Mortgage Pre-Approval
For mortgage pre-approval you actually apply for the mortgage even
if you don't know which home you will purchase. After checking your
credit, and perhaps verifying your income, the lender commits in writing,
to funding your mortgage, pending a successful appraisal of the home
and a few other conditions. You are issued a Commitment Letter by
the lender.
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A pre-approved mortgage places you
in the driver's seat when it comes time
to make an offer.
Being pre-approved shows the seller
you're a serious buyer, who's ready
and able to make a deal. |
A mortgage pre-approval booked through a lender guarantees an interest
rate for a period of time, typically 60 to 120 days. If interest
rates increase the rate is protected and if interest rates come
down most lenders will give the benefit of the reduction to the
client.
To submit your application for pre-approval you will be asked to
supply:
• Income verification (employment letter, last T4, pay stub)
• Self employed individuals require 3 years financial statements
and personal tax returns
• Confirmation of down payment
• Authorization for a credit report
• Full application including a personal net worth statement
What should I budget for a home purchase?
Before making a home-buying decision, you should calculate both
the one-time and ongoing costs associated with buying and operating
the home.
Your monthly mortgage payments, taxes, heating costs, and 50% of
condominium fees should not exceed 32% of your gross annual income.
This is called your Gross Debt Service Ratio.
Your Gross Debt Service Ratio plus monthly payments on any other
outstanding debts (including loan payments, car payments, credit
card payments, and department store accounts, etc.) should not exceed
40% of your gross annual income. This is called your Total Debt
Service Ratio.
Under normal circumstances, you should budget about 2% of the value
of your home to cover annual operating and maintenance costs which
are not included in your Gross or Total Debt Service Ratios.
As a guide for preparing a budget,
consider the following costs associated with purchase of a home:
• Legal Fees
• Home inspection
Costs
• Moving expenses
• Appraisal Fees
• Home Insurance
Costs that may apply
• Property Taxes
•
Land Survey Costs
• Strata Costs
• GST
• CMHC / Genworth mortgage insurance
• Property Transfer Tax; based on purchase price, 1% of
first $200,000 + 2% of balance. Possible property purchase tax
exemption for first time buyer with purchase under $425,000.
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| • Adjustment Costs (any other costs that have to be
worked out between a seller and buyer, i.e.: tenants deposits,
rents) |
As a guide for preparing a
budget,
consider the following costs associated with ongoing ownership
of a home: |
• Monthly mortgage payments
• Property taxes
• Mortgage life insurance
• Heating costs
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• Costs of secondary financing, such as a second mortgage
(if applicable)
• Condominium fees (if applicable)
• Operating and maintenance costs |
I Found My Dream Home, Now What?
When you make an offer to purchase a property a clause in the contract
will allow you the time needed to fulfill any of the lenders conditions
that are outstanding. When you are pre-approved you know that the
lender likes you, but they have no details on the property you want
to buy. In most situations an appraisal will be ordered to determine
market value or CMHC / Genworth will have to approve your purchase.
Once all the conditions to your pre-approval have been met you are
ready to remove your "subject to financing clause."
Completing my home purchase.
Gloria will send you the 'Commitment' Form for you to complete
and return, as well as the 'Conflict of Interest' form.
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