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My Mortgage Blog

Getting a mortgage isn't the same as buying a car or buying other items on credit. Mortgages are complex legal agreements, and the approval criteria are much different. If you've never purchased a property before, you may have some questions about how mortgages work, what you need to do to get one, and what options are available to you. This article discusses five common questions that people who have never applied for a mortgage often have. 

What is Mortgage Pre-approval?

Before you begin shopping for a home, it's important to know how much you can afford. Ideally, you've already done some budgeting on your own to have an idea of how much mortgage debt you can afford. However, a mortgage pre-approval allows you to find out how much mortgage lenders are willing to lend to you. 

For a mortgage pre-approval, lenders look at the basic lending criteria, including your employment status, credit history, and your current costs and debt load. Based on this information, they will provide you with a proposal for how much they will lend you at a particular interest rate. 

Mortgage pre-approvals are usually time-sensitive, so the offer usually stands for 90 or 120 days. If you finalize your mortgage during that time, the lender must guarantee the interest rate offered in the pre-approval. 

Getting mortgage pre-approval helps you know what price range you should be looking for when shopping for a home. It also allows you to compare mortgage options from different lenders. Keep in mind, though, that pre-approval does not guarantee your approval later until the lender has had time to thoroughly examine your qualifications.

How Much do I Need for a Down payment?

This is a more complicated question than you may think. So much so that we wrote another blog all about downpayments. However, the general rule is that the minimum amount of down payment allowed for a home is dependent on the price. For a home priced at up to $500,000, a downpayment of 5% is required, or $25,000. The minimum for a house priced at $500,000 to $1 million is 10%. For houses costing over $1 million, the minimum downpayment allowed is 20% or $200,000. With the average housing price in Niagara Falls in the range of $700,000, you'll need a minimum of $70,000 to purchase a home.

Mortgage Term versus Amortization

These two terms often confuse even seasoned homeowners. The amortization of a mortgage is the period of time it takes to pay off the entire amount of the loan. Most mortgages in Canada have an amortization period of between 15 and 25 years, with 25 years being the maximum allowed. The longer the amortization period, the lower your mortgage payments will be. However, you'll also pay more interest overall. 

On the other hand, the mortgage term or period is the length of time that the agreement with your mortgage lender is in effect. During the mortgage period, the terms and conditions of the mortgage cannot change, so the interest rates and amount of your regular payment are set. At the end of your mortgage term, you may choose to renew with your current lender (with a newly negotiated set of conditions and interest rates) or shop around for a lender that will offer a better deal. 

At the end of a mortgage term, you can choose to change the amortization if you need to lower your payments or wish to speed up the repayment. 

Is my Credit Score Good Enough to Apply for a Mortgage?

The rules for mortgage approval changed in April 2021, with the minimum credit score being required increasing from 600 to 680. That means that to get approval from a regulated financial institution (which includes the Big Six banks, most credit unions, and some larger mortgage lenders), at least one of the mortgage applicants must have a score of 680 or above. 

If your credit score has taken a beating, other options exist from non-regulated alternative lenders or private mortgage lenders, so you should talk to a mortgage broker. 

What if My Financial Situation Changes After I Buy My Home?

This is an important question that can cause a lot of anxiety for new homebuyers. If your situation changes, for example, you take a pay cut or lose your job, or your credit rating drops, you still have options when it comes time to renew your mortgage for a new term. Most lenders considering a renewal will not completely reevaluate your finances again. As longs as your payment history is good and you make your regular mortgage payments, you should be able to renew for another term. However, if you switch to another lender, you are subjected to the full application process all over again, in which case you may not be approved. 

Dave Destefano represents The Mortgage Group in Niagara Falls. Call Dave for help in navigating the challenging landscape of mortgages. Get help with securing pre-approval, finalizing your mortgage and negotiating new mortgage terms when it's time to renew.