Most REALTORS® advise their clients to pre-qualify for a mortgage before starting to shop for a home. Pre-approval of a mortgage happens once your lender has reviewed all your financial information and determined the maximum amount of money you can borrow.
The advantages of pre-approval include:
- Knowing how much you can borrow and what you can afford
- Current interest rate guaranteed for sixty to ninety days.
- Having an edge when you make an offer
- Saving time when you apply for your loan because you've already assembled your paperwork.
Where to get pre-approved:
Lenders include banks, trust companies, some credit unions and some private lenders. You can also consult a mortgage broker. Provided you're a good credit risk, financial institutions want your business and will compete for it. It is therefore to your advantage to shop around for a mortgage.
Once you've selected a lender, you will need to provide him/her with your financial information, along with the following:
- Number of dependents and marital status
- Details of employment, including a letter from your employer verifying your salary;
- Banking and investment information;
- Details of your assets (i.e., car, other property);
- Information on loans and other liabilities; and
- Permission to do a credit check
Arranging a Mortgage
A mortgage is a formal document by which the borrower (mortgagor) gives the lender (mortgagee) a lien on real property as security for a debt. The borrower has use of the property, and the lien is removed when the obligation is fully paid.
- Conventional Mortgage: lenders will loan you up to 75% of the appraised value or purchase price of the property (whichever is lower) to a maximum set by government regulation and you must come up with the remaining 25% down payment yourself.
- High-ratio Mortgage: If you don't have the 25% down payment, you would be provided with up to 95% (up to 100% with good credit) of the appraised value or purchase price of the property (whichever is lower) to a maximum set by government regulation. For more on this, visit CMHC's website.
- Variable-rate mortgages (or floating rate mortgages): are usually offered for both conventional and high-ratio mortgages. If interest rates climb, you will be paying more per month in interest; if rates drop, you will be paying more off your principal.
- Fixed-rate mortgages: maintain the same rate of interest over the entire negotiated term.
- Open mortgage: you can pay off as much of your debt as you wish, whenever you want, without penalty.
Different lenders may offer other features and options such as a convertible mortgage, blending and extending interest rates and interest rate buy down.
Government Incentive Programs
The Governments of Canada and Ontario recognize the importance of home ownership and have put a number of programs in place to help Canadians buy a home:
Land Transfer Tax Rebate Program
First time buyers of both new and resale homes are eligible for a refund from the provincial government of up to $2,000 of the land transfer tax paid. More information regarding eligibility requirements and other details can be found on the Ministry of Finance website or you can call the Ministry of Revenue at 905-433-6361.
These payments include:
- Legal fees: for work provided by lawyers, notary publics.
- Mortgage loan insurance: typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protect the lenders against mortgage default, and enable consumers to purchase homes with little or no down payment. Visit the CMHC website for more information.
- Appraisal fee: If your loan is not insured, your lender may require a property appraisal at your expense.
- Property/fire insurance: This insurance covers the replacement value of your home and its contents.
- Home inspection
- Renovation and repairs
- Survey fee: Lenders will want proof that the property complies with all relevant by-laws and that new additions fall within the property's boundaries.
- Title Insurance (internal link to Title Insurance) is an insurance policy to protect your investment in your property if there is a problem with title.
- Property taxes
- Land transfer tax: A land transfer tax is assessed on real property when ownership of the property is transferred from one party to another. The tax is a certain percentage of the value of the property based on a sliding scale.
This information is provided by the London and St. Thomas Association of REALTORS®. The information herein is believed to be accurate and timely, but no warranty as such