Applying For a Home Mortgage? Here’s What You’ll Need To Know.

Buying a house is probably the biggest purchase you’ll ever make. To help, we have put together a list of what you’ll need to know to apply for a mortgage so you’ll be prepared and confident when the time comes.

Mortgage Type

How can you know what type of mortgage you have if you haven’t even applied for it yet? The mortgage lender you choose will walk you through the process and help you decide what mortgage type is best for you.

Get to know these key mortgage terms:

  1. High Ratio Mortgage – A mortgage that requires less than 20% as a down payment. These mortgages must be backed by mortgage default insurance through the Canada Mortgage and Housing Corporation (CMHC)
  2. Conventional or Low Ratio Mortgage – A standard mortgage that requires a larger down payment of 20% or more.
  3. Closed Mortgage – A mortgage, if paid off early will have a penalty. Every bank institution has their own penalty calculations.
  4. Open Mortgage – A mortgage that can be paid off early, though usually with a higher interest rate.
  5. Fixed Mortgage – This is the most common type of mortgage and has a locked-in interest rate for a specific term ex. 5yr or 10yr.
  6. ARM/Variable – An Adjustable Rate Mortgage means the interest rate you have can change throughout the term of the mortgage, can increase or decrease with the flow of national interest rates within a certain range.

Property Type

This one is a little more self-explanatory and will coincide with the homes you are looking at with your realtor. Some types include:

  1. Single Family – You’re looking at a stand-alone home that can house one family.
  2. Multi-Family or Duplex – You’re looking at a unit that can house several apartments that are sectioned off into two to four units. Anything with more units is considered commercial property.
  3. Agricultural or Land – Usually land that as of yet has nothing built on it.

Estimated Price and Value

There are two pieces to this part of the mortgage application.

  1. Price – Easy enough to determine, the price is the value the owner has listed the property at or the bidding price you offered on the home.
  2. Value – This piece has more steps involved and will require the lender to conduct an appraisal to determine the house’s actual worth. The appraiser will look at the condition of the home as well as the price similar homes in the area are selling for. If the value comes in higher than or equal to the asking price, you’re good to go. If it comes in lower, you may need to negotiate with the owner to lower the price or be prepared to pay the difference out of your own pocket.

Down Payment

The amount you owe when you close on your new home will depend on the house value and what type of mortgage you have, as mentioned above. For instance, if you’re buying a house for $200,000, a high ratio mortgage will require $10,000 for a down payment, whereas a conventional or low ratio mortgage will require closer to $40,000. (20% down or more.)

Borrow (Or Mortgage) Amount

This is the ultimate amount of money you need to borrow after the down payment is subtracted and any closing costs, title fees, etc. are added in. Keep in mind that these fees can cost 2% of the purchase price of the home. So in the instance with the $200,000 home above, you’ll need to add another $4,000 dollars to the total due at closing or if you are a first time home buyer the fees are approximately 1%.

Credit Score

Credit score plays an important factor in determining interest rates.

Are you ready?

Now that you have an idea of some of the terms and expectations involved in the mortgage process, speaking to a mortgage broker that understands today’s market is a valuable investment in purchasing or refinancing a home.

We are caring and knowledgeable experts to help you every step of the way. Contact us for more information about what our team can do for you.

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