Applying For A Mortgage From A Bank Or Private Lender
Applying for a mortgage can be challenging. The real estate lawyers of Blackburn Lawyers aim to help clients throughout Richmond Hill, Ontario understand the process of obtaining a mortgage through a bank or private lender.
HOW DO YOU GO ABOUT SECURING A MORTGAGE?
You can apply directly to your own bank or other banks or lenders. You can also retain the services of a mortgage broker to assist you in securing a mortgage. You or your broker should shop around as mortgage lending rates are quite competitive and shopping may enable you to secure a lower rate. The rate you secure will often be less than the rates posted by the banks.
A mortgage broker can save you time and assist in assembling the material to support your application. He or she can save you the trouble of visiting several banks and do the shopping for you. Sometimes he or she can get better rates based on the volume of business done by the broker. If you are a qualified borrower his or her fee will likely be paid by the lender so there will be no additional cost to you. If your situation is difficult because of being self-employed or having past credit problems the broker may be the only one who can find a lender for you. In this case however, you will likely be charged a fee by the broker.
Once you have settled on a lender and the kind of mortgage that best suits your needs you should obtain a pre-approval. DO NOT however treat a pre-approval as a sure thing. It simply means the bank has accepted the fact that you are qualified for a mortgage of a certain amount; it does NOT mean your specific purchase has been approved. The lender will have to conduct an appraisal of the property. Make your offer conditional upon obtaining financing and do not waive the condition until the lender has advised you the property has been appraised and meets their standards. You should obtain a written commitment from your lender before waiving your condition.
HOW MUCH CAN YOU BORROW?
The amount will be determined by your lender based upon your gross monthly income, your gross debt service ratio (which consists of the total cost of your mortgage payments, taxes, heat, hydro and water along with condominium fees if applicable) and your total debt load which consists of the above items plus any other debts you may have.
HOW MUCH SHOULD YOU BORROW?
This is a question that each person must determine based on their personal values. The lenders will set the upper limit but just because you have been approved for a certain amount doesn’t mean you have to borrow the entire sum. Use some measure of caution and give yourself some breathing room. Don’t become house poor. Consider future events such as job loss and child birth and the effect they will have on your ability to pay.
This refers to the amount of cash you have to apply to the purchase of your home. Banks cannot lend you money unless you have at least 5% of your purchase price. If your down payment is less than 20% of the purchase price you will also have to purchase mortgage insurance from CMHC or another insurer. Usually this is arranged by your lender. This insurance protects the lender and not you. If you default on your mortgage and the lender suffers a loss, the insurer will pay the lender its loss but will in turn make every effort to collect the amount of the loss from you. The insurance premium and provincial sales tax on that premium do not have to be paid by you at the time of the closing. The amount can be added on to the mortgage amount you have arranged and of course you will be charged interest on this premium and sales tax as it becomes an addition to your mortgage debt.