Mortgage Pre-Approval

A mortgage pre-approval shows you, the homebuyer, what value of home you can afford, and the mortgage payments associated with various purchase prices. It also guarantees a mortgage rate for a period of time; therefore, protecting you against potential rate increases. You are not obligated to the bank or mortgage broker to whom you received your mortgage pre-approval, and there is no cost. So, there is no downside to obtaining a pre-approval through a mortgage broker.

Home Buying Process

Once you have found a home that you would like to put an offer on, you will put this offer in writing in a document called an ‘offer to purchase.’ Your real estate agent will help you put the offer together. This offer should include the following details:

• Your name, the name of the vendor and the address of the property
• The purchase price offered
• The chattels that will be included in the purchase price (for example, window coverings, appliances, etc.).
• Whatever items in or around the home that you think are included in the sale should be stated in your offer
• The deposit amount
• The closing day (the date you take possession of the home), which is usually 30 to 90 days from the date of agreement. As of the closing date, the purchaser is responsible for taxes, utilities, repairs and maintenance
• Request for a current land survey of the property
• Date when the offer becomes null and void — that is, when it expires
• Financing Condition: a condition which allows the homebuyer to secure financing (i.e. mortgage approval) before the sale is final. If you cannot secure financing, then you can still walk away from the deal and recover your full deposit. Typically, you should ask for 7-10 days to secure financing
• Home inspection a condition which allows the homebuyer to have the house looked at by a professional inspector prior to making the sale final. If the inspection uncovers something you do not like, then you can still walk away from the deal and recover your full deposit

This process may occur several times over: it is not uncommon to make an offer, receive a counter-offer, and then make revisions.

Mortgage approval

 A mortgage approval is similar to a pre-approval, but it contains all of the specific details of the house you want to purchase. The mortgage approval will have the full address, exact purchase price, closing date, property taxes, etc. These are details which are not in the mortgage pre-approval. Once your mortgage provider has all of these details, they will give a mortgage approval as long as they are comfortable with the property you are purchasing and your qualifying criteria are in line. Once you have a mortgage approval that you are satisfied with, you can waive your financing condition and finalize the sale.

 Deposit

When your offer on a home or condo is accepted, you might be surprised when your real estate agent asks you to include a small deposit with it. Not to be confused with your down payment, a deposit is essentially an offer of good faith to the seller that you are serious about purchasing their home – even though you still want to get a home inspection and your mortgage financing in place, before signing on the dotted line.

Once you sign the accepted offer, the deposit is applied against the purchase price of the home – so it’s not technically an “extra cost”, but it’s still a part of your home buying budget and experience. How much should your deposit be and where does it go when you make it? Let’s take a look.

How much is a typical deposit?

There isn’t really a set amount, but your real estate agent may request something in the range of 1% of the purchase price. For example, if you bought a home for $300,000, your agent could request $3,000 for the deposit. Normally to show the seller you are serious it is a minimum of $1000-$3000.

When do I pay the deposit?

The deposit is paid when you sign an accepted Offer to Purchase (meaning the seller has accepted your offer and wants to move forward), but before your home inspection and mortgage financing are done.

Who do I give the deposit to and where does it go?

You’ll give your deposit to your real estate agent, when you’re signing the paperwork for your accepted offer. Your agent then passes it off to the seller’s real estate agent, who it stays with until closing day. On closing day, the amount is applied against the purchase price (so it’s essentially considered part of your down payment).

What happens if the house doesn’t close?

If you back out of the purchase for any reason other than a condition that is noted on the Offer to Purchase, the seller may be able to keep your deposit. Remember, at this point, they’ve stopped accepting offers from other people. In the time it took for you to decide not to go through with your offer, they may have missed out on other ones. If you’re handing over between 1% and 3% of the purchase price of a home upfront, you want to be certain it’s for the right home for you; losing that amount of cash could take a serious bite out of your home buying budget, and set you back for months. I don’t want this to scare you – I just want you to be conscious of how big this decision is, so you can protect yourself (and your savings). In a market with multiple offers such as the current Barrie market where homes are being sold above list price, typically the higher the deposit the more seriously your offer is taken from the seller’s point of view.

