Qualifying for a Mortgage in Ontario

Most people aspire to own a home. To be able to own a home involves discipline because you have to save your down payment and closing costs and then you also have to be able to ensure that you can obtain mortgage financing. Qualifying for a mortgage in Ontario is a process that requires preparation. 

Many people think that to get approved for a mortgage is as simple as obtaining a mortgage pre-approval. Obtaining a mortgage pre-approval does not mean that you will eventually be approved for a mortgage and once approved for a mortgage you will have to satisfy a number of conditions in order to have your mortgage closed (or be funded).

All a mortgage pre-approval does is say that based on a preliminary review of your application, the financial institution believes that you qualify for a mortgage based on the information that you provided.

Once you find the home that you want to purchase the financial institution will have to approve the property you are purchasing, the purchase price, your credit and then they will issue a formal mortgage approval.

Qualifying for a mortgage in Ontario will mean that you must have decent credit (650 credit score or better), and your income and debt must fall within CMHC guidelines. Your housing payments on your new home must not exceed 32% of your gross income and your payments to housing and debts must not exceed 42% of your income.

After qualifying for a mortgage and obtaining a formal mortgage approval, the mortgage approval will be subject to conditions. These conditions will include proving your income, proving your down payment, proving that you have obtained home insurance and more. This is where people sometimes run into struggles.

Self-employed individuals will often apply for financing but then later be asked for documentation to substantiate their income that will be difficult to obtain. This is very common with people who are sub-contractors. Generally banks will ask a self-employed individual to provide several years of tax returns and their net income after writing off their expenses, which may be less than what they initially indicated on their application. In addition, if the income stated was based on the previous year but in years previous to that there was less income, the bank will average out the income which could impact the mortgage approval.

Where down payments are concerned the homeowner will have to show the down payment money has been in the borrower’s bank account for at least three months prior to the mortgage approval. You cannot borrow your down payment. Sometimes people plan to borrow their down payment and don’t realize until after they have made an offer that this is an issue.

To ensure that you qualify for a mortgage that will close your best bet is to work with a mortgage broker who can review your application and who will ask you for your supporting documentation. This way when you are told that your mortgage is approved you know that it will close and can enjoy a stress free mortgage closing.

For more information about qualifying for a mortgage in Ontario please call Paul Mangion at 416-204-0156 or visit www.gtamortgagematters.com.

Can You Refinance Your Home to Consolidate Debt?

In Canada there have been many reports and massive media coverage about the amount of debt being carried by Canadian households. Many don’t realize when using credit cards and lines of credit to finance big ticket purchases that the interest is not only high in many cases but also compounds monthly. Monthly compound interest means that each month interest is applied to the balance. When you make minimum payments to a credit card product the end result is that a very small amount of your monthly payments ends up being applied to principal. 

Over time credit card debt can accumulate to the point where it becomes very difficult to pay off. Home owners in Canada have one very valuable asset that they can use to deal with their debt at very flexible and affordable terms. Using your home to consolidate debt is a great way to reduce the interest and payments that you are making to high interest credit card debt. 

It is important that if you plan to refinance your home to consolidate debt that you do it in a way that you don’t end up paying more in the long run. Refinancing your first mortgage is one way to consolidate debt at a low interest rate because generally speaking mortgages do offer the lowest interest rates available when compared to other credit products. The challenge is the amortization. When you refinance your home to consolidate debt you will reduce the overall mortgage rate but you will also stretch the debt out with your mortgage over 15, 20, 25 years or whatever the remaining amortization on your mortgage is. The best way to refinance your home to consolidate debt when refinancing a first mortgage is to reduce your overall amortization by a few years. Doing this will reduce the interest that you will pay on your first mortgage and because your first mortgage will generally represent a much larger sum than your debt, the savings will offset stretching out the repayment on the new debt you have consolidated. 

Another great tool when refinancing your home to consolidate debt is second mortgage financing and home equity lines of credit. Because a second mortgage or home equity line of credit has nothing to do with your first mortgage and will sit in second position on title you can obtain a low interest rate and then amortize this product like a traditional consolidation loan, over 5 years for example. This will see you reduce your monthly payments, reduce your overall interest, consolidate your debt into a single monthly payment and have a pre-fixed time period set where you will know that at the end of the term the debt will be paid. 

Any time you refinance your home to consolidate debt the mortgage process from the point of obtaining your mortgage approval to the point where your new mortgage is funded is about 2-3 weeks. At the end of the day refinancing your home to consolidate debt makes good financial sense.

For more information about refinancing your home to consolidate debt please call Paul Mangion at 416-204-0156 or visit www.themortgagecentretoronto.com

Canada Real Estate Home Financing Tips

Thanks to the historically low interest rates that Canadians have continued to enjoy, it is still more affordable than ever to purchase a home. Purchasing a home is the single biggest investment that most people will make in their lives so it is very important to think it through. Not only do you want to make a good investment from a real estate perspective but you also want to make sure that you don’t buy a home that results in you becoming house poor. 

Here are some real estate home financing tips that will help you to purchase and finance a home that you can afford.     

Real estate home financing tips – tip number one: Review your budget. On big reason that some people find themselves house poor is purchasing a home that is at the top of their budget. Look realistically at your budget and when determining what you can afford to pay for a home, consider your future financial goals. If you currently do not have debt and so you have decent cash flow, do not take out a mortgage that puts you at your limit. This can set you up for failure. In the future if interest rates go up, you need to finance a new vehicle or you have some other need to have to take out new debt, you could find yourself in financial trouble.

Real estate home financing tips – tip number two: Know your credit. Request your credit report from Equifax. It is really important to know what's on your credit so that you don’t make an offer on a home only to find out that there is an issue with your credit that will prevent you from getting a mortgage.

Real estate home financing tips – tip number three: Consult a mortgage broker. Consulting with a local mortgage broker will enable you to find out all the deals being offered by the different banks and a mortgage broker can even pursue a mortgage pre-approval on your behalf so that when you go out to buy your home you have the security of knowing that: 1) you can get a mortgage 2) how much of a mortgage you qualify for 3) what will be required for you to get your mortgage.

Real estate home financing tips – tip number four: Be realistic about the cost of buying a home and budget accordingly. Outside of your down payment there will be many other expenses that come up as it relates to buying your home. These expenses include property tax hold back, property tax and interest adjustments, land transfer tax, insurance fees, legal fees, moving costs and more. Expect to have an additional $5,000-$7,000 budgeted for your closing to cover these expenses if you want to have a stress free mortgage closing.

Buying a home is a complicated process with many considerations. Keeping these real estate home financing tips in mind will help you to prepare to purchase in the smoothest manner possible and make for an enjoyable and exciting home buying experience.

For more information about real estate home buying tips or to apply for a low rate mortgage please call Paul Mangion at 416-204-0156 or visit www.gtamortgagematters.com.