Click on a [+] sign below to view detailed information on each step of the “Becoming A Homeowner” process.
Overview - Non-Conventional Mortgages Step By Step
Given the fact that the cost of real estate in Alberta can be quite high, saving 20 per cent for a down payment for a conventional mortgage – also known as a low-ratio mortgage – can be extremely difficult. Non-conventional mortgages – also known as high-ratio mortgages – are very common, and apply to those who can not provide a 20 per cent down payment, but can provide five per cent or more (according to Canadian Mortgage and Housing Corporation (CMHC) guidelines). Those applying for a non-conventional mortgage must obtain loan default insurance.
“The general rule of thumb for looking into how much you can afford for your mortgage is that your mortgage and monthly housing costs should not amount to more than 35 per cent of your gross family income. To calculate this number, add up all of your monthly property-related bills including projections for expenses such as utilities and property taxes. Then divide that number by your monthly income and multiply by 100. This number is known as your Gross Debt Service (GDS) ratio).”
To further test your resources, a second general rule is that if your current monthly debt (including your credit cards, lines of credit and car loans and the new housing expenses) amounts to more than 42 per cent of your income, you should look at ways to reduce your debt before house hunting. This number is referred to as your Total Debt Service (TDS) ratio.
All Canadian residents of legal age with an active bank account can apply for pre-approval for a mortgage.
Mortgages come in many shapes and sizes, and some are more beneficial to particular circumstance than others. The pre-approval process can be a complicated procedure. Mortgages By Candice walks you through – Step By Step!
Step 1 - Applying For A Mortgage Pre-Approval
Be prepared to provide the following information to your broker, and be diligent about clearly discussing your long-term life goals and strategies.
- Social Insurance Number
- Current address. If less than three years were spent at this residence a previous address will be required.
- Current and previous employment information (if current employment is less than three years).
- Verifiable income such as a pay stub or bank statement.
- Value of all assets not including the home, such as vehicles, RRSPs and savings accounts.
- Recent mortgage statements.
- Recent credit card statements.
- Recent loan statements, including lines of credit, car loans and student loans.
- Estimated value of your home.
- Housing expenses (utilities, property taxes etc.)
Step 2 - Understanding Mortgage Rates
Mortgage brokers are most often asked, “What are the mortgage rates today?” and as such we are specialists at finding the very best mortgage rates on the market. We have access to myriads of contacts and resources to find you the most competitive home mortgage rate, and will tailor your mortgage to fit your lifestyle and assist you in reaching your goals.
Your rates will depend on the lender, and also the type of mortgage you are interested in (such as fixed or variable), and the term (shorter-term, fixed mortgages tend to have lower rates).
Step 3 - Receiving Your Mortgage Commitment
The day you receive your mortgage commitment letter will likely be a very exciting one for you! Bank commitment letters are legally binding documents that extend an offer for a loan, and should spell out the loan’s terms and conditions, such as the total amount of the loan and description of how the interest rate will be applied. At this point your broker will sit down and go over the letter with you to ensure it’s a worthwhile direction to take, and whether or not you should ask for adjustments.
Step 4 - Contacting A Real Estate Agent To Find Your Dream Home
Now that you know the quantity of loan that you qualify for, you can go ahead and contact a real estate agent to begin the search for your dream home. Don’t forget, though, that the amount that you can afford is affected by your home mortgage interest rate, and that there are two parts to every mortgage payment. Your mortgage broker will also help you factor in your insurance payments, as well as the amount you should expect to pay for property taxes annually.
Step 5 - Submit Offer to Purchase Your Dream Home
When you submit your offer to purchase your new home, you will be provided a document from your real estate agent to send to your broker with the feature sheet from the house you have chosen. Your mortgage then becomes subject to certain mortgage conditions. The sale of your current home may be a mortgage condition, or perhaps the financing of your down payment. The mortgage condition period is how long you have to remedy those circumstances (such as sell your home or provide the complete down payment).
Step 6 - Getting Insurer Approval
You will have already discussed the need for mortgage insurance if you are unable to provide a 20 per cent down payment or more. Home owners insurance for high-ratio mortgages protects the lender from default until your mortgage becomes low-ratio (or you pay off 20 per cent of your loan). Loan default insurance is provided by the Canadian Mortgage and Housing Corporation (CMHC), Genworth Mortgage Insurance, or Canada Guaranty. Rates start at 0.5 per cent and vary according to the down payment and authorization. These fees usually can be added directly to your mortgages payments.
Step 7 - Making Sure Outstanding Conditions Are Met
You’re getting close to owning your new home! At this point you’ll want to go over any final documentation about your mortgage with your broker and make sure your outstanding conditions have been met. Your broker will also want to discuss with you any more costs for closing that you may expect, such as lawyer’s fees and property insurance.
Step 8 - Having Your Conditions Waived
The financing is essentially complete when your conditions are waived. Your mortgage insurance is in place, and your lender and insurer have essentially come together to guarantee the amount you were pre-approved for.
Step 9 - Almost There! - Final Documents
Your lender will send your documents to your lawyer, who will now take control of the mortgage until closing is complete. It’s time to celebrate home ownership!
Step 10 - Congratulations Homeowner!
Congratulations on your purchase and enjoy your new home!
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