The second rule of affordability factors in how much your entire monthly debt takes up in your income. This is called your TDS or Total Debt Service ratio, and includes everything from credit payments to car loans and housing costs. This ratio should not take up more than 40% of your monthly income.

These ratios will let any lender know how much you can afford. Your lifestyle and home can be more affordable through keeping your debt ratios below the maximums listed above.

For more information on home financing review the article Toronto Home Buyer: Mortgage Basics.

(in alphabetical order)

Bank of Montreal
www.bmo.com

Bank of Nova Scotia
www.scotiabank.com

Canadian Imperial Bank of Commerce
www.cibc.com

Canada Mortgage
www.canadamortgage.com

Hong Kong Bank of Canada
www.hsbc.com

Laurentian Bank of Canada
www.laurentianbank.com

National Bank of Canada
www.nbc.ca

Royal Bank
www.royalbank.com

TD Bank/Canada Trust
www.tdbank.com

Credit Bureau Report

Once your application has been received, this credit bureau report is to be obtained by the mortgage broker.
See article Toronto Home Buyer: Mortgage Basics for more information on checking your own credit rating before going to find a mortgage.

Debt Service Ratio

To be calculated by Mortgage Broker. Requirements of specific lender will also apply.

Verification of Income, one or more of the following:

•    Pay Stubs
•    Financial Statements
•    Three years tax refund (if commission sales or self-employed)
•    Revenue Canada Notice of Assessment T4 or T4A
•    Letter(s) of Employment (position, length of service, salary [plus bonus if applicable])

Down Payment Confirmation, one or more of the following:

•    RRSP Statements
•    Investment Statements
•    Three months of bank statements
•    Copy of Term Deposits and/or Savings Bonds
•    OHOSP Account
•    Gift Letter

If I have missed anyting please feel free to leave a comment naming the document that was missed.

The early bird catches the worm, and prime real estate at a better price! Starting early to secure a mortgage is an essential part of the buying process. Pre-approval puts you ahead of the game when the bargaining begins, and also puts in place any financial boundaries you may have to assist in the search.

Mortgage Financing – Is it Affordable?

Your down payment plus the amount of your mortgage is the total cost you can afford. Simple as that.

Mortgage Financing – Know Your Own Credit Report

Looking over a detailed report of your credit history is something all lenders will ask your permission to do. Information obtained from this credit report greatly determines whether or not money is lent to the borrower. Not only does this report outline any bankruptcies, judgments, loans, balances,  types of accounts, existing credit card limits, and timeliness of payments, but is also identifies any embellishment or falsification indicated on mortgage applications. To protect yourself against any misrepresentation that could occur from incorrect information being reported you would be well advised to obtain a copy of your report to look over prior to applying for any mortgage prequalification. As credit reports are not infallible you have the right to question any mistakes and try to correct them before it has a detrimental effect on the outcome of your mortgage application.

Mortgage Financing – Obtaining Your Credit History Report

Trans Union of Canada and Equifax, both of which will supply you with copy of your own report at no cost, are the two main credit bureaus in Canada.

To obtain your report from Trans Union of Canada
Download the application form from their website at TUC.ca and return completed form by fax (905-527-0401) or mail. The consumer relations department can be reached at 1-800-663-9980.

To obtain your report from Equifax
To receive a faxed application form telephone Equifax at 1-800-465-7166. Once the completed application has been returned to them by fax or mail Equifax will mail you your report within five days.

Mortgage Financing – Calculating A Budget

In addition to the range available for approval, as specified by your mortgage broker or bank, establishing the total amount you wish to spend is also very important. Knowing and feeling comfortable about the financial position you are getting into is necessary as a mortgage is a commitment that will likely last for many years. Determining your comfort threshold will help you evaluate a monthly mortgage payment that is reasonable to you, as the maximum for which you qualify may be too high.

Calculating A Budget – Total Down Payment

Establishing the total you have available to invest is your first step in calculating how much you have for your total down payment. Be sure to also add the estimated amount of equity you have gained if you already own another property as this also counts towards your total available savings for a down payment.

Calculating A Budget – Closing Cost Estimation

Make sure to set aside part of your available funds for costs associated with closing the sale. Costs are outlined in the closing costs workbook section to assist you in creating an estimate. Although you will not be able to gauge the precise total needed, you will be able to arrive at a very close figure bringing you that much closer to staying within budget.

Calculating A Budget – Net Down Payment

Total Down Payment – Closing Cost Estimation = Net Down Payment

Subtracting your closing cost estimation from your total down payment reveals your net down payment.

Calculating A Budget – How Much Can You Comfortably Carry?

Ascertain the ongoing monthly mortgage payment you are comfortable paying with the “Mortgage Affordability Workbook” found at the end of this section. By using the simple step-by-step calculations you will be able to determine the amount of principal mortgage you can expect to be approved for, and feel comfortable with. From there it is just a hop skip and a jump away from establishing your price range.

Calculating A Budget – Determining Your Price Range?

Net Down Payment + Principal Amount of Mortgage = Budgeted Purchase Price

Your net down payment added to your principal amount of mortgage is what your budgeted purchase price will be. Once you have determined this it is time to confirm your budget through pre-qualification.

Mortgage Financing – Pre-Qualification

To obtain a mortgage you must first obtain pre-qualification. Pre-qualification is an approximation of your borrowing power as determined by the lender. As your capacity to borrow determines your ability to buy, it is important to know exactly how this works. In addition to reviewing your mortgage application the lender will likely also request a credit report to examine your income, credit history, and any debts. Thereafter the maximum loan amount for which you could qualify will be set.

