MORTGAGES - FAQ’s Answered
How do I know if it’s time to buy instead of rent?
If you know where you want to live, have a steady and secure income, and are ready for the responsibilities of homeownership, then it’s a great time to invest in property.
How much do I need to save up for a down payment?
A conventional loan (a loan which is not insured by a government entity such as CMHC or another mortgage insurer such as GENWORTH) is where your down payment is usually 20% of the sales price, while other types of financing require as little as 5% to 15%.
A mortgage lender can tell you what types of loans you qualify for.
How do I know if I qualify for a loan and how much I can afford?
Contact a mortgage lender to get pre-approval for a loan. The lender will ask you some basic questions about your income and debts and can tell you what amount you can be approved for, and how much your mortgage payments will be.
What does the lender need from me to give me a loan?
Usually, you are asked to provide your last two tax returns to show proof of income. You should also provide recent bank and credit card statements and proof of your current pay rate. You may also be asked for your social security number so they can run a credit check.
What’s the difference between pre-approved and pre-qualified?
While often used interchangeably, these terms don’t mean the same thing. Getting pre-qualified involves supplying a bank or lender with your overall financial picture, including your debt, income, and assets. The lender reviews everything and gives you an estimate of how much you can expect to borrow. Pre-qualification can be done over the phone or online, and there's usually no cost involved. It's quick, usually taking just one to three days to get a pre-qualification letter. Keep in mind that loan pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a home. A pre-approval is the "definitive word". You must complete an official mortgage application to be pre-approved, and you must supply the lender with all the necessary documentation to perform an extensive check on your financial background and current credit rating. The lender can pre-approve you for a mortgage up to a specified amount after reviewing your finances. You’ll also have a better idea of the interest rate you’ll be charged on the loan at this point, because this is often based in part on your credit score, and you might even be able to lock in an interest rate. Some lenders charge an application fee for pre-approval, which can amount to several hundred dollars. You'll receive a conditional commitment in writing for an exact loan amount, allowing you to look for a home at or below that price level. This obviously puts you at an advantage when you’re dealing with a seller, because you’re one step closer to getting an actual mortgage.
How do I know which mortgage option is right for me?
Your mortgage lender is the best person to advise you on this question. Their products and qualifications change from time to time, so they would know best what products are available to meet your needs.
The other advantage of completing both steps—pre-qualification and pre-approval—before you start to look for a home is that you’ll have a good idea in advance of how much you can afford. You won't waste time looking at properties that are beyond your means. Getting pre-approved for a mortgage also enables you to move quickly when you find the perfect place, and it lets the seller know that your offer is serious in a competitive market.
You’ll give your lender a copy of your purchase agreement and any other documentation necessary as part of the full underwriting process after you’ve chosen a home and made an offer. Your lender will hire a third-party certified or licensed contractor to do a home appraisal to make sure the house you want to buy is worth the amount you’re going to borrow.3
The final step in the process is a loan commitment, which is only issued by a bank/lender when it has approved you as the borrower, as well as the home in question—meaning that the property is appraised at or above the sales price. The bank might also require more information if the appraiser brings up anything that should be investigated, such as structural problems or a faulty HVAC (Heating, Ventilation, & Air Conditioning) system.
Getting pre-qualified and pre-approved for a mortgage both give potential homebuyers a good idea in advance of how much house they can afford. But most sellers will be more willing to negotiate with those who are pre-approved. Pre-approval also allows you to close on a home more quickly and can give you an edge in a competitive market.