My home is my castle – Englishmen say. But it is also a chance to organize your corner according to your desire. Save up on rent. Move in with your sweetheart or run away from your parents. Invest free funds into a second house or make repairs. But such a buy maybe is the most costly in life. So, most people can't do without a loan from a financial institution. Canadian banks and credit unions like BMO, CIBC, Scotiabank, First national, RBC, ATB Financial and others propose a lot of mortgage products to fit your credit requirements, for example, mortgage, credit line, land loan, renovation and building loan, bridging financing, low doc credit and others with variable or fixed interest rate in all parts of our country (Toronto, Ontario, Alberta, BC, Calgary). But, it is rather hard to prepare all the required documents to apply for a mortgage. A huge loan sum raises the importance of selecting the right credit because even a 0.1% rebate to the interest rate, will save up you ths of CAD. How to select a financial organization and the credit, which will suit you the most. Bankchart.ca describes you, how to take the right steps in this article to make a mortgage approval easy.
Step one. What is a home credit? What kinds of such credit are offered in Canada?
A home financing is a loan from a financial institution granted to a person to help him to purchase an apartment at or a home, which will operate as a pledge. In Canada, mortgage credits are offered to thirty years. Generally, Canadian banks and credit unions offer financing to 90-95% of the mortgage value and propose monthly, fortnightly or weekly frequency of repayment. The maximal size of a house financing can be from thousands of CAD to a few millions. The interest rate can be variable or fixed and can range from 2,5 to 9% annually.
Depending on the loan peculiarities, the mortgage financing in Canada can be:
Package offer – is a complex product from a bank or a credit union, which also includes a day-to-day account or a card. A customer generally pays for this maintenance but gets additional perks, as rebates on the percentage rate during a promotional period, a free credit card, decreased insurance fees, free consulting servicing, and other privileges
Home equity loan (line of credit) – is a loan in the form of a term loan or a credit line for any goal secured by your immovable
Home investment loans – are provided for purchasing second and following homes in order to rent them out. They are regarded riskier compared to the first buy of property for housing, so a greater percentage rate can be established for them
House loans with a variable or fixed interest rate – the last generally usually are smaller but operate only for a few years while variable rates products usually have more advantageous conditions of early exit fee
Refinance credits – is a real estate loan to pay off a mortgage liabilities with another credit institution
Loans for foreigners – Canadian banks and credit unions can propose mortgage loans for expats
Land credits - land buy financing for house construction
Renovation and constructions loans – if you offer a real estate as a pledge, the banking conditions on this credits can be rather advantageous
Energy saver loans – is a mortgage loan provided to assist you to make your house more energy-efficient
In Canada mortgage loans can be provided by:
- credit unions
- mortgage and insurance firms
- credit firms
- caisses populaires
- trust companies
Different borrowers can have different percentage rates and conditions for mortgage financing. That's way, consider all price and non-price parameters carefully to choose the cheapest offer.
Step two. How to compare home loans in Canada?
It is rather challenging to appraise all price and non-price parameters when selecting mortgage loans because there are a lot of parameters to compare and you may don’t know how to compare some of them, and also additional expenses must be considered.
- Percentages rates: in Canada range from 2,5% to 9% annually by our research depending on your credit history, the financial organization, the loan period, the LTV, the kind of redemptions (only percentage, principal and interest), the type of buy (house for living or for investment), the presence of promotional offers, the kind of the interest rate (variable, fixed) and other parameters. Canadian financial organizations can offer rebates for the rate during limited promotional terms. An even more important indicator is the APR, which takes into account not only interest, but also commission expenses.
- Canadian banks commissions:
- Periodic/administrative commission – can be set on a monthly, quarterly or annual basis
- One-time fees – Canadian financial organizations charge from 0 to 1 000 CAD by our research. The fee may consist of 2 and more tariffs, for example, the settlement, valuation fee, and others. The tariff can be established as a fixed sum in CAD and as a percent of the loan amount.
