•  
• Buying
  • Finding the right agent
  • Choosing a neighbourhood
  • Why you need a home inspection
  • What is title insurance
  • Mortgage
  • Finding the perfect home
  • Requesting automatic MLS listings
• Selling
  • Why use Joanne as your agent
  • Preparing your home for sale
  • Listing your home
  • What is your home worth?
  • Helpful tips for sellers
  • Moving tips
• Relocating
  • Moving away from Ottawa?
  • Moving to Ottawa?
• Listings
  • Current Listings
  • Recently Sold
• Helpful Resources
  • Helpful links & contacts
  • Glossary
• Contact

Qualifying for a mortgage

Joanne can arrange to have you pre-qualified for a mortgage before you start shopping for a home. It's easy, and you'll avoid possible disappointments down the road if you fall in love with a place, then find out you can't afford it. Plus, once you do find the perfect home, it will mean you can make an offer immediately.

Here's how mortgage approval works: the amount of money you qualify for, plus the amount of cash you can put down equals the amount you can afford to spend on a home. Most lending institutions won't allow more than about 30% of your income to support a mortgage. If you have other debts, they usually won't allow your debts and your mortgage to exceed 40% of your income.

What is a pre-approved mortgage?

It's a written commitment from a lender that you will get a mortgage for a set amount at a set interest rate, locked in for 60-120 days, depending on the lender. The commitment is subject to a financial assessment and property appraisal. This service is always free and without obligation.

Why do it?

A pre-approved mortgage gives you an edge. Before you even start house hunting, you'll know how much you can afford, your interest rate, and your monthly payments. With your financing already mapped out, you can concentrate on finding the right home in your price range.

A pre-approved mortgage shows you're a serious buyer. In a situation where several people are bidding on the home you want, you may decide to offer the list price and beat out earlier offers.

To request a pre-approval, please contact:

• York Polk, Mortgage Brokers.com
• Franco Briglio from TD Canada Trust

Credit checks explained

A credit check is a routine part of qualifying for a mortgage. If you don't have a good credit history, getting financing for your home can be a challenge.

Here's how a credit check works:

Your personal credit history is compiled by credit bureaus, which create a credit report by collecting information from banks, retailers and other public records. The report generally goes back 6 or 7 years, and shows your credit and debit cards, bank accounts, personal loans, mortgages, etc. It shows creditors' names, account numbers, current balances - and a detailed payment history. The report will also show public information like marriage, divorce, liens, judgments that have been entered against you, bankruptcy, etc.

The lender uses the credit report to determine whether they will lend you money. If they have concerns about something in the report, the lender will ask you for an explanation.

The lender will also use the report to verify other information on your mortgage application, like employment status and address (including the name of your landlord and perhaps rental payment history). They will also be able to see inquiries made by other creditors over the period of the report. (This information can be useful to a lender to show what other avenues of financing you might have tried and may raise questions about why another creditor declined to lend it to you.)

Honesty is the best policy

If you think there might be any credit problems, tell the lender up front and ask about their policies before you apply. There's no point in trying to hide something that will show up in your credit history. Get a copy of your credit report before you apply for a mortgage - you may be able to avoid surprises and possible delays.

Take a look at your credit report

Because the report contains information about you, you have a right to see a copy of it. Equifax, one of Canada's largest credit bureaus, will mail consumers a free copy of their personal credit file on request. For more information, call Equifax at 1-800-465-7166.

If you disagree with something in your credit history, you have the right to challenge it and ask that the information be corrected. For example, perhaps the report shows that you were over 90 days late paying a bill but does not indicate that you withheld payment pending a settlement of a dispute with the creditor. Or perhaps you were late with a particular payment because you were away. Whatever the explanation, contact the credit bureau to clarify the matter.

Determine what you can afford

Buying a home involves both one-time costs and more regular monthly expenses. It's important that you take both into account when you're figuring out how much you can spend on a home.

The largest one-time cost is the down payment, which usually represents up to 25% of the total price of the property. Then, in addition to the actual purchase price, there are a number of other expenses that you may be expected to pay for.

Finalizing your mortgage

Once you've found the home you want to buy, you'll need to finalize your financing. You'll need to provide your lender with the following documents:

• A copy of the real estate listing of the property. If the home is still to be built, the mortgage lender will need to see the architect's or builder's plans and details on lot size and location.
• A copy of the offer to purchase or the building contract, if this document has been prepared.

Documents to confirm employment, income and source of pre-approval.

• If you have a pre-approved mortgage, it's a simple matter of finalizing a few details with your mortgage specialist.

From offer to closing

When you find the home that's right for you, your next step is to make an offer to purchase the home from the current owner. The owner can accept your offer, make changes to the offer and present you with a counter-offer, or reject the offer.

