Steps to Successful Home Ownership

Getting Financing

Applying for a Mortgage

To apply for a mortgage you will need to meet with your mortgage lender and fill out a loan application. This application details information concerning the type of mortgage loan you wish to receive and details your personal financial situation. To complete this application, you will need to provide the following information:

  • Your Gross Income, including overtime, commissions, bonuses etc.
  • Debts, including your proposed house payment, loans, credit cards, car loans, alimony and child support payments etc.
  • Employment History showing no employment gaps for the past two years.
  • Amount and Source of your Down Payment
  • Closing Costs
  • Current Monthly Household Expenditures, including rent
  • Bank Account Information
  • Bankruptcy History (if applicable)
  • Any legal actions you’re involved in (if applicable)
  • Citizenship Status
  • Alimony or Child Support Payments
  • History of Foreclosure
  • Value of all Investments
  • Value of Whole Life Insurance Policies
  • Value of Owned Automobile
  • Value of Any Other Major Assets
Qualifying for a Mortgage

To qualify you for a mortgage application, lenders look at five factors:

  • Income
  • Debts
  • Employment History
  • Credit History
  • The Value of the Property
Mortgage Approval

To be approved for a mortgage your application must have the following features:

  • Housing expense ratio no greater than 39%
  • A secure, steady income with no employment gaps for two years or longer.
  • Debt-to-income ratio no greater than 44%
  • A good credit rating
  • The price you are paying for your house is what it is worth in the current market.
Tips to Improve Your Credit Report
  • Pay down existing debts.
  • Postpone major purchases until you can afford to buy them without creating more debt.
  • Use credit carefully and establish a solid track record of consistent, timely payments,
  • Don’t miss bill payments.
  • Don’t default on payments.

Glossary of Mortgage Terms

Amortization: The number of years it takes to repay the entire amount of the mortgage.
Appraisal Value: An estimate of a property’s market value by a professional Appraiser; used by lenders in determining the amount of the mortgage.
Debt Service Ratio: The percentage of a borrower’s income that can be used for housing costs.
Gross Debt Service (GDS) Ratio: Gross debt service divided by household income. A rule of thumb is that GDS should not exceed 30%. It is also referred to as PIT (Principal, Interest and Taxes) over income. Sometimes energy costs are added to the formula, producing PITE, which moves the rule of thumb GDS to 32%.
Total Debt Service (TDS) Ratio: is the maximum percentage of a borrower’s income that a lender will consider for all debt repayment (other loans and credit cards, etc.) including a mortgage.
Equity: The difference between the price for which a property can be sold and the mortgage(s) on the property. Equity is the owner’s stake in the property.
Foreclosure: A legal process by which the lender takes possession and ownership of a property when the borrower doesn’t meet the mortgage obligations.
Mortgage: A contract between a borrower and a lender. The borrower pledges a property as security to guarantee repayment of the mortgage debt. Lenders consider both the property (security) and the financial worth of the borrower (covenant) in deciding on a mortgage loan.
Assumable Mortgage: A mortgage held on a property by the seller that can be taken over by the buyer, who then accepts responsibility for making the mortgage payments.
Conventional Mortgage: A mortgage loan that is 75 per cent or less of the loan-to-value ratio; and does not require insurance by CMHC or other private insurer.
First Mortgage: The first security registered on a property. Additional mortgages secured against the property are “secondary” to the first mortgage. High-ratio Mortgage: A mortgage that exceeds 75 percent of the loan- to-value ratio; must be insured by either the Canada Mortgage and Housing Corporation (CMHC) or a private insurer to protect the lender against default by the borrower who has less equity invested in the property.
Open Mortgage: A mortgage that can be prepaid or renegotiated at any time and in any amount, without penalty.
Pre-Approved Mortgage: Tentatively approved by a financial institution for a specified amount, interest rate and monthly payment.
Second Mortgage: A second financing arrangement, in addition to the first mortgage, also secured by the property. Second mortgages are usually issued at a higher interest rate and for a shorter term than the first mortgage.
Term Mortgage: A non-amortizing mortgage under which the principal is paid in its entirety upon the maturity date. Sometimes called a straight loan.
Variable-rate Mortgage: A mortgage for which payments are fixed, but whose interest rate changes in relationship to fluctuating market interest rates. If mortgage rates go up, a larger portion of the payment goes to interest. If rates go down, a larger portion of the payment is applied to the principal.
Vendor Take-Back Mortgage: When sellers use their equity in a property to provide some, or all, of the mortgage financing in order to sell the property.
Mortgage Life Insurance: Insurance that pays off the mortgage debt should the insured borrower die.
Mortgage Payment: The regular instalments made towards paying back the principal and interest on a mortgage.
Mortgagee: The person or financial institution lending the money, secured by a mortgage.
Mortgagor: The property owner borrowing the money, secured by a mortgage.
Mortgage Broker: A person or company having contacts with financial institutions or individuals wishing to invest in mortgages. The mortgagor pays the broker a fee for arranging the mortgage. Appraisal and legal services may or may not be included in the fee.
Mortgage Insurer: In Canada, high-ratio mortgages (those representing greater than 75% of the property value) must be insured against default by either CMHC or private insurers. The borrower must arrange and pay for the insurance, which protects the lender against default.
Mortgage Prepayment Penalty: Is a fee paid by the borrower to the lender in exchange for being permitted to break a contract (a mortgage agreement); usually three months’ interest, but it can be a higher or it can be the equivalent of the loss of interest to the lender.
Portability: A mortgage feature that allows borrowers to take their mortgage with them without penalty when they sell their present home and buy another one.
Prepayment Clause: A clause inserted in a mortgage, which gives the mortgagor the privilege of paying all or part of the mortgage debt in advance of the maturity date.
Principal: The mortgage amount initially borrowed or the portion still owing on the mortgage. Interest is calculated on the principal amount.
Rate: (Interest) The return the lender receives for advancing the mortgage funds required by the borrower to purchase a property.
Refinancing: The process of obtaining a new mortgage, usually at a lower interest rate, to replace the existing mortgage.
Secondary Financing: Second, third, fourth, etc. mortgages, secured by a property “behind” the first mortgage.
Term: The actual life of a mortgage contract — from six months to ten years — at the end of which the mortgage becomes due and payable unless the lender renews the mortgage for another term (See Amortization).
Weekly Payments: Mortgage payments made weekly or 52 times per year.

