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Understanding the basics of a mortgage

Understanding the basics of a mortgage

large house with a mortgage

You’ve been wanting to become a home owner for a while now and you’ve heard you need a mortgage to buy a home but, you’re not sure how it works or what is involved. To help you understand the process of applying for and securing the mortgage you need to buy your first home I’ve outlined a few commonly asked questions and the answers here for you. And, if the questions you have aren’t outlined here feel free to give me, Darren Robinson a call at 705-315-0516. I love helping first time home buyers, secure their first mortgage while helping them through the process step-by-step.

What is a mortgage and why do you need one to buy a home?

A mortgage is a loan that covers a large portion of the purchase price of a home or property where the property is used to secure the loan as collateral. It’s not often that a home owner can purchase a property outright so a lender allows the home buyer to borrow the money from them to make the purchase. Then, the home buyer pays back the money borrowed on a payment plan until it’s paid back in full to the lender.

What is the process of getting a mortgage?

In order to get a mortgage, you have to apply to a lender for the funding. It’s sort of like asking them for the loan, and then following through on the legalities of the agreement after the lender has agreed to lend you the money. The process of applying for a mortgage with an experienced mortgage broker can be pretty straightforward or a little more complex depending on how you make your money. In the simplest description through, you call your mortgage broker, your mortgage broker asks you for proof of income (meaning your paystubs or if you own a business they will need a few years of income tax returns amongst a few other things) which they will use to run the calculations to see how much money a lender may lend you. Your mortgage broker will also run a credit check on you to make sure you don’t have any bad debts, or too much debt, in general, to qualify for another loan as big as a mortgage would be. All of that information would then be submitted to the lender in a loan application (this part the broker takes care of for you). Once the lender has had a chance to review your application they will approve or deny the application for your mortgage loan.

What do you need to supply a mortgage broker to get pre-approved for a mortgage?

Specifically, you will need these things according to the website to apply for a mortgage in Ontario:

  • identification
  • proof of employment
  • proof you can pay for the down payment and closing costs
  • information about your other assets, such as a car, cottage or boat
  • information about your debts or financial obligations

For proof of employment, your lender or mortgage broker may ask you to provide:

  • proof of current salary or hourly pay rate (for example, a current pay stub and a letter from your employer)
  • your position and length of time with the organization
  • Notices of Assessment from the Canada Revenue Agency for the past two years, if you’re self-employed

For proof you can pay the down payment, your lender or mortgage broker may ask you to provide recent financial statements from bank accounts or investments.

Your debts or financial obligations may include:

  • credit card balances and limits, including those on store credit cards
  • child or spousal support amounts
  • car loans or leases
  • lines of credit
  • student loans
  • other loans

Can you get a mortgage if you don’t have a down payment?

No, you cannot get a mortgage without having a down payment of at least 5% of the overall purchase price of the home you would like to buy and the money to cover the closing costs. And, if you only have 5% down you’ll need to also qualify for CMHC insurance.

Can you get a mortgage if you have a bad credit rating?

If you don’t have the best credit rating when you apply for a mortgage you may want to wait until you’ve paid off a good portion of your debts to increase your credit rating ahead of applying for a mortgage. If you do secure a mortgage with a poor credit rating you will pay considerable interest rates as your mortgage would pose more risk the to the lender in terms of the mortgage payments possibly not being made at some point based on past payment history. It is possible, however, depending on how poor your credit rating is, to obtain a mortgage from a private lender if a conventional mortgage lender denies your application.

Once I submit my paperwork what happens next?

Once you submit your mortgage application and the supporting paperwork has been submitted to the lender, they will review everything together to decide whether to lend you the money or not. If the lender approves your application, they will send along a mortgage agreement outlining the terms of your loan agreement, the interest rate they can offer you, and the specifics of the mortgage loan. At that point, if you review the terms of their loan, and agree to them; you would sign off on the agreement as a legal document. Once you have an accepted offer on the home you would like to purchase the lender sends along the money from the loan to the current home owner through their lawyer as part of the home purchase transaction.

If your mortgage application is declined, they will simply send a notice saying they aren’t able to offer you a mortgage loan in the amount you have requested.

If I am approved for the mortgage I have applied for is that all I need to do?

If you are approved for the mortgage you have applied for, you can purchase a home for the amount of your mortgage loan and your mortgage broker will take care of the paperwork from there. Your broker works on your behalf with yourself, your realtor, and your real estate lawyer to finish up the deal making sure that all the i’s are dotted and the t’s are crossed.

Having worked with many first time home buyers throughout my career as a mortgage broker, I know the process of securing your first mortgage and buying your first home can be overwhelming. I also know that you’ll likely have a few more questions along the way and I truly encourage you to ask them as they come up. The more questions you ask, the more you will learn, and learning the ins and outs of buying real estate can be a solid investment in growing your wealth throughout your lifetime as a home owner. When you’re ready to dive into your mortgage application give me a call at 705-315-0516 and let’s get started!

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