Step 4: A Mortgage

By now, you have an awesome REALTOR® helping you, but you cannot start your house hunt right away! So, what is next?

Financing –  you have a rough idea on your finances, but you need to be sure. You want to have max feasible power to purchase your home. How will you get that power? Through a mortgage. This is definitely not the most enjoyable stage in you home buying process, but it is very crucial. A mortgage expert will be required for two stages: getting a pre-qualification/pre-approval, and then getting a mortgage. Well, how do you get started?

There are numerous banks, and lenders that would be delighted receiving your monthly mortgage repayment. You have to be willing to openly speak with these experts about your finance honestly, being apprehensive will not help! You can speak with your banker and also inquire with other lending institutions. REALTORS® are also highly well-informed regarding mortgages and provide plenty of useful guidance.

Phone a Mortgage Broker.
Another good source for financing are mortgage brokers. As they do this for a living, they typically do not get compensated unless you sign a mortgage through them. They are definitely highly determined to get you the greatest rates.

Seller’s Mortgage.
Did you know? Sometimes you may be able to take up (assume) the seller’s existing mortgage. This would be a fantastic notion in the case that the seller is locked into a lesser interest rate than the current rate. Here, your REALTOR® can be of assistance to you.

Things To Consider:

How big should your down payment be?
A mortgage is a loan, of course you want it to be as small as possible. However, there are pros of a larger down payment and pros of a smaller down payment, is it a personal choice depending on your current situation. Some benefits of a larger payment can include: lower rates, no mortgage insurance (20% or more), lower monthly payments, easier to qualify for additional loans, potential equity, etc. Some benefits of a smaller payment can include: buy a home sooner, higher emergency reserves, resources for some improvements after purchase, put money towards things like retirement savings. Regardless of the route you take, just keep in mind that you need to set funds aside for all the costs that are linked with purchasing a home (ie: moving, maintenances, renovations, new furniture, etc).

Pre-approval

A mortgage pre-approval provides you with the value that you can afford. The value provided to you is based on your income, savings, and existing liabilities/debts.  You are also provided with the mortgage payments pertaining to a range of purchase prices. Specific documentation (including an official mortgage application) needs to be gathered and presented to the lender, which will then assess your situation (including current credit rating) and confirm that you meet all the requirements.

A mortgage pre-approval sometimes provides a mortgage rate guarantee for a specified length of time, which protects you from possible rate increases – this is similar to a rate hold, which is explained below. There typically isn’t an application fee associated with this procedure and you’re not obligated to the bank or mortgage broker from whom you obtained your mortgage pre-approval.

After the pre-approval process, you’ll receive a conditional commitment in writing for a specified loan amount. This allows you to look for a home at or below that price level. This is an advantage when trying to purchase property, as the person selling will know that you have been approved for an actual mortgage. This can be very helpful in a competitive market. For these reasons, it is to your benefit to receive a mortgage pre-approval.

Lock into an interest rate?
Rate holds only apply to fixed rates. This is not a simple yes or no question because you would have to consider the “ifs”. What if you lock into a rate for five years and rates drop? That can mean you would be paying more than you have to for that period. What if rates began to gradually hike throughout the next five years? Wouldn’t securing the interest rate now for five years be a good move? Several people feel that knowing their mortgage payments will remain the same for several years is better. Here is where your REALTOR® will have a lot of good advice, so ask !

What do you need for a mortgage ?

• Letter of employment – Ask your employer for a letter that confirms your position, your pay and how many years you’ve been with the company.
• List of your assets – Your car, stocks, bonds, GICs. Show which assets will be used for your down payment.
• List of your liabilities – Car payments, student loans, credit card debt. List all the money you owe, and note how you’re paying it off.
• Social Insurance Number – Along with this, your chequing account number, and your lawyer’s contact information
• Information about the house you want to buy – The home is your security on the mortgage, so the lender wants to know all about it. 

Now you are more knowledgeable regarding your affordability ! This step has given you more confidence in your purchasing journey.