Mortgage Approval Process

Getting approved for a mortgage through a mortgage broker could be the most important step in the home buying process. If you weren’t already pre-approved which you definitely should be, you’ll begin your mortgage approval process after you’ve made your Offer to Purchase and your offer has been accepted. Your Offer to Purchase will be conditional on financing, which means you need to secure your mortgage approval before you can move forward with your home purchase.

The mortgage approval process is similar to a mortgage pre-approval: you’ll need to provide your mortgage broker or lender with specific details about the home you’re purchasing, along with your income and down payment details.

Some of the documents you may need to provide include:

Employment information:

• Current employment income from a T4, pay slips and signed letter from your employer
• Other sources of income such as investments, rental income, or freelance income

• The address
• The closing date
• Property tax, condo fees and heating cost estimates
• A copy of the real estate listing
• A copy of the accepted Offer to Purchase agreement, including the exact purchase price
• A copy of the home appraisal, home inspection and/or land survey
• Your lawyer’s name, address and phone number

Down payment information:

• If you are using your own funds: savings or investment statements from the last 90 days
• If you are using the Home Buyers’ Plan (HBP): proof of withdrawal from your RRSP
• If you are using a gift from a family member: a letter stating the money is not a loan

• The deposit amount that was included with your Offer to Purchase
• An inventory of your current assets and liabilities such as investments or car loans
• A void cheque to setup mortgage payment withdrawals

Once your broker or lender has all of these details, they’ll send the application to an underwriter at the financial institution you’re asking for a loan from. The lender will use debt service ratios to determine if your application fits within their guidelines. If the lender is satisfied that both your finances and the property fit within their qualifying guidelines, they’ll approve you for the mortgage. The typical turn-around for a mortgage approval is 24-48 hours.

Mortgage Application Rejection

If your mortgage application is not approved, there are several steps you can take.

• You could get a guarantor to co-sign the mortgage application. This is often done by a parent or relative.
• You could seek an alternative mortgage lending institution or private lender. There is a whole segment of the industry that deals specifically with “credit challenged” client profiles. These companies specialize in lending to homebuyers who cannot obtain a mortgage through a traditional lender like a bank, credit union, but lender/brokerage fees will apply for any alternative lending deal. This is not the mortgage brokers fault rather the increased risk of using a subprime lender means they want to be paid extra to lend you their money. The mortgage brokers role at this point is to obtain funding for the short term and put a long term plan together so that down the road, a prime lender will be able to be used once proper credit conditions are restored.

A Mortgage Broker’s Job

A mortgage brokers job is to work with you and represent the client to each and every lending institution to find the best possible match for the client giving all the circumstances. Every client will have different job history, credit, down payment amount and will be looking at a different qualifying property. Each of these things will play a determining role in which lender the mortgage broker will use to secure funding. Your mortgage broker will ALWAYS be your best bet and will help you secure funding through the cheapest lender possible. 

If there is one thing that I have learned, in order to be successful as a mortgage agent you have to put your client’s needs first,which means being completely transparent. As a mortgage agent with Dominion Lending Centers, I ensure my clients understand every aspect of the process of choosing the right mortgage plan. I have been and always will be accessible to my clients for the life of their mortgage. Committing to annual reviews of my clients’ mortgage plans and making adjustments if necessary is just another part of the job I love and am committed to.

Why do i advise a pre-approval for my clients?

By getting pre-approved you will be able to know the exact maximum purchase price that you can afford which will save you time as you will now know which homes fall within your budget when browsing. This also results in a quicker turnaround time on processing your approval once you have put in an offer on your new home. Furthermore, getting pre-approved also provides you security by holding you at an interest rate for a given time in the case that mortgage rates should increase.

