| Buyers

Today, we’ll learn about … drumroll please … mortgages!

 

One of the very first steps any intelligent Buyer should take before starting their property hunt, you guessed it, seeking a mortgage pre-approval! We cannot stress how important this step is in the home search process.  But why? 



WHY not wait until you find your dream home and then secure your loan/mortgage – wouldn’t that make more sense?

 

  • House Hunting Budget – Your mortgage broker will give you a house hunting budget.  The latter is critical in ensuring you know how much you can spend (are approved for by the bank) and can therefore comfortably place offers – especially in a competitive marketplace!
  • Save Time – Securing a mortgage and understanding your budget before starting your home search will save you time, sweat, and tears by helping you focus your home search on properties within your range.
  • Locked-in Rate – When you receive a mortgage pre-approval, your interest rate and the mortgage terms & conditions are typically guaranteed for a period of time from the application date (i.e. 90-120 days).
  • Strike Ready – You won’t risk missing out on your dream home on offer night just because you are not sure you can afford it!  We see this all too often, buyers who don’t seek a pre-approval and try to scramble last minute hoping to secure a mortgage ahead of offers, and missing out!
  • Understanding Your Monthly Budget – Knowing what the numbers look like on a month-to-month basis will help prevent you from becoming “house-poor”.
  • What’s involved?  Well, a mortgage pre-approval will consider factors such as your credit score, any outstanding debts and your total income (typically over a 2-year period).  The added benefit in providing this information is that if you see that one or more such factors are affecting your ability to get a loan OR the sum you’re seeking. You are now aware and can do something about it.

 

What happens when you’ve actually found a property and bought it?

You’ll then need to seek & secure what’s known as a firm approval, usually sought through the same institution/mortgage broker/lender that provided you with the mortgage pre-approval.  That’s going to entail the bank verifying:

  • The actual income you stated you’re making (i.e. they will verify that you are still employed and in fact making however much you claimed you earn per annum).
  • Evaluating the property using an appraisal to ensure it’s worth what you paid for it.
  • Committing to providing you with the mortgage on the property you’ve purchased.
 

If all of the above requirements are met (and a few others that the lender may have – each lender is different), they will agree to provide you with the loan (money!!) and register a mortgage on your property.

 

What if I have less than 20% down?

One additional step in this case, as you’d be applying for what’s known as a high-ratio mortgage (or less than 20% down payment).  In cases where Buyers are putting less than 20% down, they will also have to get a firm approval from the insurer. The most common mortgage insurance companies in Canada are CMHC and GenWorth. Unfortunately, there are instances where the bank does approve you and the value of the property, but the insurer does not. So, if CMHC doesn’t approve you, you may go to GenWorth and, hopefully, you can get an approval from them.

Once you’ve gotten approval from both entities (lender and insurer if less than 20% down), you’ve gotten yourself a firm approval! Now, you can go ahead and waive your financing condition (if you had a condition to begin with).

 

That’s about it from us, we hope this has been informative! If you’d like to get on a one-on-one chat with us to find an answer to all your real estate concerns, apply for our FREE house hunter strategy call!

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