Obtaining mortgage financing can be very confusing especially since the rules are constantly changing. Knowing the basics and what to expect along the way can take away some of the pain so this week we are going to do a quick rundown of the whole thing.
The application – at this point you are going to answer all sorts of questions about yourself. Lenders are looking to find out just who you are before they loan you a whole bunch of money.
• Employment – they need to know all the particulars including how long and how you get paid. If you are self-employed, commissioned or regularly receive bonus or overtime they will want to see a two-year history before they will allow this income to be used to qualify you for the mortgage.
• Credit Bureau – consider your credit history as a sort of report card if you will. You need to show that you have managed your current debts obligations satisfactorily. Lenders are looking for a 24 month history on two types of credit such as a credit card and a vehicle loan. Keep in mind that late payments on your cell phone, cards, loans or even a previous mortgage better have a very good reason.
• Assets – more and more lenders want to see that you have a safety net of some additional savings just in case.
So you have completed the application and now it’s time to verify all of the information.
A few bad eggs have wrecked it for the rest of us so you are going to be asked for a lot of paperwork. Mortgage fraud is huge and the lenders are accountable to the mortgage insurers, OFSI, and to their investors so you better bet they are going to verify until they are satisfied. Here are some of the things your will have to provide.
• Letter of employment outlining all the particulars and a recent paystub.
• Last two year’s Notice of Assessment from the CRA and proof that all tax bills have been paid.
• Three month history on all accounts you are using for the down payment with explanations of any large deposits.
• Mortgage statement, property tax bill and lease agreements on any other homes you own.
• You may also be asked for T1 Generals and Business Financials if you are self-employed.
• Various other documentation as required.
So your mortgage lender has approved the documentation you have provided and you are having a look at the paperwork in front of you before you sign on the dotted line.
A few great questions to ask are:
• What are the pre-payment privileges on my mortgage and do I have to wait for the first anniversary to make the extra payments?
• Is my mortgage portable across the country and to a wide variety of properties? How long do I have to port this mortgage? Porting is where you can take the mortgage from one house to another without penalty. Some lenders do not lend on rural properties for example and so if an acreage is in your future then you want to make sure yours does. Other lenders require the port to happen on the same day which can be tricky to navigate.
• How are the prepayment penalties calculated? In Canada, there is no rule about how a lender has to calculate this number. I have seen them vary from $3,000 to $18,000 on the exact same mortgage amount with the only difference being the lender. Life happens and you want to make sure that if you have to break your mortgage that it will not cost you all your hard-earned equity.
And now that you have asked your questions and met all the conditions you are off to the lawyer for the final signing. There are a few costs you need to anticipate:
• Mortgage insurance – if you are purchasing a home with less than 20% down you will have to pay this which is based on a set percentage of the purchase price depending how much you are putting down and is added to the mortgage.
• Legal fees – the lawyer will have to complete the final paperwork and register the mortgage for you and this can cost up to $1,750.
• Title insurance – many lenders now require this in lieu of an RPR.
The cost is about $250 and will be collected at the lawyer’s office.
And there you have it. The mortgage process as succinctly as possible. Have a great week.
Pam Pikkert is a mortgage broker with Dominion Lending Centres – Regional Mortgage Group in Red Deer.