DO YOU HAVE PRE-APPROVAL, A PRE-QUALIFICATION OR JUST A RATE HOLD?

Rate hold (good) A rate hold is just that. It guarantees a specific rate for a certain period of time which is usually 120 days. That doesn’t take into account your ability to qualify for the mortgage. What happens is basically a lender will hold that rate but you will still have to meet their qualifications after you find a home.

Pre-Qualified (better) A pre-qualification application is completed and based on the information you have provided the mortgage broker with and will determine the amount of a mortgage you will qualify for. There is no supporting documentation and most of the time there is no review from your credit bureau.

Pre-Approval (best) A pre-approval is a thorough analysis of the home you can afford based on your verified income, a credit bureau analysis, detailed assets, debt review, and confirmation of down payment. If you want to shop for your new home with confidence I highly recommend getting a pre-approval. Getting all the documentation upfront will also provide a quicker turnaround time on processing your approval once you put in an offer on your new home. It also secures an interest rate for a given time in the case that mortgage rates should increase.

 

*It Pays To Know*

Investment Properties in Canada

Buying an investment property is a popular option for Canadians looking at different ways to invest their money. However, unlike the mortgage you took out on your principal residence, financing an investment property is a little more complex. The number of units in the building and whether or not you’ll be occupying one of the units are the two major components that control what your financing will look like. Let’s take a look at how investment property mortgages work in Canada.

Investment Property Mortgages

When you start shopping around for an investment property, the first thing you need to consider is the number of units your building will have. Most buildings with 1-4 units are zoned residential, so the qualification criteria and financing options from lenders are only slightly more difficult than that of a mortgage similar to what you have on your principal residence. However, buildings with 5 or more units are zoned commercial, so a lender would require that you take out a commercial mortgage on it. With a commercial mortgage, the qualification criteria is even tougher to meet and interest rates are often much higher.

If it’s a multi-unit property, the second thing to consider is if you, the owner, will be living in one of the units or not. If you will be occupying one of the units, the property would be considered owner-occupied. If all of the units will be rented out, your property would be considered non-owner occupied. The major difference between the two is how much of a down payment you need to make.

• Down Payment
• Maximum Amortization Period
• CMHC Insurance

What is a credit score?

A credit score is a three-digit number that is calculated using a mathematical formula based on the information in your credit report. You get points for actions that demonstrate to lenders that you can use credit responsibly. You lose points for things that show you have difficulty managing credit. To find out what counts toward your credit score, see page 16.

In Canada, credit scores range from 300 to 900 points. The best score is 900 points.

Lenders and credit reporting agencies produce credit scores under different brand names, such as Beacon, Empirica and FICO®.

Your score will change over time as your credit report is updated.

Businesses use your credit report and score to see how risky it would be for them to lend you money. It is up to each lender to decide on the lowest score you can have and still borrow money from them. Lenders may also use your score to set your interest rate and credit limit. If you have a high credit score, you may be able to get a lower interest rate on loans, which can save you a lot of money over time.

While they are very important, credit scores are usually not the only thing a lender will look at. Often, they will also consider other factors, such as your income, job or any assets you own.

 

 

The actual formulas used to calculate credit scores are the property of private companies and are not available to the public. This means it is not possible to know exactly how many points your score will go up or down based on the actions you take.

However, the main factors that are used to calculate your score include:

• payment history

• use of available credit

• length of credit history

• number of inquiries

• types of credit.

 

 

1. Payment history

This is the most important factor for your credit score. It shows:

• when you paid your bills

• late or missed payments

• debts you did not pay that were written off or sent to a collection agency

• whether you have declared bankruptcy.

 

Your score will be damaged if you:

• make late payments—the longer it takes you to make your payment, the worse the impact on your credit report and score will likely be

• have accounts that are sent to a collection agency

• declare bankruptcy

• withhold payments due to a dispute and the lender reports your payments as late.

