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.