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Mortgage Pre-application and Mortgage Pre-qualification

Pre-Approval mortgage

Are you looking to buy a home? What do you know about mortgage applications? Have you been wondering about the differences between mortgage pre-approval and mortgage pre-qualification?

A mortgage is a loan used to secure a home, and In Canada, most homeowners obtain a mortgage to get their home.

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Once you understand mortgage basics, you will see and understand the differences between mortgage pre-approval and mortgage pre-qualification.

Mortgage Application

To choose a mortgage, you must familiarize yourself with the various types of mortgages and choose the best one for you. When choosing a mortgage, you’ll need to consider several factors. The most important is having an accurate idea of your monthly costs.

This will entail repaying the “principal” loan and making interest payments. In addition, if you can’t make a 20% down payment on a home, you will be required to pay for private mortgage insurance (PMI)

Before you can apply for any mortgage, you need to assess if you can afford it or not. It would help if you got a clear idea of the whole thing before going into it. Securing a home through a mortgage is easy if you understand how it works.

Suppose you want to apply for a mortgage, you must consider the down-payment closing costs, such as lawyer fees and real estate commissions. Also, it would be best if you considered maintenance costs, and monthly home-related expenses such as mortgage payments, home insurance, property taxes, utilities, etc.

 It would help if you also took note of your current debts, such as car loans or student loans, and finally, you must check your spending habits too. Once you look into these things, you will easily apply for a mortgage.

When applying for a mortgage in Canada, certain documents will be required before you get the mortgage. They are a

  • Letter of employment
  • current tax returns
  • an assessment notice
  • bank statements
  • paystubs,
  • assets and liabilities statement
  • purchase agreement and Sale
  • Photo identification.

You must note that the mortgage application will include primary and personal information. For instance, name, address, phone number, social security number, employer, income, etc.

The application will also require your assets, such as mutual funds and RRSPs. It will also include liabilities, such as credit cards and credit lines, and loans. Also included is the purpose of the loan, the mortgage loan amount required, the type of mortgage loan you want, the mortgage term, amortization, and interest.

 In addition, it requires a description of the property you want to buy or already own.

Mortgage Application Process

There are two basic steps to mortgage application: pre-approval and pre-qualification.

Mortgage Pre-approval

A pre-approval document states the maximum amount of money that your mortgage lender is willing to lend you. When looking for a home, a pre-approval document is extremely useful. It indicates that you are a serious buyer prepared to act quickly on a property when you find one you like.

 A mortgage pre-approval prepares you for a stress-free home-buying experience. You can approach mortgage lenders for pre-approval once you’ve decided on the type of mortgage you want.

Pre-approvals don’t take long. They entail obtaining a three-bureau credit report called a tri-merge, and this shows your credit score and history as reported by third-party, reputable institutions. A lender can examine your credit report to see your payment history and your past and present credit lines.

Your lender will determine the loan amount for which you are eligible. Pre-approval saves you a lot of time because it will allow you to focus solely on houses in your price range. Because the seller has solid evidence, you’re qualified for a loan to purchase the home, having a pre-approval document gives your offer a lot of leverage.

Pre-approval is as comparable to validating your credit worthiness as you can get without a sales agreement. You will supply certain information to the lender, and the lender will verify the information you supply. They will also run a credit check. If you’re pre-approved, you’ll get a pre-approval letter, which is an offer (but not a commitment) to lend you a certain sum for 90 days.

Mortgage Pre-qualification

Pre-qualification is now a crucial step when you want to buy a home. Once you pre-qualify for a home loan, you’re getting an estimate of how much you might be able to acquire based on the financial information you supply as well as a credit check.

Pre-qualification is the process by which lenders determine whether you meet the basic financial criteria for a home loan. Pre-qualification is also a chance to learn about various mortgage options and collaborate with your lender to find the best fit for your goals and priorities.

To get pre-qualified, you provide a lender with some basic information about your credit, debt, income, and assets, and the lender determines how much you may be able to borrow. The keyword here is “tell.” Because the information used for pre-qualification is self-reported, the lender does not typically verify it or look at your credit report.

Mortgage lenders will consider your credit profile, annual income, expected loan term and interest rate, monthly debt payments, and potential home-related expenses to determine how much mortgage you’ll be able to pre-qualify for.