With certain financial products, any payments you make on time will not be counted and will notimprove your credit score. However, if you miss payments and your account is sent to a collection agency, this can be included and will damage your credit score. These products include:

• chequing and savings accounts

• student loans

• prepaid cards (these are not the same as secured credit cards).

Telecommunications accounts, such as mobile phone and Internet, are exceptions. Payments you make on time as well as late payments may be considered for your credit score.

TIP: To improve your credit score • Always make your payments on time. If you cannot pay the full amount, make at least the minimum payment. • If you think you will have trouble paying a bill, contact the lender right away. See if you can work out a special arrangement to repay your debt.

 

2. Use of available credit

This is the second most important factor. It is also called “credit utilization.”

To figure out your available credit, add up the credit limits for all your credit products, such as credit cards, lines of credit and other loans.

What counts toward your credit score is how much of your available credit you actually use, not your credit limits by themselves.

When you use a large percentage of your available credit, lenders see you as a greater risk, even if you pay your balance in full by the due date.

TIP: To improve your credit score • Try to use less than 35 percent of your available credit. For example, if you have a credit card with a limit of $5,000 and a line of credit with a limit of $10,000, your available credit is $15,000. Try not to borrow more than $5,250 at any time (35 percent of $15,000).

 

3. Length of credit history

The longer you have had an account open and used it, the better it is for your score.

Your credit score may be lower if:

• you have credit accounts that are relatively new

• you close your older accounts and your remaining credit accounts are newer—for example, if you close a credit card account and transfer the balance to a new card.

TIP: To improve your credit score • Consider keeping an older account open even if you no longer need to use it, especially if there is no annual fee. Use it from time to time to keep it active.

 

4. Number of inquiries

When lenders and others ask a credit reporting agency for your credit report, it is recorded as an inquiry. This usually happens when you apply for credit.

It is normal and expected to seek credit every so often. But if there are too many inquiries on your credit report, lenders may be concerned. It can seem like you are desperately seeking credit or that you are trying to live beyond your means without the ability to pay back the money you want to borrow.

“Hard hits” versus “soft hits”

Inquiries that are recorded on your credit report and count toward your credit score are sometimes called “hard hits.” Anyone who views your credit report will see these inquiries. An application for a credit card is an example of a “hard hit.” Rental and employment applications may be treated as “hard hits.”

“Soft hits” are the opposite. Only you can see “soft hits.” These inquiries do not affect your credit score in any way. Examples of “soft hits” include:

• requesting your own credit report

• businesses asking for your credit report to update their records about an existing account you have with them. They do this to see whether you qualify for promotions, credit limit increases and so on.

Will shopping around for a car or mortgage hurt my score?

When you are shopping around for a car or a mortgage, try to do it within a two-week period. All inquiries related to auto or mortgage loans made during this time are usually combined and treated as a single inquiry.

TIP: To improve your credit score • Limit the number of times you apply for credit in a short period of time. It is a good idea to seek credit only when you really need it.

 

5. Types of credit

Your score may be lower if you only have one type of credit product, such as a credit card.

It is better to have a mix of different types of credit, such as a credit card, auto loan, line of creditor other loan. It can even help if you have a second but different type of credit card, such as an account with a store.

TIP: To help your credit score • Having a mix of credit products could get you more points, but don’t go overboard! Make sure you can afford to pay back any money you borrow. Otherwise, you could end up hurting your score by taking on more debt than you can handle.

 

Reposted from Rob Carr -RMA

These days, everyhomeorcondobuyerin knows that, at a very minimum, they need to be pre-approved before shopping for a newhome.  But being pre-approved by the RIGHT lender is just as important.  With almost unlimited choices, between Banks,CreditUnions, private lenders and mortgage brokers, whats the best choice for today’s homebuyer?  Many are turning to a Mortgage Broker, for a variety of reasons.  Here are some very important ones to consider:

A home is the biggest purchase most of us will ever make.

