It’s safe to say that buying property may be the largest investment you’ll make in your lifetime; so, let’s not take it lightly. Navigating the ever-changing mortgage market can feel daunting at times; as you’re on this exciting journey, it’s important to ensure you have trusted professionals in your corner. Once you’ve connected with your preferred Realtor® it’s time to start the mortgage pre-approval process. Here are the first steps in the process and some important key terms to get you started on your path to homeownership success;
Choosing a Lender
Establish your affordability by meeting with your mortgage professional prior to beginning the home shopping process. Weigh your mortgage options by researching local banks, lenders and brokers to see the products, rates and terms that are available to you.
A pre-approval will help to establish your unique affordability, down payment figures, and what basic monthly homeownership obligations will cost. Additionally, you'll want to find out what your options are for porting your mortgage or if there is a penalty in the event you sell the property.
The Stress Test
In 2018 OSFI (Canada’s banking regulator) implemented changes to its mortgage underwriting standards that reduces the level of mortgage affordability for borrowers.
To qualify for a mortgage loan at a bank, you now need to pass a “stress test.” You must prove you can afford payments at a qualifying interest rate (based on the greater of Canada’s current benchmark rate or the new contract mortgage rate plus 2%) making qualifying payments higher than your proposed mortgage contract.
During the pre-approval process, it may seem like your lender is asking for every financial document under the sun. Rest assured; a great financial institution reviews your unique financial situation to ensure you can afford the property you plan to purchase. You can expect a lender to ask you for the following paperwork to establish your affordability;
Identification – confirmation you are who you say you are.
Proof of income – Common income confirmation documents include Notice of Assessments, T4 slips, pay stubs or a signed employment letter. Income confirmation will vary depending on whether you’re self-employed, paid salary versus hourly wages or a commissioned-style employee.
Bank account and investment statements – often used to confirm down payment funds, income deposits and proof of invested assets.
Debt Figures – your lender will review with you any vehicle loans, credit cards, lines of credit or other monthly obligations you have that need to be factored into your debt ratio with the new mortgage payments.
Once you have your pre-approval, ensure you review the details. Confirm whether your mortgage will be a fixed or variable rate, what interest rate has been locked in for you, what extra payment features you have available should you wish to accelerate or pay down your mortgage with a lump sum, etc.
With your pre-approval in hand, now you’re ready to start shopping the market for your dream property. It’s important to remember that your lender may call upon you for updated financial documentation depending on how long your purchasing process takes. Avoid major purchases, changing jobs or applying for new credit elsewhere until your mortgage is finalized and funded.
Taking the time to get your finances in order before you apply for a mortgage pre-approval will ensure you have a streamlined and enjoyable process. For questions pertaining to your unique homebuying experience, connect with Staci Champagne today.