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Q
What is a Mortgage Pre Approval?

A
A mortgage pre approval ( Pre - Qualification) is based on the initial information provided by you about your credit history, employment length and annual income. Your mortgage agent will use this information to tell if you approx. the amount, rate etc. you would most likely qualify for.
You will be asked to provide as much information as possible so your mortgage agent can give you a good idea of what you can expect and qualify for.


Q What is a Mortgage Application?
A
A full application will be submitted to a lender that is most likely to approve you for financing. If you are approved, an underwriter will prepare a mortgage approval and mortgage commitment (see mortgage commitment) stating the amount, rate and term of financing you have been approved for.



Q What is a Mortgage Commitment?
A A mortgage commitment is a formal indication by the lender that it will grant a mortgage and advance funds, based on certain conditions. It includes details of the property, mortgage type, amount and terms. This will include lender fees, brokerage fees and insurance premiums. The commitment is essentially a conditional lender approval, as the noted conditions are to be fulfilled by the borrower.


Q How are Mortgages Approved?
A
There are several factors involved in the approval process of your mortgage application.

Lenders use two basic measurements to determine if a person can afford to carry a mortgage. First is (GDS) gross debt service ratio, compares a person's gross income to the expenses of carrying a mortgage, including costs such as monthly payments, principal, interests and taxes etc. The second (TDS) the total debt service ratio is calculated by considering all loan payments and not just the costs related to the house.

Guidelines: A ratio of up to 32% is permitted under GDS and 40% for TDS. Some lenders may allow higher ratios under certain circumstances.

  • Income 
    When you are applying for a mortgage, lenders usually use your gross income (all the money you earn before taxes) to determine the monthly mortgage payment you can afford. Gross income may also include the average of overtime pay and commissions, and child support or alimony, if you wish to have them considered.
     

  • Additional Debt 
    Lenders also  take into consideration other debts you may have, and if you can afford to pay a mortgage payment additionally to those debts.
    You may have car loans, student loans, credit cards, child support, alimony or other monthly expenses.  Most lenders require that the total of all your monthly expenses (excluding basics like utilities and groceries) not exceed 38% of your gross monthly income.

     

  • Credit history 
    A good record of paying your bills on time is a significant factor of getting a mortgage. If you've had credit problems within the past 12 months, your rate and the amount of down payment that is required will be higher.
     

  • Employment history
    Lenders usually prefer to lend money to people whose incomes are steady and who have worked consistently in the same or related occupations for two years or more. You will need to provide a letter of employment and several years records of tax assessments. If you're self-employed, work on commission or have been at your job less than two years, you will most likely be required to pay higher rates and will need a larger down payment.
     

  • Property appraisal 
    Most times an appraisal is required to be done in order to determine the value of the home. An appraisal is based on the home's condition and selling prices of comparable properties in the area and confirms that the property is worth the purchase price you're offering for the home. See Fees.


Q What are Mortgage Conditions?

A Generally conditions include providing proof that taxes are not in arrears, proof of insurance, acceptable appraised value and proof of down payment etc...


Q Why do I need Mortgage Insurance?

A Mortgage insurance protects the lender in the event the borrower fails to keep up the mortgage payments, also referred to as mortgage insurance fee which is a percentage of the mortgage amount. The higher the loan to value the higher the premium. Mortgage insurance is required for all mortgages exceeding 75% loan to value. This is a separate fee from life and disability insurance.

Two organizations currently offer mortgage insurance to approved lenders. (CMHC) Canada Mortgage and Housing Corporation and Genworth Financial Canada.

Lending Policies

  • Must have acceptable credit history

  • Savings or equity from personal resources

  • Funds to cover closing costs

  • Income to carry mortgage payments

  • Stable employment

  • Confirmed value of the property


Q Why do I need a Down Payment?

A All lenders take into consideration your credit history, score, length of employment and annual income. See below " 100% financing"


Q Qualifying for 100% Financing, No Down Payment Mortgages

A Typically speaking you must meet the following criteria:

  • You must have clean credit history

  • Beacon score of usually 650+

  • No late or missed payments in the last 12 months

  • No collections or judgments showing on your credit bureau

  • Stable full time employment for last 2 years

  • Strong income to support the mortgage payments


Q Who Decides if I am approved or not?

A Rate is calculated on your beacon score, credit history, employment length and annual income. Essentially a lender looks at many different factors in consideration in approving your loan, including the risk to the lender and you ability to repay the loan. Once your application is submitted an underwriter will review your application and decide if you are approved or declined. Once they have made their decision they will forward their decision to the mortgage agent. The time required to do this varies depending on the circumstance and how quickly the underwriter can complete the paperwork.
 

  • Credit report
    After applying for a mortgage pre approval or approval, your mortgage agent will request to pull your credit file. The credit bureau collects and organizes information about people who have credit. The information generally goes back seven years. This report includes your name, address, employer, length of employment and previous credit history. Credit history includes account types, balances remaining, payment status, collection information and inquiries.

    Credit reports document your financial behavior over the past seven years - how much credit you have, how long you've had it and whether you pay your bills on time.
     

  • Lack of credit history
    To qualify for a mortgage you generally require some established credit history. Some lenders offer flexible home loan options for people with limited or no established credit history, but at a higher rate and larger down payment.
     

Your Credit Score
Your credit score is an important indicator of your creditworthiness. The higher your score the better chance you have at getting credit extended you. While many lenders use bureau scores to help them make lending decisions, they also take other aspects into consideration. Lenders will use your credit score to determine if you are likely to pay your bills and also help them place you with the appropriate repayment plan. For example if you have claimed bankruptcy in the past they might place you at a significantly higher interest rate.
 

