Planning for a mortgage.

One of the important factors in home ownership is understanding things like your credit score.  Some people don’t pay much attention to this metric until they begin the mortgage discussion! However, you will find that your credit score is one of the most important factors when it comes to qualifying for a mortgage at the best rate – and with the most purchasing power.

Whether you qualify for a mortgage through a bank, credit union or other financial institution, you should be aiming for a credit score of 680 for at least one borrower (or guarantor), especially if you are putting under 20% down. If you are able to make a larger down payment of 20% or more, then a score of 680 is not required.

If you are not sure what your current credit score is, you can find out through Canada’s two credit-reporting agencies: Equifax Canada and TransUnion Canada. Once you have your credit score, always double check that there are no mistakes and ensure you dispute any problems if applicable.

What If I Don’t Meet the Minimum Credit Score?

If your credit score is accurate, but does not meet the minimum requirements, you will want to look at your current debt. Home ownership is an incredible investment, but it is also costly. Fortunately, there are a number of things you can do to improve your credit score as well as your future financial success, including:

• Paying your bills in full and on time. If you cannot afford the full amount, try paying at least the minimum required as shown on your monthly statement.
• Pay off your debts (such as loans, credit cards, lines of credit, etc.) as quickly as possible. Work on paying the ones with the smallest amount owing first and work your way towards the larger amounts.
• Stay within the limit on your credit cards and try to keep your balances as low as possible.
• Reduce the number of credit card or loan applications you submit.

There is also the option of going with an Alternative Lender (or B Lender) if you are struggling with credit issues. A DLC Mortgage Professional can help review your credit score and provide you with options for your mortgage needs.

Now that we have talked credit, it is time to consider budget! We know, we know… but we promise, you’re almost there!

When talking budget, it is important to consider the purchase price budget, as well as your cash flow budget. Being house rich and cash poor makes for a no-fun home! The home price based on your cash flow budget may be dramatically different than the budget home price you qualify for.

The benefit of a budget is two-fold. Not only does it help you to understand your purchase price range and help you to find an affordable home, but it can also help you to see any gaps in your budget or opportunities for future savings. This will be instrumental when you become responsible for mortgage payments.

To help determine your budget, we suggest checking out the My Mortgage Toolbox app on Google Play and the Apple iStore. This handy, consumer-friendly tool will help you determine your mortgage payments, affordability, income required to qualify and even the closing costs!

For those of you who don’t know, your down payment is the amount of money you need to put down on your new home. Once you have determined your budget, you will have an accurate idea of the final cost of the home you can afford and what you will be intending to spend. This will allow you to estimate your down payment and start saving!

The ideal down payment for purchasing a home is 20%. However, we understand in today’s market that is not always possible. Therefore, it is important to note that any potential home buyer with less than a 20% down payment MUST purchase default insurance on the mortgage, and they must have a minimum down payment of 5%. For example: If your budget for purchasing a home is $500,000 then you would be looking to produce a down payment of $100,000 ideally or $25,000 minimum with insurance.

If your budget is over $500,000, keep in mind the minimum down payment will be 5% for the first $500,000 and 10% for the remaining portion. If you end up purchasing a home that is over $1 million, you will be required to put 20% down.

Sources of Down Payment

The down payment on your home could come from your own savings such as a savings account or RRSPs. Thanks to the federal government’s Home Buyers’ Plan, potential first-time home owners are able to leverage up to $35,000 of your RRSP savings ($70,000 for a couple) to help finance the down payment. A gift of a down payment from an immediate relative is also acceptable.

Quick Tip: If your down payment comes from TFSA or RRSP, the bank will want 90 days of statements to ensure the funds are accounted for. Gifted funds rarely require 90 days of proof.

It is always a good idea to check with a Mortgage Professional for qualifying criteria and availability to ensure your source of down payment is eligible.

Closing Costs

After you have secured your down payment, it is also important to mention that you will need to have the closing costs available upon finalizing the purchase of your new home. These costs can range between 1 – 4% of the purchase price.

When it comes to mortgages, there can be a lot to know! Do you go with a fixed-rate mortgage or a variable-rate? What are the terms? What are the penalties? Which is the best payment frequency? With so many questions and so many lender options, it can be hard to find the best solution for you. That is where a DLC Mortgage Professional can help.

Rate is only ONE of the many features in selecting the best mortgage product that meets your financial goals. With access to hundreds of lending institutions, Dominion Lending Centres Mortgage Professionals are familiar with a variety of mortgage products allowing them to help find the best mortgage for YOU! Plus, unlike banks, mortgage agents are a third-party service focused on YOUR needs. This means that you can get the best rates and unbiased advice all for FREE from someone whose only goal is helping you achieve your dream of home ownership.

When you apply for a mortgage you will typically need to provide a standard package of documents, which almost always includes:

• Your government-issued personal identification
• One month of recent pay stubs from any applicants who will be listed on the loan
• Letter of employment
• Your most recent two years’ worth of personal CRA tax filings and financials (if incorporated)
• Three months of bank account statements
• Your down payment (minimum 5%)
• Documentation to explain any unusual (generally non-payroll) large deposits or withdrawals

To have the best success with your mortgage, it is recommended that you get pre-approved! This can be done through your Mortgage Professional to ensure that you get the best mortgage product FOR YOU, from the best rate to the best term agreement.

While getting pre-approved might sound boring (and you might be asking ‘why can’t I just get approved instead!?’) there are actually a host of benefits which will make searching for your perfect home that much easier.

• Pre-approval helps verify your budget and allows your real estate agent to find the best home in your price range. Quick Tip: Don’t forget about the closing costs! These range from 1 to 4% of the purchase price and should be factored into your budget.
• Pre-approval guarantees the rate offered and locks it in for up to 120 days. This protects you from any increases in interest rates while you are shopping (phew!). Make sure to ask exactly how long your pre-approval is good for!
• Pre-approval lets the seller know that securing financing should not be an issue, which is beneficial in competitive markets!

