Getting pre-approved for a mortgage before you start touring houses can put you ahead of the pack. Should you fall in love with a house, being pre-approved strengthens your offer to purchase. Applying for a mortgage requires a written application and supporting documentation. Here are a few things you should be ready for when meeting with a mortgage lender:
1. They will check your credit score.
Lenders will examine your credit history to help decide if you're a good candidate for a loan. Credit scores are ranked on a scale of 300-900; the higher, the better.
2. They will check your employment history.
Lenders ask for a list of your past employers, how long you've been with your current employer and what your annual salary is. They want to make sure you can make regular mortgage payments.
3. They will check your assets and debts.
Be prepared to show your past tax records, recent bank statements and current debt amounts, including credit card debt, car loan or student loan. Lenders want to know your debt-to-income ratio to confirm if you can make each loan payment with the income you earn.
4. One size doesn't fit all.
Mortgage loan and lender options vary. Different loan types can accommodate different financial situations. Do your research and consult a financial expert if needed. Your REMAX Hallmark® agent can help you understand the various options and help you pick the right one for your situation.
From the glossary
Down payment
The down payment is the amount of money paid-up front for a home, in order to secure a mortgage. In Canada, the minimum down payment is 5% of the home's total purchase price. Down payments less than 20% of a home's purchase price require mortgage loan insurance. The selling price, minus the deposit and down payment, is the amount of the mortgage loan.
Mortgage pre-approval
A mortgage pre-approval helps buyers understand how much they can borrow before going through the mortgage application process. Allows you to make an immediate offer when you find a home, since you know how much you'll be approved for this lender, and locks in the current interest rate for a period of time, insulating you against near-term rate increases.
High-ratio mortgage
A high-ratio mortgage is a mortgage where the borrower has less than 20% of the home's purchase price to make as the down payment. A high-ratio mortgage with a down payment between 5% and 19% of the purchase price requires mortgage loan insurance. In Canada, 5% is the minimum amount required for the down payment.
Mortgage loan insurance
If your down payment is less than 20% of the purchase price of the home, mortgage loan insurance is required. It protects the lender in case of payment default. Premiums are calculated as a percentage of the down payment, changing at the 5%, 10% and 15% thresholds.
Fixed-rate mortgage
A fixed-rate mortgage guarantees your interest rate for a predetermined amount of time.
Amortization
The length of time allotted to paying off a loan — in homebuying terms, the mortgage. The maximum mortgage amortization period is 25 years for CMHC insured mortgages and 35 years for non-CMHC insured mortgages.
Homebuyer's plan
A federal program allowing first-time homebuyers to withdraw funds interest-free from their Registered Retirement Savings Plan (RRSP) to help purchase or build a qualifying home. The borrowed amount must be repaid within 15 years to avoid paying a penalty.
Homebuyer's amount
This is a non-refundable federal income tax credit on a qualifying home, providing tax relief to assist first-time buyers with purchase related costs.
Porting
Transferring your mortgage (and the existing interest rate and terms) from one property to another.
Bridge financing
A short-term loan designed to “bridge” the gap for homebuyers who have purchased their new home before selling their existing home. This type of financing is common in a seller's market or when life events happen and affect timing, allowing homebuyers to purchase without having to sell first.
Each office independently owned and operated. The information contained in this guide is for informational and educational purposes only, and is not legal, business, or real estate advice. Even though we have taken every reasonable effort to attempt to make sure that the information presented is accurate, up-to-date, and useful, we can not guarantee that it is complete, correct, or current. This guide is not a substitute for professional advice. Real estate laws, regulations, and practices may vary from market to market. Consult with local professionals for specific advice.