Mortgage Pre-qualification is a process that is quick and fast. It is a non-binding, informal evaluation, and as such, you can be pre-qualified in a day or two, sometimes even less. Pre-qualification may occur in person, over the phone, or online, depending on the lender.

Differences Between Mortgage Pre-approval and Mortgage Pre-qualification

There is a distinction to be made between pre-qualification and pre-approval. Pre-qualification entails providing your lender with verbal or written estimates of your income and assets, who may or may not check your credit.

 Mortgage pre-approval means that the lender has confirmed your financial information and issued a pre-approval letter to show sellers and agents that you are authorized, subject only to identifying the house’s value and condition.

Also, pre-approval makes you ready to make an offer confidently and gain a competitive advantage. However, you can start house-hunting knowing how much you might be able to borrow under pre-qualification. Pre-qualification answer questions for this process, plus a credit check while providing proof of financial details, plus a credit check.

Conclusion

People use the two terms as if they are the same. But there are significant distinctions that every home buyer should be aware of, and we have discussed them in this post. Once you know the differences, you know what to opt for.

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New Purchase Mortgage

Mortgage Affordability in Canada – How Much Mortgage Can You Afford?

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With interest rates at historic lows, now is a great time to purchase a home, but it could also be a potentially dangerous situation. Stretching your mortgage debt service ratios beyond what is comfortable is tempting, but the risk of doing so will depend on mortgage interest rates. Canadians, in general, have mortgage debt service ratios that are well into the comfort zone, but for some consumers, it is a different story.

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Mortgage Debt Service Ratios in Canada: The National Picture

We have seen a sharp increase in mortgage lending due to lower interest rates over the last few years. As a result, mortgage credit has been growing at 5.5% per year on average, with mortgage debt service ratios in Canada remaining somewhat stable. The mortgage debt service ratio is the proportion of household income dedicated to mortgage payments or rent of a rental property. Banks want to ensure that mortgage borrowers can afford their mortgage payments before approving the loan.

The mortgage debt service ratio is a mortgage regulation. The government uses it to determine Canada’s maximum mortgage amount and mortgage qualification. It also plays a role when considering housing affordability in Canada for would-be home buyers, especially in today’s low mortgage interest rate environment.

Mortgage Debt Service Ratios: The Details

A couple of years ago, TD Bank researched mortgage debt service ratios in Canada. They found that most Canadians had mortgage debt service ratios within comfortable limits; however, there were some exceptions. 

For instance, the Bank said that many homeowners take on too much money relative to their income levels. That could be problematic if interest rates increase significantly over the next few years and mortgage payments become more and more un-affordable for consumers.

Gross Household Income vs Net Household Income

Banks consider total gross household income when determining mortgage affordability in Canada. That is because mortgage payments are a significant portion of an individual’s monthly spending.

Mortgage lenders use the net household income figure for mortgage affordability, but these two figures can be very different. Gross household income, for instance, does not include deductions such as RRSP contributions, charitable donations and other write-offs. For this reason, it may not accurately reflect what consumers spend at the end of the year on expenses like mortgage debt service ratios.

The minimum down payment required by various Canadian Provinces is another crucial factor in mortgage affordability. It determines how much money you will need before shopping for your new home or condo.

GDS Ratio and TDS Ratio

GDS (Gross Debt Service) and TDS (Total Debt Service) ratios are mortgage loan affordability metrics that lenders use to determine whether or not mortgage interest rates will be manageable for mortgage borrowers. In general, mortgage lenders want to know that your minimum monthly payments on housing costs, including mortgage principal and interest, property taxes and heating costs combined, won’t exceed 32% of household income. The Bank of Canada has also emphasized that the maximum affordable mortgage debt service ratio should be 40% when gross income is under $100,000.

Your Credit Score Will Affect Mortgage Rates

Your mortgage affordability or qualification will depend on your credit score and mortgage rates. As mortgage interest rates increase, your monthly mortgage payments will also increase. That means it’s even more critical to know Canada’s mortgage rules before starting your home or condo shopping process.

