Applying for a mortgage can be an intimidating and confusing task. Getting pre-approval can be a real time saving tool - if you will take action! It gives you a WRITTEN approval from a lender for a SPECIFIC LOAN AMOUNT so you know exactly what homes to look for and in what price range you can purchase. It gives you the peace of mind of knowing that your being approved will not be an obstacle in buying your home. It gives your offer MAXIMUM CREDIBILITY and shows the seller that you are serious about buying because you've taken the time to get pre-approved. If the sellers received multiple offers on the home, which one do you think they would pay more attention to?
If you have more questions after reading this helpful explanation, don't hesitate to contact me. All my consultation services are free of charge.
STEP 1: Initially you will meet with a Loan Officer or Mortgage Broker who will have you complete a RESIDENTIAL MORTGAGE APPLICATION.
STEP 2: The Loan Officer will then request a series of documents to support your income, your savings and your expenses.
STEP 3: The Loan Officer will begin processing your application. At this time the lender will order an appraisal of the home, a copy of your current credit report and will make written requests to verify your employment and bank account balances.
STEP 4: Within 3 days of completing your application, the lender will provide you with an estimate of closing costs and a booklet containing information about the closing costs you may incur in the transaction.
STEP 5: Once the lender receives your credit report, appraisal and all the written verification requests, your loan package will then be forwarded to the underwriting department. They will evaluate your loan package and will either approve or deny your loan according to their OWN policies and guidelines.
STEP 6: You are probably saying "This is a lot of work! And there is still a chance I may be denied?" Yes!! Then you would have to begin the whole process over again with other Banks until you find one that has appropriate policies.
SELECTING THE BEST MORTGAGE FOR YOU
The basic features to consider when selecting a mortgage include:
Conventional vs High Ratio
A conventional mortgage is a loan for no more than 75% of the appraised value or purchase price of the property, whichever is less. The remaining amount comes from the borrower's own resources and is known as the down payment.
A high ratio mortgage is used for loans that exceed conventional mortgage lending guidelines. These mortgages must be insured against default through Canada Mortgage and Housing Corporation (CMHC) or GE Capital Mortgage Insurance Canada (GEMICO). The borrower will have to pay the insurance premium, which can range from 0.50% to 3.75% of the total mortgage amount. Typically, the insurance premium is added to the principal amount of the mortgage. With a high ratio mortgage, people can purchase a home with as little as a 5% down payment.
Down Payment Amount
(% of purchase price or appraised value) Insurance Premium
(% of total mortgage amount) Terms Available
5% 3.25% 3,4,5, and 10 years
10% 2.00% 6 months, 1-5 years, and 10 years
15% 1.75% 6 months, 1-5 years, and 10 years
20% 1.00% 6 months, 1-5 years, and 10 years
25% Conventional - no premium (in most cases) 6 months, 1-7 years
Note: for variable interest rate mortgages, an additional 0.25% surcharge applies.
Closed vs Open
"Closed" means a mortgage which is for a fixed term and has fixed prepayment options. A closed mortgage usually offers a lower interest rate than an open mortgage. An "Open" mortgage may be for the
Fixed Rate vs Variable Rate
A "fixed rate" mortgage carries the
Short Term vs Long Term
A "short term" mortgage is usually for two years or less. A "long term" mortgage is generally for three years or more. Short term mortgages are appropriate when someone believes interest rates will drop come renewal time. Long term mortgages are suitable when current rates are reasonable and borrowers want the security of budgeting for the future. This may be important for first time home buyers. The key in choosing between short and long terms is to feel comfortable with your mortgage payments.