These days, with the economy and the housing market being the way it is, it can be hard to know how to get a house mortgage. You may have questions about qualification, house mortgage interest rates, or the best house mortgage. Canada , especially, has some very specific rules and guidelines that must be followed in order to obtain a house mortgage. Luckily, once you get a sense of what to expect, this task won’t seem so daunting, after all.
Whether you are looking to do a house mortgage refinance or simply apply for a first-time home loan, the first step you should take is visit a house mortgage calculator. Canada has a number of these available; nearly on every bank, lender, or broker’s website.
Before you sue the calculator, be sure to have a rough idea of your financial history. Knowing the amount of your down payment and the rough of idea of the purchase price of the home will give a great jumping off point for the calculator to work its magic. Remember, the more honest you are with the calculator, the better the results from the calculator will be.
Be aware, the numbers that come back are only a rough estimate, and do not count as being pre-approved. It’s merely a tool for you to see if you should start searching for a house or if it might be more prudent for you to wait on trying to get a loan.
Once you are satisfied with what the mortgage calculator says, you can start the process to be pre-approved for a home loan. This is the part you need the documentation for, because this is a binding agreement. When you get pre-approved for a home loan, you can walk into a house knowing the money is there to back you up. It gives you, the seller, and the real estate agents an extra boost of confidence when you go to look for a house. Also, it gives you the opportunity to be able to put an offer in on a house the second you know you want it.
In order to get pre-approved, you will need some proof of your financial history. Along with your personal identification, you will need:
- Proof of Income – Usually this is in the form of your most recent tax return. If you are self-employed, you will need two years’ worth of tax returns in order to provide the lender with an average salary.
- Letter from Employer – This is something to give the banks a little extra piece of mind. Your employer simply needs to write down how long you’ve been employed and what your salary/wage is.
- Lists of Debts and Assets – Your lender is going to want to know what money you have coming and going. Make sure to list out absolutely everything, because it will give the bank a very clear picture of your incoming and outgoing money. Things like credit cards, income properties, retirement and savings accounts, and car loans all fall under this category.
- Down Payment – Fairly straightforward; how much money are you going to put toward the purchase price of the home. If it is a gift from a relative or someone else, the lender may also require a letter from that person stating that the down payment does not need to be paid back. If your down payment is less than 20% of the purchase price, you will need to factor in the cost of mortgage insurance to your payments.
Finding a Lender
A huge part of the home loan pre-approval process is choosing the right lender. This is someone you are going to have a professional relationship for the next ten to twenty-five years, so you want to make sure it’s someone you can trust to help you handle the business side of things. If there’s a bank or a lender that you absolutely refuse to work with, for whatever reason, be sure to let your broker know.
To avoid shopping around for a lender yourself, you can use a broker to do the dirty work for you. The mortgage broker will call the banks for you, secure an interest rate, and then come back to you with details and to get your approval. Your broker will also explain the entire home buying process for you and make sure you have all of your ducks in a row. Their job is to give you a little bit less of a headache during this time. Remember, they do this day in and day out, so they can warn you ahead of time of any potential hidden fees or problems you should know.
Don’t worry; the cost for a mortgage broker won’t come out of your pocket. They get their money as a commission from the lenders and the banks.
After you find the house or property you wish to purchase, there is a final approval process that must be done. Don’t worry; it’s usually not a big deal. First, the lender will want to get a property inspection and an appraisal. Both of these will come out of your pocket. They just want to make sure the property doesn’t need any major repair work or is way overpriced for the area or type of house that it is.
In Canada, it is the sellers that set the price of the house. They don’t need to have the property appraised, because they are trying to get the most out of their home as they possibly can. If the house comes in as too expensive, you can use that as a negotiation point with the sellers. Also, you may be hard-pressed to find a lender, because they want the home to be able to have resale value, and if you go into a mortgage already upside-down on the house, that’s less of a chance the bank will get their money back.
Options for Refinancing
If you are looking to refinance your house mortgage, and not get a new one, there are ways to do that. It all depends on what you are looking to get out of the loan in the end. Be sure to check the fine print of your loan documents, however, because many of them have stipulations as to when you can refinance and how much money you are entitled to get from it.
