How do I pre-qualify for a mortgage?
Beginning your search for a home? Now may be a good time to consider entering the housing market!
If you're uncertain about taking the plunge, you can make your house hunting more worry-free by pre-qualifying for a mortgage before you settle on the house of your dreams. This means that you can look for a home knowing in advance how much you can expect from us.
How much house can you afford? Most financial institutions will complete a pre-qualification certificate based on your income, the amount of your down payment, and any current liabilities. Many institutions will even guarantee their terms and conditions at a specific interest rate if you purchase your home and funds are advanced within 120 days of approval. If rates go up during those 120 days, you receive the approved rate and if they go down, you receive the lower rate. This means that you could realize substantial savings in interest costs.
If you are buying a new home, this guarantee can be for a longer period of time. For details, contact us.
To determine the maximum amount of mortgage financing for which you qualify, visit our office or complete the online application. We will prepare a "purchase profile" by calculating your gross debt service ratio (GDSR).
In real terms, most lending institutions look for a GDSR ratio of 32 percent. This is the percentage of gross household income that the lender will allow borrowers to direct towards financing to cover mortgage principal and interest payment and property taxes. Financial institutions also include heating costs.
For example, if your gross household income is $80,000 and the GDSR is 32 percent, then the amount available to you to make mortgage and tax payments should not exceed:
$80,000 x 32% = $25,600 or, a monthly amount of $25,600/12 = $2,133.33 per month.
Assuming an interest rate of 5.50 percent on a five year term and 25 year amortization, a payment of $2,133.33 per month will finance a mortgage of $310,000, if taxes and heating costs are $233.33 per month.
You will also need to provide:
- A copy of the signed and accepted Agreement of Purchase and Sale
- A copy of a real estate listing and a picture of the home
- Evidence of the source of the down payment (GIC, Term Deposits, Canada Savings Bonds, bank book, OHOSP, RRSP or gift confirmation)
- Proof of income