Hello, how are you, today we come to the last of the Episodes of the ABC of Mortgage in Canada, but this does not mean that with this we stop transmitting relevant information, no, quite the opposite, with this podcast we are completing the basic stage that everyone should have present when we want to access the money that Financial Institutions have available to lend us to buy a house, or for other needs anchored with a real estate guarantee.
Based on these, in our next podcasts, we will continue to share deeper information, with more content of financial interest and relevant to the mortgage and real estate market in Canada.
Dos and don'ts to obtain mortgage pre-approval and during the closing process.
Let's start by discussing what you need to do to have a better chance of getting a good deal on your mortgage.
1. Before submitting your mortgage application, request a mortgage pre-approval from your Mortgage Broker
Most Canadians think that the first step in the home buying process is to contact a real estate broker and start looking for homes. This is not correct. The first thing to do is apply for a mortgage pre-approval. If you find a home you like, you will want to move quickly, so pre-approval for a mortgage eliminates an extra step in the buying process.
Getting pre-approved by your mortgage advisor also helps you to know how much a mortgage institution can lend you, and how much you can afford to spend. It is a pre-approval, so it will allow you to be realistic when finding a house or a refinancing or renovation loan, but it will not be until your file is presented to the Financial Institution, analyzed and confirmed, that the loan will be available.
Pre-approval of a mortgage is very fast, and it gives us the most reliable clues to start a strategy. Contact your mortgage broker to get started. Remember they provide this service for free.
2. Compare to get the best mortgage, both in price, rates, and conditions, prior approval.
Here again, the role of the mortgage advisor comes to play an important part. As we mentioned before, their services have no cost to you, since they are paid by the Financial Institutions, as per the laws of the government of Canada itself.
Just as you will see several houses before deciding on "the only one," you should shop around to find the best mortgage rate. Mortgage Broker services allow you to search in one place +50 Financial Institutions. You can also go to the branches of your local bank, but do not limit yourself because the loan options or mortgage products of your bank are not the only ones that exist in Canada. Do your research and compare with other mortgage rates, or use a mortgage broker who will negotiate on your behalf.
Searching through more options will give you the power to earn even a half percentage point, which can make a big difference to your regular payments and the amount of interest you pay over time. You can do this exercise using the calculator of your mortgage advisor. We put this mortgage planner at your disposal so that you can see how the scenarios move, and how to build a financial strategy: https://www.maapp.ca/app/adan-aranda
The pre-approval you get with your mortgage advisor or directly with your bank is temporary, it will give you a few months to maintain the result you get. This is when you should start looking for a house!
3. Gather the documentation required to prove your income, credit, initial payment, and others, according to the type of credit you are going to request.
The process of gathering the necessary documentation for pre-approval begins now, as applying for a mortgage can take time, but much more importantly, not having it at closing can result in the cancellation of the purchase option; so, it is better to start early.
Initiate a relationship with your Mortgage Broker at this stage, and ask what documents are required to make up your mortgage file, and start gathering them all in one place.
In previous episodes, we already referred to the detail of the documents, but here we do a quick recap:
Identification: toff that you are who you say you are.
Bank statements and investments: to show that you can pay your monthly payments.
Proof of assets, such as a car, cabin, or boat, or other.
Proof of income: pay stubs or a letter from your employer will suffice. An assessment notice will be needed if you are self-employed.
Information about your debt: This includes student loans, auto loans, and credit cards. Lenders have access to databases of this information and it will look bad if you try to hide it.
4. Stay in touch with your Mortgage Broker
Stay accessible, in case your mortgage broker has any questions about your documentation. During the entire process of the mortgage operation and home search, your mortgage broker will be in contact with you and with the rest of the professionals involved in these operations, such as real estate brokers, lawyers, home insurance agent, appraisers, inspectors, and others who, due to the nature of the credit, require intervention.
5. Read the fine print, this is the most important thing, we refer to the credit conditions.
Once you have been pre-approved, your mortgage broker will send your pre-approval document. This document will describe the interest rate you will receive, the terms of the loan, and the amount of the mortgage for which you were pre-approved. It may seem like a financial format issue, but it is important to read the fine print on each page carefully. If you have a trusted attorney or accountant, it is a good idea to have them take a look as well, as these conditions often become limiting in the future.
