the pre-approval for a loan from your mortgage broker or lender. You need to get a pre-approval before you start looking at homes, so you are sure that you will be able to purchase anything at all.
Pre-approvals let you know how big of a mortgage you qualify for; it will help you determine your monthly payments and calculate your interest rate. Perhaps more importantly, a pre-approval ensures that in the case of a rate increase within the pre-approval window, you’re still guaranteed the price you were quoted, which means lower monthly payments and money in your pocket. Keep in mind that a pre-approval is just that: it doesn’t fully determine your final mortgage. Everything will be finalized once you put an offer on a home.
Remember, while this process can take a bit of time to get through, you can expedite it by making sure that you have all your documents in order before approaching a broker or lender.
Step Four: Get Your Documents Organized
After getting your pre-approval, you need to get your documents organized. First, you need to order a credit report to make sure that there are no inaccuracies. Knowing your credit score before speaking with a mortgage professional will prepare you for the type of mortgage you can be expecting to receive. After all, a higher credit score will most likely get you a low mortgage rate.
Second, you need to provide documents to your mortgage professional to prove your identity, employment, and ability to meet monthly and other associated costs. You will also need to be able to provide information about assets and debt.
Finally, your mortgage professional may ask for additional documents, including proof of salary and employment history, and a Canada Revenue Agency Notice of Assessment (NOA).
Step Five: Choose Your Mortgage
When choosing your final mortgage, there are three things needed to consider: amortization periods, fixed and variable rates, and the mortgage term.
Determining the details of these three elements requires you to ask all the questions you can. Choosing a mortgage is not about choosing the lowest rate. Depending on how long you plan on staying in your new house, there are other mortgage details to consider as well. Such questions include: What are the pre-payment penalties? Is your mortgage portable?
Once you’ve completed these five steps, you will be ready to get your mortgage and start shopping for your dream home.
To learn more about the process of securing a mortgage, call Mortgages, Mortgages at 866-307-0747 or contact us here.