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In this week’s post, I am going to list a few of the less talked about mortgage topic’s, the ones that don’t usually come up until you have already started into the mortgage process. Keep in mind, a good portion of this information is based on my own thoughts and experiences and should not replace the benefits of having a detailed conversation with an experienced mortgage professional about a custom mortgage solution that suits your individual financial circumstances.

Debt helps you build credit

Basically what I am saying is debt is a good thing if managed well. With regards to getting credit, you will have an easier time qualifying if you already have credit and it has been paid as agreed. Past satisfactory repayment habits that have been in place for around 2 years looks good as it generates a reasonably good credit score which is most important to lenders. The best way to build credit and maintain a high credit score is to have 2-3 revolving credit facilities with limits of $2,500 or higher which could be a line of credit or credit cards. Use the credit regularly, while keeping mindful to stay below 75% of your available limit at all times or better yet, pay it off in full each month.

While on the topic of credit, don’t ignore your credit report. Any derogatory credit that is on there should be cleaned up sooner than later. Bad credit with outstanding balances will negatively impact your credit score every month that they are not paid off in full.

It can take time to go through the mortgage process

Ideally, the mortgage process can go from the time you sign the offer to purchase to approval status, to lawyers office for final signing in 1-2 weeks, and that’s if you have all required documentation upfront. Though, most often it can take longer than that for a number of different reasons. An appraisal may be required and they cannot gain immediate access to the home or the lender may ask for more supporting paperwork from you that you don’t have handy.

It doesn’t always happen on the 1st try

If you have any doubts as to whether you will qualify for a mortgage or not, I suggest you speak to a mortgage professional sooner than later. If you can’t qualify for a mortgage now, it’s a good idea to consult an expert who will review your current finances and advise on what steps you can take to qualify sometime in the future.

Applying for a mortgage can be stressful

The most important suggestion I can offer in reducing stress is to work with a  knowledgeable experienced mortgage professional that  you may have been referred to. After reviewing your finances and any supporting documentation you are able to initially provide, this individual should be able to advise what the timeline is for an approval, all about their mortgage process and keep you well informed throughout the process. Keep in mind, many people are involved in the home buying process such as realtors, mortgage professionals, lenders, appraisers, inspectors, insurers and lawyers.  This means the chances of running into some sort of glitch or two is quite high. Don’t sweat it, these people all know their part and based on my many years of experience it all seems to work out in the end.

Long- term employment looks good

Extended employment with the same company appeals to a lender as it shows income stability. When the lender is considering an applicant’s qualifications, they look at job type and length of time with the same employer or at least in the same industry. I am really trying to say if you are thinking of making a career change, may make sense to do it after you are living in your new home.

Pay your taxes

By taxes, I mean income taxes owed to Canada Revenue Agency.  Depending on your type of employment there is a chance you may be asked to provide your Notice of Assessment in order to confirm your income or if there are any outstanding taxes owing. You receive this document after you’ve filed your taxes and the lender may require you to pay any outstanding balances as a condition of your financing approval. This is especially significant for any business-for-self borrowers.

Rate isn’t everything

Rate is important, however, should not overshadow the other important features of your mortgage financing. Pay attention to any payout penalties, pre-payment privileges or restrictions as well as post-funding customer service your lender is offering. This will ensure you’re not in for any unexpected surprises when it’s too late.

Home ownership isn’t for everyone

The cost of home ownership is not just the amount of the mortgage payment. There are property taxes, potential monthly condo fees, heating, cost of repairs and maintenance to take into account. Then you add in things like potential payout penalties should you break your term early due to a life change as well as any market fluctuations and renting may become more appealing to some people. Investing in property is not a decision to be entered into lightly. Be sure to educate  yourself on exactly what you are getting into should you choose to buy instead of renting.

If you’re looking for an experienced mortgage broker, contact the Mortgagegirl at 780.433.8412 or info@mortgagegirl.ca. Stay in the loop by following on Twitter @mortgagegirlca.

Are you currently renting or living with your parents? Then this quiz is for you! Test your knowledge or learn some new information, the purpose of the quiz is to be a “fun” introduction to the world of mortgage financing. Buying a home is a large investment; don’t overlook the value of speaking to an experienced mortgage professional before you start house hunting as they can answer any additional questions you may have about the home financing process.