About the Offer to Purchase

The Offer to Purchase is a legally binding agreement between you and the person selling the house. It's a good idea to have your lawyer review it with you before it is presented to the seller. It includes:

• Your name
• The seller's name
• The address or legal description of the property
• The price you are prepared to pay for the home
• The items you expect to be included in the purchase price
• The amount of your cash deposit
• Your financing arrangements
• The closing date
• Specific terms or conditions that must be met as part of the purchase
• A time limit for meeting these conditions

Remember, it becomes a legally binding agreement the moment it is accepted. If you decide to cancel an offer that has already been accepted, you could lose your deposit and the person selling the home could sue you for damages. If the seller does not accept your offer, your deposit will be returned.

When your offer is accepted

You're in the home stretch, finalizing the details of your mortgage and closing the purchase of your new home. Now you need to call your mortgage specialist and send them the following info:

• A copy of the real estate listing
• A copy of the accepted Offer to Purchase
• Information on the source of your down payment
• Income verification if you are employed
• A letter from your employer verifying your place of employment and income, or T4s and Notice of Assessment, or T1 General Tax Return and Notice of Assessment
• Income verification if you are self-employed
• 3 years of Financial Statements and 3 years of Notice of Assessments, or 3 years of T1 General Tax Returns and 3 years of Notice of Assessments

Processing the mortgage application

Your mortgage specialist will want to verify the value of the property you are buying, your current financial picture and your credit history, so a property appraisal and credit report will be ordered.

If your down payment is less than 25%, your mortgage is considered “high ratio” and you must pay insurance premiums. You decide whether you want to pay the premium in cash or have your lender add it to your mortgage amount. Your mortgage representative can contact Canada Mortgage and Housing Corporation (CMHC) or GE Capital Mortgage Insurance Company of Canada (GEMI) to make the arrangements.

Be prepared to pay fees for the mortgage application, credit report and property appraisal.

Closing the purchase

Closing day is the day you become the official owner of your home. However, the closing process usually takes a few days.

Typically, you visit your lawyer's office to review and sign documents relating to the mortgage, the property you are buying, the ownership of the property and the conditions of the purchase. Your lawyer will also ask you to bring a certified cheque to cover the closing costs and any other outstanding costs.

Once your mortgage and the deed for the property are officially recorded, you become the official owner of the property.

Mortgage terms Explained:

Mystified by all the financial jargon used to describe mortgages? Here's a quick overview of key terms to help you understand the language - and make the process clearer and easier.

• Mortgage. A personal loan used to purchase a property. You pledge the property being purchased as security for the loan.
• Down payment. The portion of the purchase price that you pay initially as a lump sum; the rest is financed by your financial institution. A down payment is generally up to 25% of the purchase price.
• Principal. The amount of your loan.
• Interest. This is added to the amount you have borrowed to compensate the lender for the use of their money. Your mortgage is repaid in regular payments which are applied toward the principal and interest.
• Term. The number of months or years the mortgage contract covers (typically six months to five years), during which you pay a specified interest rate.
• Amortization. The number of years it will take to repay the mortgage in full. (This is usually longer than the term of the mortgage.) For instance, you may have a five-year term amortized over 25 years.
• Equity. The difference between the value of your property and the amount you still owe on the mortgage.
• Conventional mortgage. Offered to buyers who make a down payment of 25% or more of the appraised value or purchase price.
• High ratio mortgage. Offered to buyers with a down payment of less than 25%. This type of loan must be insured against default by the federal government through the Canada Mortgage and Housing Corporation (CMHC) or an approved private insurer (the lender usually arranges this). The borrower pays a one-time insurance premium to the insurer (ranging from 0.5% to 3.75% depending on the size of the loan and value of the home; additional charges may also apply). The premium is usually added to the principal amount of the mortgage. If you default on your mortgage, the lender is paid by the insurer.
• Fixed rate mortgage. Carries a set interest rate for a specific period of time (the term of the mortgage). The regular payment of the principal and interest remains the same throughout the term. The benefit of choosing this option is that you are protected if interest rates rise.
• Open mortgage. Gives you the flexibility to make unlimited pre-payments or lock into a fixed term at any time. This loan's interest rate changes periodically, and is tied to the prime rate. This type of mortgage is popular when interest rates are expected to fall or remain stable.
• Portability. If you are selling your home and buying another, this option allows you to take your mortgage - with the same term, rate and amount - and apply it to your new house. If your mortgage isn't portable, don't sign for a longer term than you're likely to stay in the house or you could wind up paying a penalty to break the mortgage agreement.
• Assumability. This feature allows the buyer of your house to take over or “assume” your mortgage. If your mortgage has a fixed interest rate lower than current rates, it could be an attractive selling feature.