- Missed payment commission – you get it when you violate the credit repayment schedule and overlook a periodic transfer
- Early-exit tariff – is set when a customer repays the credit beforehand. The fee can be missed for variable rate mortgage loans or after some term, like the first 5 years
- Redraw tariff – is charged when you use the credit limit again
- Refinance fee – commissions from the new bank, which provide you the financing to repay the mortgage liabilities in the current financial organization
- ADDITIONAL EXPENDITURES:
You should be ready to bear extra credit expenditures, for example:
- Insurance commission – Canadian financial organizations usually demand you to pay for the insurance of the purchased real estate. But some of them don't require such cost if you deposit a larger initial advance, for example, 20% of its value and more. Also sometimes tittle insurance can be required, what will cost you from150 to 350 CAD
- House and pest inspections expenses – can reach 1 000 CAD, but keep you safe from unforeseen problems in the future
- Brokerage services - are not cheap, but can be useful, particularly if you are a newbie in the property market (for example, to Truenorth mortgage, Monster mortgage, MCAP and others)
- Costs of moving - are different and can involve utility connection, conveyance, cleanup, and other expenses
- Government taxes – increase the cost of the house purchase deal
From non-price parameters of home credit, first of all, a customer should take into account:
- Maximal amount – varies from 150 ths to mln of CAD
- Maximum term – ranges from 1 to 30 years
- The loan conditions term – shows how much the loan conditions offered by the bank will operate, including the interest rate. Can be from several months to 5 years. After this period, all conditions, including the interest rate, will be revised.
- Interest rate type - the established rate can be fixed or variable. The first rate is stable for the whole loan period, and flexible loans often have more advantageous conditions of an early exit. Fixed rate loans also suit you if the market is on the bottom and it is expected that the rates will only increase in the future. To protect yourself from an excessive increase of variable interest rates you can use an interest rate cap – the maximal rate a financial organization can charge and also a convertible option – a possibility to convert a variable loan to a fixed one
- Redemption periodicity – Canadian financial organizations may offer to customers a weekly, fortnightly or monthly frequency of the mortgage repayment
- Fixed and adjustable payments – according to fixed payment your periodic redemption sum will be stable during the whole loan term, while by the flexible one the monthly transfer will decrease as the loan is repaid
- Cash back option – allows you to get in cash some percent of the loan sum to pay for some expenditures, like expenses for moving
Other features – the client's income restrictions, the list of required documents, credit holidays availability, portable mortgage possibility and other conditions may be important features for you.
Step three. How to apply for a mortgage credit?
Before applying for a mortgage financing, you should decide whether you fit the established by financial organization requirements, like:
- be eighteen years old or older
- have a constant place of living in Canada and to live in the country for the last five years
- have a corresponding credit score
- obtain a 5-10% of the loan size as a down payment
- have a regular work or to be an entrepreneur
- gain enough incomes
- have no overdue debts on current loans, utility invoices, etc.
When applying for a home loan, you should also decide whether you will turn to mortgage brokers, or do all stuff by yourself. Such brokers do not provide the financing, but they help to select the lender and to organize the credit process. As mortgage agents have access to a variety of financial companies, so they can analyze your demands and offer the most suitable proposal for you from a larger variety to select. A list of credit products can differ from broker to broker, at that you usually do not have to pay a commission to a mortgage broker, since a financial institution will pay them to attract a client.
A mortgage broker will also help you to analyze your periodic revenues and expenses to choose the right loan parameters. After all this is done, you can pass through a pre-approval when the chosen financial organization analyzes your finances to estimate the maximum amount it can borrow you and under what interest rate. The proposed conditions will act for you for 2-4 months, but the maximum credit size also depends on the house value and the amount of the down payment.
For pre-approval you must provide to a financial organization the following documents or their (scan) copies:
- Identification documents and personal information:
- a passport, drivers license or a medical card
- social insurance number
- the employment history, your position and period with the company
- the data about the actual and early places of living
- the info about your assets, like a car, yacht, cottage, RRSPs and others
- Financial data:
- proof of savings, actual salary and other revenues
- the information about your liabilities and financial duties
- financial statements from your accounts
- tax returns
- credit card limits and balances
- The real estate documents:
- a copy of the property purchase agreement
- or the building documents, construction plans and specifications
- For entrepreneurs:
- the last two years notices of Assessment from the Canada Revenue Agency
The pre-approval process can take from a few minutes to several working days. If the credit decision is positive, and you are ready to provide all the documents and sign the credit contract, the financial organization transfers the credit funds to the house vendor, after that you can start your moving.
