What Should You Do Before Applying for a Mortgage?

What Should You Do Before Applying for a Mortgage?

Deciding to take out a mortgage, whether it be a first mortgage on a home or an additional mortgage on an existing property, is one of the biggest financial decisions that most Ontarians can face. A home is also likely the biggest asset and financial undertaking for many Ontarians.

Naturally, questions arise in the process of applying for a mortgage. Questions about what type of lender to choose, what type of mortgage is best, what assets may help in leveraging the property, how long the term on the mortgage will be and what type of financial undertaking you are willing to take on and be ultimately approved for by an Ontario-based lender.

Be Clear About the Purpose of your Secured Mortgage- What Do you Need Mortgage Financing for?

It is very difficult to answer some of these questions without researching the various lending options available to the Ontario homeowner.  It is also often necessary to have the necessary information to make informed decisions and not be stuck with a mortgage with terms that are not comfortable for you and taking on more debt that may be feasible to pay off in the long term.

Be clear about what purpose the mortgage is for? There are different types of second mortgages for example including Home Equity Lines of Credit (HELOC’s), equity home loans, and for short-term financing a bridge loan. 

There are also a host of different uses for an additional mortgage on your property using existing equity. While it can be used to pay off a portion of your principal loan, it is intended to be used for other debts and financing needs including:

  • Home renovation costs
  • Consolidation of existing household debt into one easily manageable monthly payment
  • Pay for tuition or the needs of adult children such as helping with a down payment on their first home
  • To put towards much-needed fixes on your property
  • Personal financial needs

There are steps that you should take to help safeguard against making misinformed mortgage decisions. These steps will put you in a position to determine the type, the amount, and the term of your mortgage as well as give you the necessary understanding of the factors that pertain to mortgage approval. 

  • Consider getting pre-approval for a mortgage amount– It is very beneficial to contact a lender and go through the process of being pre-approved for a mortgage. When home searching it demonstrates to the seller that you are serious about buying if you have gone through the pre-approval process before your house hunt.
  • Do your homework about the different types of mortgage options available– Whether you are a current homeowner seeing a second mortgage option on your home or a first-time homebuyer it is necessary to research the many different types of mortgages options that are available in Ontario and be knowledgeable about the basics of each mortgage type.
  • Be clear on your preference for a fixed or variable mortgage rate- A very important determinant in the mortgage process is 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.
  • Be aware of your credit score-Now is the time to be fully aware of your current credit score. An overall credit score is weighted heavily in the decisions of major lenders including the banks and credit unions. 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).  

  • Look over your credit report carefully– When determining your current credit score you are wise to 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 on what mortgage terms you are most comfortable with– 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.
  • Know ahead of time 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 Broker Store is Here to Help In Your Mortgage Financing Goals

Secured Mortgages can provide borrowers with financial flexibility by taking advantage of funds built up in their own homes. Look for a mortgage to buy a first home or using the existing equity in your valued home is a major decision. It is well worth the time involved to take the right steps to get there.

Mortgage Broker Store works with a network of private lenders across the country and is more than happy to guide you in important decisions that you will be making during the private lending process. Feel free to contact us at your convenience to help facilitate your second mortgage goals.

About Jonathan Alphonso

Mortgage Agent, Web Developer, and Real Estate Investor. Together with Ronald Alphonso I run MortgageBrokerStore.com. I write about a variety of topics on Canadian mortgages and real estate. Our particular specialty is dealing with Ontario power of sale and foreclosure situations.