Owning a home is the dream of many Canadians. However, unlike buying a car, owning a real estate property (residential flats, bungalow, row house, independent house, cottage, etc.) involves a substantial investment.
Unless you inherit a fortune either from your parents or grandparents, making the down-payment of your dream house can be burdensome. If this is your first time buying a home, you might have several questions about how to get financing for your dream property in Canada. Check this link to know your ideal credit score when applying for a mortgage.
Fortunately, mortgage loans are here for your rescue and help fulfill the dream of owning your own house in the country.
What Is A Mortgage?
A mortgage can be defined as a loan or financial assistance from a bank or a mortgage lender. With mortgage loans, you can buy a home or any other property without paying the full amount all by yourself. You can slowly repay the amount through monthly installments. The maximum mortgage you can secure through a financial institution is 95%, including certain limitations.
Types Of Mortgages You’ll Find In Canada
In Canada, you’ll typically find mortgages with two interest types:
Fixed interest rate
The monthly interest amount is fixed and applicable for a pre-defined timeline (called a “term”). Generally, the term most people choose is five years. This is especially beneficial when you have a stable source of income (salaried employee, stable, established business) and can commit to paying a fixed amount every month/year/specified time as per the loan agreement.
Variable interest rate
The rate of the interest amount fluctuates depending on various factors. The primary lending rate is the annual interest rate defined by Canada’s leading banks and other financial institutions for variable loans and credit, including variable-rate mortgages.
Depending on the financial institution or mortgage agency you choose, you can switch from a variable to a fixed plan without any additional expense. This type of financing can be beneficial when your monthly income varies (e.g. self-employed, freelancing, etc.)
Where Can You Get Mortgage Pre-approvals?
You can receive mortgage approval from mortgage lenders or mortgage brokers.
Many types of mortgage lenders are in Canada, including:
- Credit unions
- Insurance agencies
- Mortgage institutions
- Loan companies
- Trust companies
The interest rates, conditions, and loan amount on your mortgage might vary depending on the financial institutions. Therefore you must research thoroughly before opting for a particular plan.
It’s essential to be comfortable with your lender and thoroughly discuss the mortgage options they offer you. In certain cases, switching your mortgage company might cost a prepayment penalty. Ensure to read and fully understand the terms and conditions of your contract.
Mortgage brokers are not financial institutions but links between lenders and purchasers. They arrange a loan provider for you. Since brokers are a part of a network of lenders, they might offer you versatile types of mortgage schemes.
Mortgage brokers are signed up with a varying network of lenders; therefore, the mortgage schemes might vary from broker to broker. They typically might not charge you an extra fee. Instead, they are eligible for a percentage of commission from the lender after closing the deal.
What Documents Do You Need For Your Mortgage?
To secure a mortgage, you’ll require a certain set of documents to prove your financial condition and creditworthiness.
Employment Or Income Documents
To pay your monthly installments, you should have a stable mode of monthly income. Your financial earnings need to be adequate for full coverage of each monthly mortgage amount and other debts.
For finalizing your deal and transferring the loan amount to your account, your lender would access your income details, job stability, credit score, etc.
Your lender might require the following documents:
- Pay stubs
- T1 tax forms
- Notice of Assessment shared by Canada Revenue Agency (CRA)
- Letter of employment from your employer
If you’re self-employed, you can share the following documents:
- 3 years of personal tax returns
- Business articles of incorporation
Personal Finance Documents
Any personal details that affect your capability for paying back the mortgage or helps to access your creditworthiness may be requested, including:
- Bank account details (not confidential information)
- Statement of assets or investments
- Pre-approval mortgage letter (if applicable)
- Credit report ( it is recommended that you share your credit score details rather than the lender pulling your creditworthiness as it can lead to a hard pull.
- Any additional sources of income (side-business, part-time jobs)
Down Payment Details
You generally don’t get financial loans on the entire amount of your house. You’ll first be required to pay a certain amount known as a down payment. The mortgage loan would cover the remaining payment.
You’ll be required to share the following documents to show the source of your down payment:
- Savings or/and investment statements from the past 90 days
- Sale agreement of an existing property (real estate, bonds, car, etc.)
- If applicable, any withdrawals from your RRSP funds through the Home Buyer’s Plan (HBP)
- Gift Letter, in case you got the down payment amount as a gift from your friends, parents or grandparents.
When you’re buying a property, your broker will require the following details:
- Purchase and sale agreement – required for verifying the down payment amount.
- MLS listing
- The legal description of the home
- Well and septic certificates (mostly applicable for rural properties.)
Applying for a mortgage loan is an intricate process that requires insightful research. Therefore, it is recommended that you take assistance from an experienced mortgage broker. These brokers have extensive knowledge of which lenders provide the best offers and match you with the right scheme.
Arranging the required documents and sharing them with relevant people in a timely manner is the key to getting your application approved fast.
The more detailed the information you share, the more streamlined your process will be. Brokers can guide you with your documentation process, making your entire mortgage journey seamless. Find the right broker/mortgage agency and get yourself the best mortgage deal.