Applying For a Mortgage
It’s the largest financial investment many will make in a lifetime. Entering into a mortgage is a responsibility not to be taken lightly. Preparation is key. Learning how to apply before taking the necessary steps will take a load off your shoulders and provide confidence in your decisions.
Step 1: Inform yourself
Fixed rates, variable rates, deposit and repayment plans, amortization—It’s all a little much for those who didn’t spend their post-secondary education training to be mortgage brokers. However, with the current accessibility of information at your fingertips, you can educate yourself on the basics of this financial undertaking. Visit Century21.ca for a glossary of terms.
Step 2: Budget yourself
If you haven’t already done so, create a monthly budget for yourself. Include housing, heat and electricity, car payments, fuel, groceries, phone, Internet and T.V. costs, entertainment, etc. Now you know how much of your monthly income you can spend on your mortgage, in relation to all of your other costs. Your mortgage payments should be about one-third of your total income.
Step 3: Obtain a credit report
To apply for a mortgage, you must first get a credit report to see if you even qualify for a loan. Canadian residents can get a credit report for $23.95 at Equifax Consumer Services Canada or contact an agent and they will provide a report for free. With your report in hand, you can make sure there are no mistakes or discrepancies and have them corrected before these inconsistencies ruin your chances at a loan. Experts say almost half of all credit reports contain errors that are serious enough to affect your mortgage application.
Step 4: Calculate your mortgage
Make sure you have enough savings money to make your down payment of at least 5 per cent of the cost of the home before committing to a mortgage. The lender you choose will also confirm you have sufficient funds.
Your income will determine the mortgage you are able to afford. Once you know your financial situation and your total taxable income, set aside 32 per cent of that total for your mortgage, property taxes and heating costs. Your housing costs should not equal more than 32 per cent of your gross household monthly income.
With these numbers in mind, you can calculate your mortgage using a mortgage calculator.
Step 5: Find a broker
The right broker can find you the cheapest and best-suited mortgage rate. Many mortgage seekers go straight to
their banks to apply but sourcing an independent mortgage broker is a financially wise option. Brokers can negotiate prices through a list of lenders and ultimately find you the best rate, whereas a bank provides its in-house rate.
Step 6: Bring the right documents
You will need basic personal information, assets and liability documents, income verification documents and real estate property documentation. The mortgage application process can take between several days, and discrepancies in your documents will slow the process. Your mortgage lender will provide you with a list of required information and documentation.
Paul Baron is with Leading Edge Realty Inc. in Scarborough, ON
Posted by Paul Baron
on December 28, 2010