And a mortgage can be a powerful financial tool. No surprise, then, that a growing number of Canadians have started to ask some smart questions about theirmortgage. In fact, more than 30% of all Canadian mortgages are now arranged through a mortgage broker, and almost 60 percent of first time home buyers. Why? Here are 10 great reasons:

1. Choice.

A mortgage broker has access to mortgages from a huge range of lenders – so their clients have by far the best choice of rates andmortgage options. With partnerships in a vast network of over 50 lending institutions, including banks, credit unions, trusts, national and regional lenders, and non-traditional lenders, your broker can help design the perfect mortgage for you.

2. Independence and objectivity.

A mortgage broker actually works for you, not for any one lender. That kind of objectivity means that you – the client – are the focus. They fit the mortgage to the client, not the other way around.

3. Negotiating power.

A mortgage broker has negotiating power because the lenders compete for their business. You’ll get the best rate for your situation.

4. Access to rate promotions.

You may not realize it, but there are sales and promotions in the mortgage world, too. Lenders often offer special rate promotions, for example. Your mortgage broker will know about thesespecial offers, and whether they might work in your situation.

5. Expertise.

An AMP-designated  broker is a financial specialist. That’s the kind of expertise you want to guide you through today’s plentifulmortgagemarket. With 35-year amortizations, re-advanceable mortgages (mortgage combined with aline of credit), no income documentation products for the self employed, credit repair and debt consolidation solutions, today there are mortgages for almost any situation. And your independent mortgage broker knows them all.

6. A focused specialist.

A mortgage is a very significant financial event. A mortgage broker is in only one business, and they do it exceedingly well. That’s what you want: someone who’s focused on the mortgage marketplace and your needs.

7. Rates.

Getting a lower rate can potentially save you thousands ofdollars. That’s why more homeowners are more likely to call a mortgage broker to check out their options for their first mortgage and at renewal.  Call early; your mortgage broker can usually guarantee an interest rate for 90-120 days.

8. One credit inquiry.

Rate-shopping on your own can actually be hazardous toyour credit. Every time a lender checks your credit, the credit bureaus take notice. Too many inquiries and your credit rating can weaken, possibly affecting the rate and terms of your mortgage. Your mortgage broker does one inquiry only, regardless how many lenders you’re looking at.

9. No cost to you (o.a.c).

As a rule, the winning lender pays compensation to your mortgage broker for the services and solution provided.

10. Personal attention.

You need a mortgage plan that is a custom fit for you, and a broker who keeps in touch with you during your mortgage years. Keep in mind that their business is built primarily through referrals from satisfiedcustomers, so your positive mortgage experience is essential for their ongoing business growth.  Your mortgage is a big decision and a powerful financial tool.

So if you are in the market for a new home, or need to re-finance a current home, consider using a mortgage broker to get the best deal possible. You wont regret it. 

#Winnipeg This article first appeared in Winnipeg’s Real Estate Blog and is copyright of Bo Kauffmann, REMAX.http://blog.winnipeghomefinder.com/top-10-reasons-to-use-a-mortgage-broker/

This is a little known Homeownership Program in Simcoe County (Barrie, Orillia, Innisfil, Alliston, Collingwood, Bradford, Midland, Wasaga Beach) that aims to assist low-to-moderate income earners who are currently renting to purchase a home.  The program will provide a 10% down payment in the form of a forgivable loan.

This program is designed to free up valuable rental units & encourage builders to develop affordable housing options in the area.

How do I qualify for the grant?

The Homeownership Program has been running for the last couple of years but the Program does seem to run out of funds fairly quickly after each funding announcement, so timing is very important!  Their website states, “Future funding details and specific program guidelines will be posted on our website in early 2014″.

