Mortgage and Purchase Process
The housing market in Ontario has outperformed even the wildest expectations of most real estate professionals. In the last 18 months, real estate markets across the country and especially Toronto and the GTA have seen sales go through the roof with appreciation on most properties hitting upwards of 34% year over year increases. House sales are also up over 50% since the same time last year according to stats recently released by The Toronto Real Estate Board.
With properties selling in a matter of hours or a few short days, multiple bids are the norm currently, rather than the exception. It is routine to see houses selling at a hundred thousand and more than the listing price. Limited housing inventory with the added incentive of record-low borrowing cost has made the Toronto and GTA very much a seller’s market.
What does this mean for Ontario homeowners? Among the obvious advantages that homeowners face with such a hot real estate market including seeing record-breaking appreciation and the prospect of selling over asking, the current real estate environment also is highly enticing for those Ontarians who want to be a part of the robust housing market and also take profit in the current steep rise in property appreciation during this time.
Pre-Approval and What Steps you Should Take Before Applying for a Mortgage.
Like anything in life is always important to do your homework and find out as much as you can before embarking on a new endeavor. This rule of thumb certainly pertains to the in’s and out’s of the mortgage process through pre-approval to purchasing a home.
Before taking out a mortgage, whether it be a primary mortgage to buy a home or contemplating using existing equity to take out a second mortgage on your property, you should consider doing a few things including:
- Research the different types of mortgage options– It is necessary to learn more about the many different types of mortgage options that are available in Ontario and be knowledgeable about the basics of each mortgage type.
- Decide whether you want a fixed or variable mortgage rate- The decision as to whether you are seeking a fixed mortgage with a locked-in interest rate or a variable mortgage rate that will be affected by real estate market fluctuations and the key lending rate is a necessary decision to make a the outset of the mortgage process.
- Know your credit score- The banks will demand an exemplary credit score to approve a mortgage loan. If you have a credit score lower than 550 then there still will be lending options available, namely private lenders based in the Province.
Mortgage Broker Store has access to a wide network of Ontario-based private lenders who will be able to look to different criteria than just full-time salary-based income and exemplary credit. Private lenders will charge higher interest rates than the banks (7%-15%) and between 3% to 6% of the total cost of the loan. These lenders will determine the Loan to Value (LTV) and the degree of equity in your property. Private lenders will prefer to see 25% equity and will not lend out above a 75% LTV (which is 75% of the appraised value of your property).
- Become very familiar with your credit report– Obtain a copy of your credit report from either Canadian credit reporting agencies, Equifax and Transunion. You can obtain these from their websites. Mortgage Broker Store will also be able to provide you with your credit report if you request.
- Decide the terms of a potential mortgage that you are seeking– If you are going to go with a private lender then it is important to realize that the vast majority of private mortgage loans are on a short-term basis (usually between 1-3 years). The banks tend to lend out long-term (25-30) year amortized mortgages.
- Be certain about how much home you can afford– By crunching the numbers and taking into consideration the degree of household debt you are currently dealing with, you will be in a good position to determine what home is affordable.
Mortgage Pre-Approval and Purchasing a Home
All the questions that you have regarding how much you can afford and what terms you will find comfortable committing to on a given mortgage can and should be researched, however by considering a pre-approval on a mortgage this will be on paper. Why is this so important?
- With a pre-approval when you are house hunting and wish to put in an offer on a house to your liking, showing the sellers that you have already been pre-approved for a designated mortgage amount shows that you are serious and have the financial means to carry through with buying the property.
- This ensures that you do now waste time looking for properties out of your price range and affordability. Not only does this avoid the disappointment of finding a home that you will not be able to make an offer on but it streamlines your search from the outset towards homes that fall within your budget.
Purchasing your Home- The Fun Part
You have gone done all your homework and are aware of what you are looking for in terms of a mortgage type, you have gone through an initial pre-approval process and you have house hunted. Found your dream home? Good, now purchasing is the final step.
- Contact a lender and sit down with the lender to go over the specifics of a mortgage contract whether this is a first mortgage (principal mortgage) or a second mortgage using existing equity to finance a secondary property. All specifics should be hammered out and discussed with your lender.
- Bring all relevant documents including notice of assessments, list of existing assets, credit score and proof of income if applying for a primary mortgage or a recent appraisal on your property, list of outstanding liabilities if applying for a secondary mortgage loan.
- Negotiate a mortgage loan with your lender who will be basing the loan on your income, assets, credit, and overall debt ratio. In the case of negotiating a private loan, the appraised value of your property and the degree of equity existing in your home will be used to determine mortgage terms and final loan amount.
Mortgage Broker Store Can Help in the Mortgage Process
Mortgage Broker Store is very experienced in the mortgage process and in particular the process of obtaining a private mortgage through the vast network of well-established lenders in Ontario. If credit is an issue, we will be able to connect you with a private lender who can negotiate terms on a mortgage loan. As most private mortgage loans are approved on a short-term basis (typically 1-3 years) this will give sufficient time to fix any ongoing credit concerns and increase the likelihood of being approved for a future mortgage loan with favorable terms.