Down Payments in Canada

Down mortgage payment of at least 20% is typically what mortgage lenders require in Canada. However, some mortgage down payment assistance programs are available for first-time home buyers. Moreover, suppose you can’t afford the “mortgage debt service ratio” rule. In that case, your mortgage lender may still approve your mortgage loan request if you have vital compensating factors, such as excellent credit history and a long employment record.

It’s also important to note that mortgage guidelines vary across Canada. Therefore, it’s essential to know your province’s minimum mortgage down payment requirements before starting your home or condo shopping process. In addition, while interest rates play a role in housing affordability in Canada, not all consumers will qualify for the same mortgage interest rates or get approved for loans with the same terms and conditions.

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How to Make Your Mortgage More Affordable

A mortgage calculator helps determine your monthly payment based on the purchase price of the home you are interested in. In addition, this mortgage affordability calculator will ask about your gross household income and down payment, mortgage interest rate and amortization period to determine how much money you need to borrow.

Increased borrowing power may allow you to buy a bigger home or condo. However, it may also mean that mortgage rates in Canada become unaffordable for mortgage borrowers who aren’t prepared to manage their mortgage payments at higher interest rates. Therefore, it’s essential to consider all possible outcomes before getting into “affordable” mortgage debt, which could negatively affect many aspects of your financial well-being in the long term.

Your net household income helps calculate mortgage affordability, including the mortgage debt service ratio; however, other factors are essential. For example, your net income is $5,000 per month, but you spend $3,000 on mortgage payments and another $2,000 to cover property taxes and heating costs. 

These additional expenses might limit your true mortgage affordability. Calculating the TDSR helps consumers understand their maximum mortgage amount based on their monthly housing expenses before making mortgage shopping calculations.

Your credit score will also play an essential role in determining the mortgage interest rate you qualify for as well as whether or not you can get approved for a mortgage loan at all. The higher your credit score is in Canada, the more likely you will qualify for mortgage debt at a better interest rate. A mortgage qualification letter from your mortgage lender is required in Canada before homeowners can close on a mortgage loan.

In Conclusion

Mortgage rates in Canada affect mortgage affordability. Your mortgage payment is based on the total amount of mortgage that you need to borrow and the mortgage interest rate charged by your lender. To determine mortgage qualification and how much you can afford, mortgage lenders will also ask about your gross household income and down payment.

It’s important to note that different mortgage interest rates apply based on how many compensating factors a consumer has (such as excellent credit history and a long employment record). Still, education on mortgage debt service ratios is essential to understanding how much mortgage you can afford.

We are available to walk you through all mortgage processes and help you pick and acquire the most suitable loan.

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For more articles on Mortgage, please refer to our Best Mortgage Online home page. Also, our sister site Best Insurance Online hosts news, tips, reviews and more on Insurance in Canada for your reference.

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New Purchase Mortgage

How to Pick a Mortgage Lender in Canada: 10 Questions to Ask

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If you’re a new homeowner, a mortgage is a huge commitment. Like any contract, it’s essential to know the details of what you are signing up for. After all, mortgage rates change frequently, and if you don’t know the particulars of the mortgage agreement, this can cost you money.

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Understanding Mortgage in Canada

In Canada, there are a few different mortgage options:

  • Conventional mortgage: A mortgage that requires the borrower to make mortgage payments to repay the loan over time
  • High Ratio Mortgage: Type of mortgage that requires the borrower to make mortgage payments to repay the loan over time and requires the borrower to pay a monthly mortgage insurance premium.
  • Second/Third Mortgage: For one who has already signed another mortgage agreement with an institution.

The mortgage lender you use will significantly affect the mortgage rates and terms you receive. Here are some tips on choosing your mortgage provider:

  • Talk to family or trusted friends
  • Ask your real estate agent for recommendations
  • Shop around online through mortgage brokers in Canada
  • Decide if you want to go through a mortgage lender or a mortgage broker

What Makes a Good Mortgage Lender?

Your lender will be your single point of contact for the mortgage agreement as far as mortgage providers go.

You want to find someone who makes you comfortable throughout the mortgage process and is reliable. Some mortgage brokers offer competitive rates and products, while some lenders earn their money solely by originating mortgages.