But the potential lender also can refuse you to provide the mortgage financing, for example, if you have a poor credit score. In such a case you to get the mortgage loan, you can decrease the credit amount, agree to a higher interest rate on loan, increase the down payment, or attract a guarantor or wait some time and build your credit rating.
Step four. How to raise your chances to get a real estate loan (for bad credit ratings)?
Unfortunately, there is no assurance that even gave the whole list of the demanded information and documents, Canadian credit unions and banks will grant you a mortgage credit. But, in this article we will advise you what actions to raise your chances to get an affirmative credit decision, like:
- Set up relationships with the future creditor, for example, you should open a current account at the bank or credit union, to which you are going to turn for the real estate, several months beforehand. Besides, to increase your chances of getting funding, you can transfer salaries or social income to this day-to-day account.
- Examine your credit rating. It will assist you to appreciate your chances to receive the mortgage financing before applying. Maybe some errors your credit file take place, so you can correct them ahead
- Deposit the maximal initial advance you can bear. This will raise the chances to receive the financing and to lessen overpayment on the mortgage credit. Also remember, that the lower is the credit period, the less will be your loan costs, but it will be harder to obtain the credit
- Consolidate and control your debts. Numerous liabilities decrease the chances to receive mortgage financing because future lenders may think providing loans to your rather risky. Consider their consolidation to one credit. Also, you should lessen credit card limits if you don't use them.
- Do not apply for a mortgage loan to several financial organizations at once. It can decrease your credit rating and the chances to obtain a real estate loan.
- To raise your credit rating you can start a savings account and to replenish it monthly, at least 100 CAD. A savings history will indicate the financial organization that you bear enough money to deposit the initial advance and you will be able to accumulate the necessary sum to transfer periodic credit payments on a regular basis
- Control your accounts statements regularly, because late credit payments and failure in raising limits on credit cards - are bad signs for the mortgage loan obtaining
- Always pay your bills on time or ahead of time, whether it is it is a utility bill or, for example, a car loan at a bank
- Prepare all the demanded information and documents for financial organizations. And do not think about providing false information, the bank can easily check it
- Financial organizations like stability. Therefore, if you are thinking about changing jobs or to start an entrepreneurship, you should postpone this decision
- Employ loan calculators to appraise the size of the future redemptions. If they are too large compared to your household net income, you should postpone the buy and save enough fins for the down payment or select the larger period of crediting
- Take into account extra expenses. A client must not only pay the percentage costs and banking fees but also extra repayments, for example, insurance tariff, the real estate inspections, mortgage taxes, and moving expenses. So appreciate the total additional expenses and add them to your budget
- Set automatic repayments from your current or savings accounts on your mortgage loan. In this way, your minimal monthly repayments will never be skipped
- If you do not understand the real estate market – apply to a broker. There are many parameters affecting the house value and your credit rating, and obtaining more favorable conditions by only 0.1% will allow you to save thousands of CAD
- If the financial organization rejects to grant financing - try to take a warrantor, for example, your couple
But, if our tips did not help you to get mortgage financing, and you got the failure, do not despair. Delay your buy and try to raise your credit rating and the chances to receive a real estate credit. For example, you can save up more funds for the down payment or get a higher-paid job. Probably, good luck will be on your side next time.
The real estate credit will assist you to make a dream buy. But be very attentive when selecting a bank or a credit union in Canada. Because a large credit sum raises the importance of selecting the right credit because even a 0.1% rebate to the interest rate, will save up you ths of CAD. Examine attentively all price and non-price features of a loan proposal, for example, interest rates, administrative commissions, one-time fees, missed payments commissions, redraw fee, and also the maximum term, credit sum, frequency of redemption, the rate type, and other features. