KAMLOOPS REAL ESTATE
HOME BUYER'S GUIDE: QUALIFY FOR A MORTGAGE
Applying for a mortgage is a pretty straightforward process. When you're prepared, it's unlikely you'll encounter any surprises. A mortgage lender needs information about your work history, debts, and assets to establish your credit worthiness and ability for repayment. The bank will establish your gross income and potential payments, along with property tax expenses to arrive at a Gross Debt Service ratio (GDS). This is usually limited to 30-35% of your gross income. Debts will be added to establish a Total Debt Service ratio (TDS), which can't exceed more than 40% of your gross earnings.
THE LENDER NEEDS TO SATISFY TWO RISK REQUIREMENTS:
1) Can you make your scheduled monthly payments?
2) If you default (i.e. don't make your payments), can the proceeds of the sale of the home cover the cost of the loan?
To answer these questions a lender will ask you about your net worth. Your net worth is the difference between the value of everything you own minus your total debts. Lenders will consider aspects like your bank balance, investments, real estate holdings, vehicles, debts, credit card balances, credit history, and your employment history, etc. This will typically show your ability to repay your mortgage as it indicates how you have handled past debts.
You'll be asked to sign a form giving the financial institution permission to obtain information from your employer, creditors and credit rating agencies. You may want to check your credit history yourself before you apply for a mortgage. By doing so, you can eliminate any problems that can be corrected and you won’t be turned down for a mortgage. You can request your credit history by contacting TransUnion or Equifax, two of the major credit bureaus. You'll need to make a request for your credit history, provide photocopies of two pieces of government issued ID indicating your current address, and a photocopy of a utility bill or credit card invoice. The process takes about two weeks and you'll get a good idea of how you'll be evaluated by the banks.
Mortgage Loan Insurance
If your down payment is less than 25% of the home, it's legally required that you purchase mortgage loan insurance. In Canada, most lenders are legally required to insure a high risk mortgages. If you default on your payments, the lender receives their money from Canadian Mortgage and Housing Corporation (CMHC) or another insurer. With this federal government guarantee most lenders are confident in financing up to 90% of your purchase. Fees for this insurance run between 0.5% and 2.75%, and are based on the size of the loan and value of your home. Premiums can be paid as a lump sum when you make your purchase or as part of your monthly mortgage payments. Additional fees include application and appraisal fees. Read more about the CMHC Mortgage Loan Insurance here.