Mortgages 101
Mortgage tips for a smooth real estate transaction
With turbulence in the mortgage industry including the tightening of underwriting guidelines, some loan programs no longer available and lenders going out of business or unable to fund loans, it’s important to understand what you need to do if you are either considering purchasing a home or are currently under contract.
Getting started:
Find and select a mortgage professional as soon as possible.
Have your credit reviewed and get any errors corrected.
You will be able to obtain a lower mortgage rate with a higher credit score. If possible, work to improve your credit score (legally).
Determine how much you qualify for and know how much money you will need for a down payment, closing costs and monthly payment.
Try to have six months of your proposed total mortgage payment (PITI) in savings in addition to what you need for your down payment and closing costs.
Gather the documentation that will be required from you in order to proceed with mortgage approval.
Learn as much as possible about the home buying/ financing process by taking your time and doing your homework.
Once you’re under contract:
Make sure you loan is approved. Not prequalified or preapproved but obtain a mortgage commitment letter indicating your supporting documentation has been reviewed by an underwriter.
If you are locking a rate, get it in writing. Lock for a long enough time period in case of unexpected delays in closing.
While you are waiting to close, use your credit cards wisely and in line with your previous activity, do not buy appliances for your new home and do not buy a car or boat or spend too much money in general. Act as if your credit will be checked again just prior to your loan funding. Don’t provide your lender with a reason to withdraw loan approval.
There is a significant difference between getting the funding and being pre-approved. Ensure you have received a commitment letter from your mortgage broker or bank BEFORE you remove conditions on your purchase.
Generally lenders are looking for job letters, proof of income, previous tax returns and proof of downpayment in order to secure the loan. If you have a low downpayment OR no downpayment they may be able to do a cash-back mortgage or 105% financing.
CMHC also has programs in place that require little down for first time buyers and home buyers in general. The 25% down for income property has also been greatly reduced to support a slumping market. CMHC will also 'roll-in' improvement costs for properties if need be.
Mortgages have changed alot in the last few years - consumers are viewed as clients rather than hoping the bank will lend them the money - the tables have turned and if you have the right information you will be surprised at what you can negotiate!
Happy shopping!