Protecting Your Pre-Approval

While nothing is fully approved until the property is presented to the lender and signed off, there are ways to help protect your pre-approval and ensure the rates and terms are guaranteed upon final financing. In order to do this, we suggest you:

• Refrain from having additional credit reports pulled once you have been pre-approved
• Refrain from applying for new credit, closing off credit accounts or making large purchases until after the sale is complete
• Be prepared to show a paper trail – any unusual deposits in your bank account may require an explanation.

You made it!! Once you have your down payment and have qualified for a pre-approved mortgage (your credit score is in order and all documentation has been provided), you are ready to start searching for your perfect home. Your Mortgage Professional can give you recommendations for a realtor, if you don’t have one already.

Closing Tips

• Clean up your debt and credit score. These two things will carry you through your financial life, so it is important to learn the right habits and put the work in now.
• Get pre-approved! It is worth it.
• Stick to your budget! You went through a lot of effort to prepare it, so don’t look at anything over your budget (even if that house has a REALLY great pool!).
• Don’t forget about closing costs and additional fees! Leave room in your purchase price for these things.
• Ask questions! Anything you are unfamiliar with or are uncomfortable with, ASK! That is what your Mortgage Professional and realtor are here for.

Bailey is here to answer all of your questions about obtaining a mortgage through a licensed professional! Scroll down to see the FAQ’s. Don’t see your question? E-mail her at askbailey@dlc.ca

Hey Bailey, why should I use a mortgage professional?

Our mortgage can offer better rates, personalized service, flexibility and products at no cost to you, finding you the right mortgage to suit your needs.

Hey Bailey, how do I financially prepare myself for home-ownership?

I suggest you create a budget to start. This helps you to see if you have the financial means to afford your mortgage payment, property taxes, strata/condo fees, monthly utility bills and any other household expenses!

Hey Bailey, what are some of the ongoing costs I can expect when owning a home?

In addition to your mortgage payments, you need to be prepared for property taxes, insurance, utility bills, condominium fees and routine repairs and maintenance.

Hey Bailey, what is a pre-qualification?

A pre-qualification provides you with a ballpark estimate of how much you maybe able to afford based on your own self report of your financial situation. This helps set a realistic price range for those eager to start shopping the real-estate market.

Don’t confuse this with the pre-approval! You can find more details on pre-approval under the tab above.

Hey Bailey, I’m self employed, can I still qualify for a mortgage?

Yes, you can! However, when self-employed you will need to submit additional documentation including:

• Two years notice of assessment
• Two years of T1 Generals
• Proof of being in business for yourself for two years (i.e.: business license)

Hey Bailey, I’m worried I might not be approved for a mortgage, is it OK to embellish my application?

No. It is critical that income details, properties owned, debts, assets and your financial past are accurate. If you have been through a foreclosure, bankruptcy, consumer proposal, there are still options but only if you disclose this info to your mortgage professional right away!

Hey Bailey, can I make a large purchase after I’ve been approved for a mortgage?

I do not recommend it! A lender can pull their credit 30 days prior to closing if the original information on the approval changes. Making big financial commitments such as a car or financing furniture, before closing on your home may result in the deal going sideways.

Hey Bailey, I’m a first time home-buyer and worried about closing costs, how much do I need to budget for?

Closing costs are generally 1.5% to 4% of the purchase price of your home.

Hey Bailey, what does a lender consider when looking at your mortgage application?

1. Credit
2. Capital, which is your income
3. Capacity, which is your income to debt-ratio. This determines whether or not you can afford the loan
4. Character, such as your past credit history to determine if you are reliable and yes – they also Google you!
5. Collateral, which refers to the condition of the property, location, history; essentially the characteristics of the real-estate that will secure the mortgage

Hey Bailey, what is the difference between variable and fixed rates?

A fixed rate means you are locked-in for a term. The benefit is that you know your monthly mortgage payment and it will stay the same. With variable rates, they are often lower than a fixed rate but they can fluctuate with the BOC posted rate.

Hey Bailey, what is the difference between a qualifying rate and a contract rate?

The qualifying rate is the Bank of Canada conventional 5 year fixed posted rate. A contract rate is the rate offered by the lender on the homebuyer’s actual mortgage payment.

Hey Bailey, do I need a Lawyer or Notary when finalizing my home purchase?

Yes! You will need to make arrangements for a Lawyer or Notary to draw up the mortgage documents for you to sign. If you don’t have a legal professional, ask you mortgage professional if they have someone they can recommend.

Hey Bailey, what is title insurance, and do I need it?

When you purchase a property, whether a single-family home, condo or cottage, you buy the title. The registration of that title confirms that you’re the rightful owner. Most transactions include a lender’s title insurance policy, which is designed to protect the loan and help the deal close faster. However, only an owner’s policy will offer you protection against title fraud, survey and title issues, or even pre-existing defects.

Hey Bailey, I hear a lot about default insurance, what is it and what does it mean?

If you’re putting anything less than 20% down when purchasing a home, mortgage default insurance is mandatory in Canada and allows consumers to purchase homes with a minimum of 5%.

Hey Bailey, I am looking to purchase a home with an income suite. How does this affect my borrowing power?

Your income dictates the size of mortgage. Adding a mortgage helper, such as an income suite, will add income to your application and increases your mortgage qualifying amount.

Hey Bailey, other than a bank where can I can get mortgage financing?

Great question! We work with Monoline lenders who specialize in a single type of financial service. These types of lenders do not have branches but can be accessed through your DLC Mortgage Professional.