Some mortgage lenders or brokers offer their mortgage insurance, while others link you with mortgage insurers. It is essential to know that mortgage rates can change quickly, so it’s vital to know if your mortgage provider will be able to match the best mortgage rates in Canada.

Identifying Your Mortgage Lender

The mortgage broker is a professional who helps people find a mortgage lender and helps them through the process of getting a mortgage.

Mortgage lenders can range from banks to credit unions and trust companies, among others. When it comes time for changes, you’ll want someone with experience when it comes time for changes, such as renewals or payment amount changes. During financial hardship, the last thing you need is an inability to make adjustments with your mortgage lender without incurring fees.

Typically, mortgage lenders will provide a mortgage broker with a mortgage rate and mortgage insurer, or they may give them a combination of both. As a result, the mortgage lender can offer conventional and high ratio mortgages.

A mortgage broker can help you find the best mortgage rates available in Canada, regardless of whether they’re from a bank, credit union, or mortgage insurer.

There are two types of mortgage brokers:

  • Sales-Based Mortgage Broker: A mortgage broker whose primary source of income is originating loans and collecting commission for doing so.
  • Non-Sales Based Mortgage Broker: A mortgage broker whose primary source of income is not originating loans and collecting commission for doing so.
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10 Questions You Need to Ask Your Mortgage Lender

Different lenders offer different mortgage plans with these options. Here are the top 10 questions to ask mortgage lenders in Canada before signing on any dotted line:

What is your mortgage rate?

This is an obvious question, but it gives you a rough idea of what kind of mortgage you can afford. If mortgage rates are low (less than 5%), then mortgage rates are usually lower too.

What is your mortgage penalty?  

This question will tell you what the lender charges if you need to break your mortgage agreement early or if mortgage rates drop below what you initially negotiated been. For example, some lenders charge an entire three-month interest while others only charge one month’s interest to break the mortgage agreement early. Failing to pay your mortgage penalty can also negatively affect your credit rating.

How will mortgage rates change over time?

Different mortgage lenders use different methods to calculate mortgage rates, so it’s essential to compare the mortgage terms of each lender. For example, some lenders offer “fixed” mortgages that don’t change for a set period, while other mortgage rates vary based on the prime rate or other lending rates.

What penalties do you charge if rates rise during my term?

The mortgage lender should be clear about whether they have a penalty for your mortgage rising in interest before it expires. This way, you’ll be able to make an informed choice about mortgage rates.

How often is my mortgage interest rate reviewed?

Some mortgage lenders will review mortgage rates every month, while others only review mortgage rates every 3-5 years. You should know how often your mortgage will be reviewed to avoid higher mortgage rates when you renew your mortgage agreement.

Can I lock my interest rate for a set period?

Most mortgage lenders will offer you the chance to “lock in” mortgage rates before they change. That is great if you’re planning to buy a house and want to know your mortgage costs, but it also helps prevent mortgage rates from increasing.

How much do mortgage payments increase over time?

Depending on the mortgage lender, mortgage rates can increase by 5% or more after a few years. So make sure you’re aware of how mortgage rates might change over time so that you’re not surprised later on.

Can I pay off my mortgage early?

Some mortgage lenders will let you pay off your mortgage early, but there’s usually a charge for this. If possible, try to find mortgage lenders who don’t charge early mortgage payment penalties.

What type of mortgage do you offer?

Different lenders offer different mortgage plans, so make sure the mortgage lender knows what kind of mortgage you’re looking for. For example, mortgage lenders might offer mortgage plans that allow you to pay off your mortgage early without penalty, and other mortgage rates might not provide this option.

Will I be charged mortgage application fees?

Most mortgage lenders will charge a mortgage application fee when applying for mortgages, but some mortgage lenders may also charge mortgage application fees when mortgage rates drop. This way, you’ll know what mortgage lenders will charge before you apply for a mortgage.

Closing Thoughts

Other mortgage lenders may offer other mortgage plans, so it’s crucial to shop around for mortgage rates until you find the best mortgage lender. Some mortgage lenders will charge a monthly mortgage administration fee and a mortgage penalty fee if your mortgage rate rises during your term.

Best Mortgage Online can also help you acquire a mortgage, refinance a mortgage in Canada, … with the best rates on the market. Call us and talk to our agents are available at 1-855-567-4898 (toll free).