Making an Offer to Purchase

Your real estate sales representative will communicate your offer to the homeowner and their agent. The homeowner can either accept your offer, make changes to your offer, present you with a counter- offer or reject your offer completely. Generally, there are several counter-offers back and forth until a final agreement is made. The Offer to Purchase is a legally binding agreement between the buyer and the seller.
Firm Offer to Purchase:
Indicates that the buyer has decided to purchase the home with no conditions.
Conditional Offer to Purchase
Indicates that there are one or more conditions on the purchase of the home. The home is not sold until all conditions have been met.
The Deposit
The deposit shows the seller that you are serious and committed to buying the home. It is held in trust until the closing of the sale and will be applied against the purchase of the home. You may wish to stipulate that interest be paid to you on your deposit from the time of your Offer to Purchase to the actual closing date. If this is the case, it must be stipulated as part of your Offer to Purchase.

Finalizing Your Mortgage Application

Once your offer has been accepted, completing your mortgage application is the next critical final step in securing your home. You will need to meet with your lender to discuss the purchase. Bring along your pre-approved mortgage certificate, a copy of the real estate listing, a copy of the accepted Offer to Purchase, proof of employment/income and the details of your down payment.
If you have been pre-approved for a mortgage and have stayed within the parameters of that agreement, this should be a relatively easy and simple process.
If you have not been pre-approved for a mortgage, this becomes a longer and more complicated process. Your lender will need to verify the value of the property as well as your financial situation and credit history.
If your down payment will be less than 20% of the purchase price, you will need to qualify for a low down payment mortgage. Low down payment mortgages require the payment of an insurance premium which can be paid in full or added to your mortgage. Insurance premiums are typically 1.00% to 3.25% of the principal amount of your mortgage. Your lender will be able to guide you through the details of your application.

Closing Day

Secure a meeting with your real estate lawyer prior to the closing date to review and sign documents and pay fees relating to the purchase of your home. This includes a certified cheque to pay for closing costs and any other fees that are still outstanding against your property. Your real estate lawyer will turn over the keys to your new home on the closing date. When all of the paperwork is complete for the purchase of your home, your mortgage and the deed for the property will be recorded in the land registry office. You are now officially owner of your new home!

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