Most Frequently Asked Questions About Getting A Mortgage

Purchasing a property can unlock opportunities to experience a rewarding lifestyle. However, when it comes to financing your dream home, clients have a ton of questions regarding their mortgage options.

Consequently, Gary Corriveau, a leading mortgage agent at Mortgage Architects, wants to arm you with the most accurate information available to help you understand the process. To do this, he has answered some of the most frequently asked questions about getting a mortgage.

1. How much can I afford to pay for a home?
Several factors, including your income, credit score, and debt, can change what you can spend and how large of a mortgage you can afford to take on. Also, the amount of money you have saved for a down payment can limit your maximum mortgage affordability.

The minimum down payments in Canada are:

a. 5% of the purchase price up to $500,000, plus

b. 10% of any part of a price between $500,000 and $1 million

c. 20% of the total purchase price for homes valued at over $1 million

In addition to the down payment, you must also be able to show that you can cover other closing costs such as the legal fees, disbursements, and appraisal fees.

Mortgage affordability is calculated using two debt service ratios: the Gross Debt Service (GDS) ratio and the Total Debt Service (TDS) ratio.

The industry standard guideline for GDS is that no more than 32% of your income can get used for housing-related costs, and the policy for TDS is that no more than 40% of your income can be used for total debt obligations. That said, you may be allowed to exceed these limits if you have a stable source of income and good credit.

2. Is getting a mortgage pre-approval the first step in the home buying process?
If you get pre-approved for a mortgage before you start house-hunting, you can save time and make the process easier. A pre-approval helps you understand how much you can afford to spend on a new home.

3. What is a mortgage pre-approval?
A pre-approval is a commitment from a mortgage provider to lend you a specific size mortgage at a particular rate subject to the approval of the property. When you get pre-approved for a mortgage, you will find out the maximum amount you can afford to spend on a house. Also, you will understand the mortgage payment associated with your maximum purchase price and what your mortgage rate will be for your first mortgage term.

4. Why should I get pre-approved for a mortgage?
It saves time in your search for a new home as you will only look at properties in your price range. Getting pre-approved is also a signal to your real estate agent that you are serious about buying, and you will receive faster, more targeted services. Finally, when the time comes to make an offer on the house you like, the fact that you are pre-approved will improve your chances when there are many competitive offers.

5. How do I get pre-approved for a mortgage?
To get pre-approved, you must meet with either a mortgage broker or a lender. To determine how much you can afford to borrow, they will ask you a series of questions, and you will need to provide some supporting documentation.

6. What factors go into receiving a mortgage pre-approval?
The following four factors play a crucial role in determining how large a mortgage and at what rate you will be pre-approved:

a. Credit score: Your credit score is a measure of your financial health and shows lenders how risky it may be to lend you money.

b. Down payment: Your down payment is the lump sum of money you will put towards the purchase of your home. In Canada, the minimum down payment you must make is between 5% and 20% of the home’s purchase price (depending on the price).

c. Debt service ratios: Your debt service ratios are two calculations that lenders use to determine the maximum mortgage payment you can afford, based on your current monthly income, expenses, and debt. Lenders use these ratios to make sure you can afford to make your mortgage payments.

d. Supporting documentation: Here is a list of documentation you may need to provide for your mortgage pre-approval:

a. Identification (driver’s license and a passport)

b. Proof of income (pay slips, a letter from your employer, T4, Notice of Assessment)

c. Proof of down payment (recent statements of bank accounts and investments)

d. Proof of source of funds for the closing costs (usually about 1.5% of purchase price)

7. Are there any limitations with a mortgage pre-approval?
Keep in mind that getting pre-approved for a mortgage does not guarantee that your final mortgage application will be approved. When you apply for a mortgage after your Offer to Purchase has been accepted, your lender will look at the property’s details to make sure it is suitable. If the property does not meet their qualification criteria, you will not qualify for a mortgage. For example, if the home has asbestos, knob and tube wiring, is a heritage home, or its appraised value is below the purchase price, the lender may not find it suitable and could deny you a mortgage.

Also, getting pre-approved for a mortgage does not mean that you should buy a home at the top of your price range. Your pre-approval amount only represents how much your lender is willing to lend you, not how much you should spend. You can choose to buy a home priced lower than your maximum purchase price, which will ensure you have enough room in your budget for saving and paying down debt.

If you need advice, you can always consult a mortgage professional, like a mortgage broker. Mortgage brokers are independent and can give you expert advice on your application for free. They can also help you compare mortgages, negotiate a better rate, and help you through the pre-approval process.

8. Why use a mortgage broker?
There are several reasons to work with a mortgage broker in addition to the ones we mentioned in the last question. Some of the top reasons are:

a. A broker works for you, and the bank doesn’t.

b. The right mortgage is a critical factor in determining long-term savings. The value of a professional mortgage broker comes from having someone who objectively works for you and is not limited to mortgage product offerings from one source, like a bank.

c. Mortgage brokers can give great advice on choosing the right mortgage option considering interest rate, payment privileges, payment penalties, long-term savings, and much more.

d. Mortgage brokers provide expertise and choice at no cost to you as they get paid by the financial institution that funds your mortgage.

e. You never have to worry about a better mortgage on the market – you will have it.

If you have any more questions about mortgages, get in touch with Gary Corriveau. As an experienced mortgage agent in London and Windsor, Ontario, he provides a wide array of solutions. His services include first-time homebuyer mortgages, refinancing, second home or investment properties, self-employed mortgages, and new to Canada Mortgages. He serves clients across Windsor, LaSalle, Amherstburg, Kingsville, Leamington, Tecumseh, Essex, Lakeshore, Chatham-Kent, London, St.Thomas, Strathroy, Sarnia, Woodstock, Brantford, Stratford, Kitchener, Waterloo, Cambridge, and all over Ontario.

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