When getting ready to buy a house, many people get so excited about the search that all thoughts of financing go to the back burner. We understand, because let’s face it – looking at houses is fun; finances are not.
All the same, you’ll need a mortgage eventually, unless you’re lucky enough to have the cash upfront. Careful financial planning can save you a lot of time and headaches in the end.
Getting it out of the way before even looking at homes can prevent costly mistakes and help you obtain the best value. In this post, we’ll dive deeper into how to qualify for a mortgage in Ontario.
Do you want a seamless and straightforward home-buying process? One of our detailed buying guides will help!
Mortgage Tips and Terms
There are several terms related to mortgages that come into play throughout the various stages of a home purchase. Let’s take a look at what you might need and when.
Pre-Qualification
A mortgage pre-qualification is the most non-committal step you can take when looking into financing. Thanks to modern technology, you don’t even have to leave your house to get an estimate of how much money you can potentially borrow.
Most bank websites allow you to fill in a few fields and give you a tentative number almost instantly. This is a great first step if you’re just testing the waters or are at the very beginning of your search. There’s no credit check and no obligation to proceed any further.
However, there’s no commitment on the lender’s side, either. The figure you get is just a ballpark, and is by no means a guarantee of funding. If you’re serious about buying a house soon, you’ll want something a little more substantial. You might even decide to skip the pre-qualification altogether.
Should you focus your home search in Guelph or the Tri-Cities? The posts below will give you some food for thought:
- Is Guelph, Ontario, a Good Place to Live?
- 5 Reasons to Make Guelph Your Next Home
- Guelph Vs Toronto: Is It Time to Move?
Pre-Approval
A mortgage pre-approval is much more in-depth than a pre-qualification. You have filled out an application, and the lender will run a credit check.
Once complete, the lender will provide you with a letter stating that you qualify for a certain amount. At this point, you can be fairly confident that you will get approved, presuming there are no major changes between now and when you finalize your purchase.
A pre-approval isn’t technically required to buy a house. However, proving that you qualify for financing can make your offer more compelling to sellers. In a competitive market where you’re up against multiple bidders, it really becomes non-negotiable.
Why a Mortgage Pre-Approval Matters
One of the most important benefits of getting a mortgage pre-approval is it keeps your expectations in check. First-time buyers especially tend to underestimate the cost of buying a home, but it’s a trap we can all fall into.
Without establishing a ceiling on our budget, it’s easy to fall in love with something we cannot afford. At that point, it’s very hard to lower expectations. So save yourself the time and heartache and get pre-approved before looking at houses.
BONUS: A pre-approval doesn’t mean you’re under any obligation to buy a house or use that lender. However, it does lock in the best rate if you do decide to act. This is one of the easiest and most valuable steps to take on your journey to buying your next house.
How much mortgage can I afford?
A typical mortgage amortization period runs from 25 to 30 years, and it is likely the largest expense to cover each month. How much you can afford to repay depends on your income, debt, and other costs of living.
The old wisdom that your house expenses should not exceed 30% of your gross income is still good advice. Unfortunately, not everyone can make it work with the high prices in today’s market. To calculate how much you can afford, add up all of your expenses and deduct them from your monthly income. Be sure to factor in property taxes, insurance, utilities, and leave a cushion in your budget for emergencies.
How Hard Is It to Get a Mortgage?
If you have a high income, a sizeable nest egg, and very little debt, getting a mortgage is likely fairly straightforward. Generally speaking, A-lenders will look for a credit score of at least 680 before approving a loan.
What if you’re not so lucky? Some people have bruised or even poor credit, often through no fault of their own. In this case, financing the purchase of a house can become more difficult, but not necessarily impossible. Regardless of your situation, a qualified mortgage broker can review all options available to you.
I’m Pre-Approved. Now What?
There’s a bit of a misconception about mortgage pre-approvals where the borrower often thinks they no longer have to worry about financing. While the hard part may be over, you still need to be wise with your funds, and especially with your credit.
Anything can happen before the transaction is finalized, and you don’t want to give the lender a reason to change your approval status. As much as possible, avoid changing jobs, cosigning someone else’s loan, or buying big-ticket items on credit.
It’s always good to keep a watchful eye on your finances, but it’s especially critical during this time. Even little things like making sure you pay all credit card bills and even parking tickets on time work to keep your financial history pristine.
If you must make a change, be sure to talk with your real estate agent and mortgage professional to ensure your transaction will not be impacted.
Looking for more advice to make your home purchase a success? Start by reading the posts below:
- How Much Does It Cost to Buy a House
- Checklist for Buying a Home
- 10 Things To Consider When Buying a Home
Approval: The Finish Line
An approval is the final goal in the mortgage process. Once you have an accepted offer, the lender will likely order an appraisal of the house. The reason for this is that they won’t finance you for more than the home is worth. To protect their investment, the bank will approve your loan based on whichever is lower between the purchase price and the appraised amount.
For example, if you are buying a $500,000 condo, your down payment is $25,000, which means you’ll be looking for a loan of $475,000. If you get emotional and offer the seller $550,000, the bank is still only going to lend you $475,000. That means you now need to pay $75,000 in cash to be able to close your transaction. ($25,000 for the original down payment plus $50,000 over the appraisal amount.)
It’s critically important for all buyers to understand how appraisals work and how they can affect your financing, especially during busy markets when the competition gets heated. Working with an experienced real estate agent is the best way to stay grounded. We will work within your budget while still finding a home you love.
Our Trusted Mortgage Professionals
When house shopping in Guelph & the surrounding areas, here are some mortgage agents we recommend:
Austin Weldon From Synergy Mortgage Group
Phone: 905-512-5331 E-mail: Austin@synergymortgagegroup.com
Kyle Allen From Synergy Mortgage Group
Phone: 289-208-7975 E-mail: kyle@synergymortgagegroup.com
Paul Gazzola From Guelph Mortgage Architects
Phone: 519-763-6436 E-mail: paul.gazzola@mtgarc.ca
Dario Di Renzo From Mortgage Guys
Phone: 519-341-6900 E-mail: info@mortgageguys.com
Do you want personalized guidance throughout every step of your home purchase? Our top Guelph real estate agents are here for you from start to finish. Reach out today at info@gowylde.ca or call 519-826-7109 for more information.