The purchased home (re-sale or new) must be located in Simcoe County and cannot exceed a price of $291,814.  The down payment assistance loan is registered on title in second position for a period of 20 years.  The loan is forgiven after this period.  If the home is sold before the 20 years, the down paymentmust be repaid in full plus any realized capital gains.

Applicants must not own any other properties, have assets of no more than $20,000 and a gross household income of less than $82,600.  Potential candidates must also include a mortgage pre-approval with their completed application.

For more information contact:

County of Simcoe Administration Centre
Social Housing Department
1110 Highway 26
Midhurst, ON  L0L1X0
Phone: 705-725-7215 x.1119

If you’re familiar with the concept of comparing mortgage rates, chances are you know there’s money to be saved by shopping around – sometimes hundreds or thousands of dollars. It’s a fact the big banks hope you ignore when searching for your mortgage, and that you’ll stick with the tried, tested and true when it comes to you money. Turns out, according to a new Bank of Canada study, that blind loyalty is costing Canadians—between $759 to $1,617 per YEAR, to be exact.

Why You Should Look Around

The study, titled Price Negotiation in Differentiated Products Markets: Evidence From the Canadian Mortgage Market, states that when it comes to choosing financial products, Canadians are hesitant to stray far from their home bank.

“Survey evidence in Canada and in the United States reveals that, while some buyers get multiple quotes when shopping for their mortgage contract, nearly half only get one. Moreover, recent surveys suggest that 80 per cent of consumers search for a quote at their main financial institution, and that the majority of these end up contracting with them.”

The study also shows that 67 per cent of Canadian household respondents take their mortgages out from the same bank as their main chequing account—and that they’re missing out on some enviable choices. It was found that available mortgage rates on the market vary by 66 basis points—inding yourself at the high or low end of that spectrum can really add up over the lifetime of a mortgage.

Debunking the Home Bank Advantage

In Canada, 90 per cent of assets are controlled by eight banks, or the “Big 8” as referred to by the study. These include BMO, Scotiabank, National Bank, CIBC, RBC, TD, Desjardins and ATB. Twenty one per cent of their income comes from mortgage interest and fees, and it was found that those with mortgages from these lenders paid more on average. For these FIs, the perfect consumer is one with “positive bank bias”; a client who values security, and is likely to strongly consider complimentary services and the the convenience of one-stop-shop banking.

“The home bank premium ranges from about $759 to $1,617. In other words, consumers are willing to pay between $759 and $1,617 upfront to stay with their home bank and avoid having to switch banks.”

The study found that 72 per cent of Canadian consumers have this positive bias, with 30 per cent refusing to consider non-dominant lending institutions—a decision that can limit their their rate options to as low as three.

However, when consumers were fully aware of their market options, they were far less likely to be appeased by big bank convenience. Of those who worked with a mortgage broker to find additional rates, only 37.3 per cent ended up going with their main bank, as opposed to 70.3 per cent of those who did not work with a broker.

Why You Should Always Ask Twice

The study found that consumers who compared—even if they stayed with their home bank—got a lower rate. The banks are generally willing to offer lower rates to those who know enough to ask. According to the study, “Approximately 25 per cent of borrowers pay the posted rate. The remainder receive a discount below the posted price.” Non-searchers on average were served a rate at a 4.1 per cent markup compared to 1.9 per cent for those who showed they looked at other options. A full 25 per cent of rate shoppers faced no markup at all.

Why Would Anyone Pay The Posted Rate?

According to the study, “…  banks have an incentive to post an artificially high interest rate that is not binding. Indeed, the pre-payment penalty is calculated as a fraction of the interest payments remaining on the contract, evaluated at the posted rate valid at the signature date, rather than the transaction interest rate. Banks therefore have an incentive to raise the posted rate, in order to reduce their pre-payment risk.” Just more reason why you should always pass up your first presented option. Not only does it not hurt to compare, but it could save you thousands of dollars in the long run.

Reposted Courtesy of Penelope Graham