A pre-approved mortgage means a lender has made a commitment to loan you money based on your overall financial status at no obligation BUT subject to conditions. This is NOT an approval.
To obtain a pre-approval, you will need to fill out an application and provide documents that confirm your employment, income, credit etc..
Click here to try out my mortgage affordability calculator. This is not a pre-approval.
Mortgage pre-approvals will protect you against interest rate increases for usually 120 days while shopping.
Your mortgage broker will explain the various mortgage options:
fixed vs. variable rate
varying interest terms
amortization
down-payment required
conventional vs high ratio etc..
The lender will approve the mortgage only upon verifying the supporting documents and the appraised value vs. the purchase price before advancing the loan.
Until the recent outbreak of covid-19, buyers took a mortgage “stress test,” where financial stability was determined against the Bank of Canada’s five-year interest rate forecast.
Many millennials overwhelmed with the idea of a down payment should know there are several creative ways to leverage money to make home ownership tangible.
utilize home equity lines of credit (HELOC)
rent out rooms or the basement for money to go toward the mortgage
co-sign with a parent or trusted family member
The down payment required is usually between 5-20% of the purchase price of the property:
For a purchase of $500,000 or less, the minimum down payment is 5%.
5% down is required on the first $500,000 and 10% down on the remaining portion.
As soon as the purchase price hits $1M, 20% down is required.
If your down payment is coming from the sale of your home, you will have to provide a firm agreement of purchase and sale and the current mortgage statement.
If all, or part of your down payment is coming from a gift, a letter must be provided to the lender.
Mortgage insurance protects against default and is required if you are putting less than 20% down, but this can either be paid up front or added to the amount you borrow.
Recommend having 1.5% of the purchase price available to cover closing costs on top of Land Transfer Tax. Click for my LTT calculator!
With the federal government’s Home Buyers’ Plan, you can now use up to $35,000 in RRSP savings ($70,000 for a couple) to help pay for your down payment on your first home.
The funds must have been in the account for 90 days. You then have 15 years to repay your RRSP.
Please let me know if you would like to be connected to my network of trusted mortgage brokers.
This info is not to be construed as expert legal advice, tax advice, advice on zoning changes, engineering or environmental advice. Please seek independent professional advice on any of the above matters and concerns.