You must inform your Mortgage broker about the purpose of the application, your present and future needs, for him to be aware and review among all the mortgages the one that best suits your needs. Something that the Banks often do not say when offering a product, is that the conditions to leave their mortgage, consist of extremely high conventional penalties that only favor that Bank.
According to statistics, 80% of mortgages in Canada break after 2 years, due to the different needs of each person. This is one of the main reasons why the mortgage rates are lower, but what is not said is that the penalties for leaving or breaking that mortgage are very expensive, that is, anchor products have been developed, with great attraction for people and low fixed rates, but with very aggressive small letters, which has resulted in a business for banks due to the collection of these penalties. We will talk about this specifically in other podcasts and blogs.
Now let's talk about mortgage pre-approval mistakes, that is, what not to do.
A good strategy and, of course, goals and goodwill usually pave the way for success. Silly mistakes are also part of that path. You must be attentive to those mistakes by following these strategies, which will most likely lead to the success of your mortgage approval.
1. Get a pre-approval in accordance with your budget, never over it.
Do not set an upper budget limit to get your mortgage pre-approved within the limit of the maximum purchase price that you will have available.
Do your own closing calculations, find out how much you can afford monthly (don't forget the other costs associated with homeownership, not just the mortgage), and go from there. In our planner, you will be able to know what all those closing costs are and what they represent in your specific operation. In general, they represent 1% of the operation, but check it for your case together with your pre-approval: https://www.maapp.ca/app/adan-aranda
Make your numbers based on the reality of what you can afford, do not fool yourself.
2. Make only necessary payments
Once you have submitted your documentation to your mortgage broker, your financial situation should not change from pre-approval to loan completion. Changes in your financial situation could ultimately result in the loan being rejected, even if it was initially pre-approved. To avoid rejection, do not make major purchases that change the service rates of your debt, pay only what represents a need, even to support your financial strategy, until the end of the granting of your credit.
3. Don't apply for more credit than you already have
You should not apply for credit of any kind, such as a personal loan or credit card, and you should not co-sign a loan for a friend or relative. Your level of debt and available credit are important factors in your mortgage approval, so increasing them can put your pre-approval at risk.
4. Don't change your work situation
This is very important, avoid changes in your employment situation after being pre-approved. We already spoke on the 6th. Episode about the importance of keeping income stable as a crucial factor in the analysis that the Financial Institution will make of your mortgage application.
Changing jobs will definitely get in the way of the mortgage approval process. Do not change employers, if you are employed, or do not start a business until you have the keys to your new place.
The situation that COVID-19 has brought us all to is very unstable. If the worst happens and you are laid off, it is probably a good idea to delay the purchase of a house until you regain financial stability.
The Financial Strategy as the First Step
As with many things in life, planning ahead makes a difference. After all, getting a mortgage pre-approved is your way of planning ahead of your mortgage.
Make your own financial strategy and get your finances in order before applying for a mortgage pre-approval, shop around to find the best rate, and keep your finances consistent. Get that done and you should expect a smooth transition from pre-approval to move-in date.
After hearing all this information during the 8 Episodes of the ABC of Mortgages in Canadá, now make the following reflection:
We are building a financial strategy, so place each stage and need in a specific section of your financial map to achieve the objective, it is not only about to obtain a loan, it is about entering the financial system playing with the best tools to benefit your future and not only have a credit debt, but also a strategy of how to use that money in your favor, how not to get into debt just by getting into debt, and how you can improve this strategy to increase its assets and wealth.
These are the same rules played by those who you see increasing their assets, or who come to make the credit system their most powerful tool to increase their way of life, creating a real estate investment system, simply, they transform the “Concept of credit-debt” in his mind, for the concept of “credit-leverage”, the only difference is that “debt does not play”, it is only a spectator in the stadium tribune, “leverage plays with rules on the field, it grows and it stays in the game. "
The rules are the same, just learn how to play by the rules of leverage from the beginning, without wasting time, learning that buying your first home is the first step to enter into the real estate investment game in Canada. These ABC Episodes contain the basics of those rules, with them you will apply the basics, and it will be easier for you to learn the rules for financial wealth.
This is the end of this ABC of Mortgage series by Mortgages Talks. In our podcast and blog, you will find much more information specific to mortgage products and the approval process. In each of the stages of the process, do not hesitate to contact us:
Or send us a message at 647.704.2209
Thank you for listening to us. Bye!
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