There are no right or wrong answers, just 8 easy yes or no’s. My hope is you’ll use it as a stepping-stone to lead you towards the information you need in order to make an educated decision about your financial future.

1. Do you have a down payment available?

Yes                 No

The minimum downpayment required is 5% of the purchase price. There are many downpayment sources that are acceptable and they include savings, RRSP’s, investments, or a gift from an immediate family member. You may also qualify to borrow your down payment, however, that’s not my favorite solution as that’s another payment you’re responsible for in addition to the monthly costs of your new home.

2. Do you know what Mortgage Default Insurance is?

Yes                 No

Mortgage Default Insurance protects the lender in the event the borrower defaults on their payments. If you purchase with less than a 20% downpayment, your mortgage will have an insurance premium. The more you put down, the less your premium will be. For example, if you put down 5%, the insurance premium will be 2.75% of your mortgage amount which can be added to your mortgage principal; whereas, a 10% down payment will result in a 2% insurance premium. There are some exceptions to this guideline which a mortgage broker could look into for you.

3. Do you have documentation to prove your income?

Yes                 No

Whether you’re an employee, a contractor, or self-employed, you will likely be required to provide some sort of third party income confirmation in order to obtain mortgage financing. Acceptable documents include job letter, paystubs, Notice of Assessments, or income tax returns.  If you cannot provide income confirmation documents, there may be a solution called a “stated income mortgage”. The requirements under that program are very different to that of an income-qualifying mortgage, so be sure to discuss the guidelines with your mortgage professional before you make an offer on a property.

4. Do you have good credit?

Yes                 No

If you want to be sure you will qualify for the best rates, a good credit rating equates to at least 2 years positive repayment history on at least 2 separate debts each with credit limits of $2500. That means no derogatory credit reporting’s in the past 24 months which would include late payments, collections or judgments.  If your credit report shows one or more issues, don’t worry too much as you still have many options available to you. Depending on your credit profile, your mortgage professional will be able to review all the alternatives available to you.

5. Is your debt level manageable?

Yes                 No

Owning a property comes with more costs than a typical renter may face. Have you accounted for that in your budget? If you’re having trouble making more than the minimum payment on any of your outstanding debts, you may want to consider aggressively trying to reduce your debt level before buying a home.

6. Are you planning a life change soon?

Yes                 No

Are you contemplating a change of jobs or thinking of going back to school? A material change in your financial profile could affect your affordability which should be taken into consideration when looking at the timing of purchasing a home. And in addition to that, a property purchased in today’s market is not expected to increase in value anytime soon so keep that in mind when financial planning.

7. Are you a frequent traveller?

Yes                 No

If you see some long trips in your future or even a temporary move abroad, renting can provide additional flexibility and minimal commitment as owning property is a big responsibility. If you choose to take off for an indeterminate amount of time, you will still be responsible for all costs of owning your home and the repercussions for default are quite serious should you ever fall behind in payments.   Alternatively, if you decide to rent your property out while away, be aware of the pros and cons of that decision as you would be an absentee landlord. If you are truly unsure of what to do going forward, start by deciding what kind of lifestyle you want to have and how home ownership fits into that picture.

8. Does commitment scare you?

Yes                 No

When you get a mortgage, you will be asked what term you want. Will that be for 1 year, 5 years or even up to 10 years? If you break that term early for any reason, unless you took an open term, you will be charged a payout penalty which could be quite significant. For that very reason, financing a home can be much more of a commitment than renting. In addition to that, if you change your mind about the property you just recently bought, selling it quickly and for a profit could prove problematic in today’s economy.

Buying a home can be intimidating and this quick quiz should have provided you with some conversation starters to take to your favorite mortgage professional, if you haven’t already. In addition to having a  financing consultation, I recommend meeting with an experienced real estate professional to discuss property expectations for your price range. And even if you’re not ready to buy yet, it’s never a bad idea to do a little preliminary research.

If you’re looking for an experience Mortgage Broker, contact the Mortgagegirl at 780.433.8412 or info@mortgagegirl.ca. Stay in the loop by following on Twitter @mortgagegirlca.