Applying for a mortgage can be very stressful, but we want to help make the process a little easier for you.
Here, we've outlined the key things you should know as you start the mortgage application process.
First things first, familiarize yourself with the Five C's of Credit.
Now- what do these mean and how do you prepare yourself to have the answers to all of these questions?
Collateral
Property Type: Single-family home, condominium, townhome, duplex, etc.
Location: Different rates could be offered for your mortgage depending on where you are hoping to buy a home.
Marketability: This relates to aspects such as the home's condition, attractiveness and aesthetic appeal.
Credit
Beacon (Credit) Score: Your credit score shows whether or not you have a history of financial stability and responsible credit management. The score can range from 300 to 850, with an ideal score being 620 or higher.
Past Credit History: Prior to your meeting, use a program or app to 'soft check' on your credit, such as TransUnion, Equifax, or Credit Karma.
Issues & Risks Explanation: Explanations for any past missed or delayed payments on loans.
Capacity
Ability to Repay Loan: Lenders need to consider your income, assets, employment, credit history, and monthly expenses to determine mortgage eligibility.
Explain Debts: Prepare to explain the reasoning behind debts you have accumulated.
Job Stability & Income: Show up at your meeting prepared to provide proof of income. For salary or hourly employment, bring two most recent pay stubs and previous two years of T4 documents.
If you are self-employed, bring two years of T1 general documents and a Notice of Assessment- an annual statement sent by the CRA detailing the amount of income tax that is owed.
If you have held your job for less than 1 year, it’s a good idea to submit a letter from your employer confirming your role, salary and benefits, as well as any commission or bonuses.
Capital
Down Payment Amount: The minimum down payment in Canada is 5% but best practice is 20%.
For down payments that are less than 20% of the home price, home buyers are required to purchase mortgage default insurance, commonly referred to as CMHC insurance.
First-time home buyers are also eligible for the Canadian Mortgage and Housing Corporation's (CMHC) First Time Home Buyer's Incentive.
Down Payment Source: If you are being given money from a parent or relative, be prepared to present a 'gifting letter' at your appointment for proof that don't have to pay the money back. It is also mandatory for the money to be in your account for a minimum of 30 days prior to paying your down payment.
Available Closing Costs: Not only do you need the full amount for your down payment, but there are additional closing costs such as legal fees, Land Transfer Tax, HST, or property taxes (if applicable). Generally speaking, prepare to budget between 3%-4% of the purchase price of the home to cover your closing costs.
Character
Willingness to Repay Loan: Further to 'Ability to Repay Loan' under Capacity, lenders will use this information to determine your eligibility.
Integrity: Your propensity to save and utilize credit responsibly will help to establish your character and integrity.
Stable Employment: Your proof of employment will also help to establish your character.
Now that you are prepared to take on applying for a mortgage, happy house hunting!