To apply there is a generic application form for you to complete, as well as a list of questions you can ask your mortgage broker or lender(s). There is not usually a fee charged for pre-qualification as it is an opportunity for the lender to market their services to you. To best match your individual needs it is wise to shop around so you can choose the most suitable mortgage option available to you.

Mortgage Broker vs. Bank – Who to See When You Need a Mortgage

Both. See what options your bank makes available to you and also see a Mortgage Broker. Mortgage Brokers have connections to various lenders and can help you to obtain a quote from the best positioned to meet your needs. They understand what lenders are looking for and thus can tailor your application to put you in a better bargaining position. Working directly with the lenders, the broker also knows where to find the best bargains.

To further assist you with your hunt for the perfect mortgage look over the following information provided at the end of this section:
•    A list of recommended mortgage brokers
•    A list of websites for various lenders
•    Questions to ask your mortgage broker
•    A checklist of documents your mortgage broker will need
•    A pre-qualification mortgage application

Mortgage Financing – Pre-Approval

Pre-qualification and pre-approval are often mistaken for one another. As the next step after pre-qualification, pre-approval formalizes the estimation of the buyer’s financial position. Pre-approval is the provision of offer from the lender or mortgage broker of the mortgage. Together with the credit application and verification your financial situation is carefully examined by the lender using established principles of underwriting. A checklist of documents likely needed by your Mortgage Broker is included at the end of this article.

Mortgage Financing – How Much Should I Apply for Pre-Approval?

As much as you can. Try to get pre-approval for the highest amount possible. It is important to only spend within your comfort zone but it is important to secure the maximum approval parameters to leave room for flexibility.

Mortgage Financing – Loan Commitment and Final Loan Approval

Acquiring a certificate or letter of commitment from the lender is the final step in the pre-approval process. This is their agreement to place a mortgage with you and their final approval of that loan, confirming your approval as a borrower by the lender according to pre-defined terms under the agreement. It is important to thoroughly examine this document however as caveats on final loan approval can often be found in the fine print. Things to be aware of include lenders wanting to ensure that the home is in accordance with their underwriting standards, lenders reserving the right to have their own appraisers verify the market value of your house, re-check your credit, and/or verify information prior to granting final loan approval. Be sure to carefully read over all approval documentation with your mortgage broker or lender and discuss any implications of purchasing a home without a financing condition. Once this has been completed you will then be in a position to seriously begin your search for a home in confidence.

1.   What types of loans do you offer?
2.   Can you please outline the terms and conditions of each loan?
(ie. How often does the interest rate change? Are there any
prepayment privileges? What is the renewal term?)
3.   Do fixed rates or variable rates apply to those loans?
4.   What are the particulars of the prepayment privileges?
5.   Is the mortgage portable?
6.   What, if any, insurance is required?
7.   Is there a discharge penalty if we sell the house before the
expiry of the mortgage term? If so, what is the penalty?
8.   Would the discharge penalty be waived if new owner assumed
the existing mortgage? Are there any assumption fees?
9.   Does the mortgage broker charge any arranging fees?
10. Does mortgagee charge mortgager any fees?
11. What underwriting standards get applied? (housing requirements,
debt ratios, etc.)
12. Do you give a loan commitment?
13. What are the, if any, loan commitment restrictions?
14. How long does it take to process the loan?
15. What has to be done to obtain final loan approval?
16. Can I get pre-qualified online?
17. Does the mortgage place any restrictions on the home?
18. For how long have you been a mortgage broker?
19. What percentage of your transactions is in residential real estate?
20. Can you please provide me with some reference?

Conventional Mortgages
When the total loan amount is the lesser of not more than seventy five percent of the purchase price or the approved value of the property, and issued by an institutional lender (trust company, bank, etc.).

High Ratio Mortgage
These mortgages must be insured, as required by The Bank Act. This conventional mortgage loan is for an amount between seventy five and ninety five percent of the lesser of the purchase price or the appraised property value.

National Housing Act (NHA) mortgages are those that are established under the provisions of the National Housing Act of 1954. Many high ratio lenders are shielded by mortgage insurance and thus are willing to issue mortgages with only a low down payment. The Canada Mortgage and Housing Corporation (CMHC) is one of these insurers. The mortgagee risk is lessened as the insurance pays if the mortgagor defaults. Borrowers are required to pay an application fee, an insurance fee that is typically added to the principal amount of the mortgage, and the cost of a property appraisal. Ranging from 0.5% to 3.75% of the mortgage amount, the insurance premiums are hefty and can include other administrative and appraisal fees in addition. To receive up-to-date restrictions, requirements and/or additional information that borrowers will need to meet to obtain NHA backing speak to your bank or mortgage broker.

Second Mortgages

It may potentially be financially beneficial to arrange a second mortgage instead of a high ratio first mortgage, as second mortgages fill the gap between the amount of the first mortgage and the total down payment. It may be advantageous to place a second mortgage on a home when the first is at a very attractive rate for situations like home improvements as they generally have a shorter term and higher interest rates than the first.

Mortgage Options

Assuming existing financing on the property.

Many fees can get reduced or waived if you assume an existing mortgage so it may be to your advantage to look into any opportunities such as these that you come across. If a vendor has an existing mortgage that aligns with your overall financing requirements you may find yourself benefiting in more ways than one. Legal fees and appraisals are lessened, and the vendor may save by not having to pay a penalty for discharging his or mortgage. As most buyers find low interest rates enticing, existing mortgages are a good way to go, though one will likely still have to qualify as a borrower by the lender.

Vendor Take-Back Mortgages

A low interest rate and liberal pre-payment privileges in combination with negligible fees make vendor take-back mortgages very enticing. They can be issued as a large first mortgage or a small second as the homeowner is the one who offers the financing themselves.