For a lower interest rate, be sure to check with a broker or a lender. You can either start your mortgage over again at the lower rate or you can renegotiate your current loan. Sometimes the bank will take your existing balance, write up a new 25-year mortgage based off of that and the lower interest rate. The good news is your monthly mortgage payment will drop significantly. The bad news is you’re back at a 25-year loan instead of however far you were already into it.
Another option would be for you to take out the home equity you’ve already put into it. If the bank or lender agrees, you can do what’s called a “cash out refinance”. The terms for these will vary with the different banks and lenders, but typically you will start your mortgage completely over again, but get a nice, big check. If you want to do home repairs or purchase a car, it might be a good option to consider. Your monthly payment will stay the same, so you’ll only be paying what you’re already used to paying; however, as with the other refinancing option, your mortgage will start over again.
If you don’t want to refinance, but want to take some extra cash out of your house, you can look into taking a line of credit against your house. You will have to start paying this back almost immediately, and many lenders may not allow you to take out additional credit or equity, but it is something to inquire about when you are looking for options. As with any of the other options, make sure to ask about interest rates and what happens if you can’t pay it back, just to be sure you know what you are getting into.
To know if refinancing is right for you, the best thing to do is to contact a broker or your lender. They will take a look at your mortgage documents and current financial situation and let you know if refinancing your home loan is even an option for you. If you work with a broker, they can also help advise you against any fees you may not already know about. With this information, you are armed and can make the right decision.
House Mortgage Options
If you are worried you won’t qualify for a home mortgage, for whatever reason, don’t despair. There still may be some options available. Canada has many government programs put into place to help people achieve the home of their dreams. Below are just a few examples:
- First-Time Home Buyers – If you are a first-time home buyer in Canada, the government has a tax incentive just for you. The requirements are fairly straightforward. You and your spouse have to have never purchased a Canadian property before. Also, the house you buy must be your primary residence, and it has to be approved by the government. Once those criteria are met, you will get a $5000 tax credit on your next income tax return.
- Disability – If you, or someone you live with, have a disability, there is a program for you. This program allows you to dip into your retirement accounts to withdraw up to $25,000 toward the purchase of a home. Much like the first-time home buyers, the house will need to be approved and it must become your primary residence.
Terms of Your Mortgage
Before you sit down and sign your final paperwork, make sure you understand exactly what type of loan you are getting. You or your broker should read over every document very carefully, because once you sign your name, it’s a done deal. Some of the items you should look for are:
- Interest Rate – Make sure you know the percentage you are paying on your loan and make sure it is the same amount for which you were pre-approved. If there are any discrepancies, bring it up with your lender or broker. If they cannot provide you with a satisfactory explanation, you are free to walk away. Also, make sure to know if the interest rate is fixed or not. If it is fixed, they cannot change it on you no matter what. This gives you some stability in regards to your monthly payments.
- Length of Mortgage – Most mortgages in Canada are 25-year mortgages, but there are some lenders that provide 10- and 15-year home loans as well.
- Monthly Payment – This is simply the amount you will pay on the loan every month. Be sure to inquire if there are any penalties if you pay your loan off early.
- Other Fees – Does the property have an association you need to worry about? Do you have to pay mortgage insurance? Be sure to check on all of this and ask about any additional costs. All of these can factor into your monthly payment.
One thing that could add in a cost to your mortgage is the price of the insurance. If you have over 20% of the down payment, you don’t need to worry about this; however, if it is less than that, you need to factor in that cost, as Canada requires you to have it. Mortgage insurance is actually really easy to get, all it requires is an additional paper signed at closing.
With the mortgage insurance, you do have options as to how you pay it. First, you can have it rolled into your monthly mortgage, meaning you don’t even have to think about it because it’s already there for you. Your other option is to simply pay the cost upfront. This gets it out of the way and over with so you don’t have to worry about it for the life of the loan.
The good thing about mortgage insurance is you can take it with you when and if you decide to purchase another home. Therefore, you only have to buy it once and then you are done.
Whether you just want to get some ideas for house mortgages or you’re ready to get the ball rolling, be sure to visit www.mymortgagebroker.com. The staff there can answer your questions, get you pre-approved for a mortgage, and find you the best interest rates and mortgage terms in the business.