The following is used to calculate your beacon score:

  • Payment history- This indicates if you have made your payments on time

    Length of time - This indicates how long you have had credit accounts

  • New Credit - Shows how often you are looking for new credit
  • Amount owed - Comparison of what you owe to your credit limits with various lenders
  • Type of credit - Considers the type of loans you have - car loans, lines of credit, credit card balances

Keep your credit clean and checking your report periodically. This could mean the difference of thousands of dollars when you apply for any kind of credit including a mortgage.


Q What Type of Information will my mortgage broker Request?

A All our applications are looked at on an individual basis, so if you are self employed you may be asked to provide important information about your business. But whatever documentation your agent asks for is important to provide it in a timely manner, our lenders make their decisions when they see the whole package instead of incomplete information.


Q What information do I need to Provide?

A

  • Employment information
    Names, addresses and telephone numbers of all your employers for the last two years.
     

  • Tax assessments
    Usually you will need to provide copies of your tax assessments for the last several years to show consistent income. If you are self employed you will be asked to show your business registration, tax assessments and T1 General.
     

  • Pay stubs
    If you are not self employed you will be asked to provide your last two current pay stubs and a letter of employment.
     

  • Bank statements
    You will be asked to show proof of the down payment, either through a bank statement, RRSP or gift letter.
     

  • Current debts, collections or judgments
    If you have any outstanding accounts you will be required to provide proof these have been paid in full before closing.


Q How does the application Process work?

A Initially your mortgage agent will collect all information needed to submit your full application to one of our lenders. Most times an agent will know what you qualify for and what lenders will most likely provide you with financing, what rates etc. before the application gets submitted.

Step 1: Your information is collected by your mortgage agent
Step 2: Your mortgage agents submits your application a lender that would most likely approve you.
Step 3: An underwriter will then review your application and decide if you will be approved or not.
Step 4: If you are approved, your mortgage agent will receive an approval and mortgage commitment from the lender. Usually there are certain conditions outlined in the commitment along side this.
Step 5: Once you have signed the mortgage commitment back and have fulfilled all conditions outlined by the lender, the lender will instruct your lawyer.
Step 6: Closing - your lawyer will have you come down to their office to complete the transaction. Usually 1.5% of the purchase price will be paid to the lawyer the day of closing.

Every person credit and situation are unique. Your application can be approved in as little as a few hours or as many as 5 or more business days.  


Q What happens Prior to closing?
 

A The purpose of the closing is to make sure the property is ready to be transferred to you from the seller. To ensure that the transfer can be made, the lender normally prepares the following items ahead of time:

  • Title search and report
    Research of land records, court records and other legal documents to determine if the seller has a clear, marketable title to transfer to you.
     

  • Title insurance
    Title insurance protects your lender against losses that may be incurred because of a defect in the title, a forgery, a recording error, claims of undisclosed or unknown spouses or heirs, and other risks that did not appear in the public records when the title search was done.
     

  • Well Certificate
    Depending on what type of property you are buying you may be required to get a certificate to verify that your water is safe from contamination.
     

  • Insurance
    Home insurance protects you and the lender from loss in the event the home is damaged or destroyed by fire, storm or other hazards. You are responsible for obtaining home insurance prior to closing and for providing proof of insurance to your lender. Life and disability insurance will be an additional monthly premium.


Q What happens on Closing?

A The closing is the final step in which the home is transferred to you. Once your loan is approved, your lawyer will be instructed. The average cost of closing fees are approx. 1.5% of the purchase price. See fees.


Q What fees are associated with Mortgages?

A What can I expect to pay my Mortgage Agent?
Most times the agent work on strictly commission and will not be paid until a few weeks after the mortgage has closed.

Purchases: You may be asked to pay an application fee, but generally a small commission is paid when the mortgage closes. If it is a resale and purchase a fee will be deducted upon closing from the proceeds of the sale.

Refinances, debt consolidation loans and renewals: Agents charge a brokerage fee for their services. This will be stated on the mortgage commitment and will be paid from the proceeds of the loan.

Construction loans: This depends on the complexity of the project and fees would be based on many factors. (please speak with an agent for more information)

What are closing fees?
Closing fees are fees about 1.5% of the purchase price and paid to your lawyer on closing, for their services, title search, land transfer taxes etc...

Why do I need to pay for an appraisal?
Most lenders approvals will be conditional on an appraisal. The average cost for an appraisal is about $250. This must be paid by the client. If the appraisal comes in lower or higher the amount of financing your are eligible for may be adjusted to reflect the new value.


Q What is a Private Lender?

A A private lender may be contacted if you are unable to get financing from any bank or finance company. Usually when you have outstanding collections, extremely poor credit history and are in a situation that you may lose your home. You will be charged significantly higher fees and rates with this option. Please refer to lenders fees.


Q What is a letter of intent?

A letter of intent is a legal form that is drawn up stating the private lender has reviewed your application and has agreed to provide you with the financing based on certain conditions that must be fulfilled by you prior to the advancement of funds. This will also outline fees, rates, repayment privileges etc.


Q What kind of fees do they charge?

A Fees vary from lender to lender depending on the risk involved such as, credit history of the client, repayment history and location of the property. They charge anywhere from 14-20%. Most times you will be asked to pay a deposit for inspection fees and for financing. Lawyers fees also range in price and include your lawyers fees as well as the lenders lawyers fees.



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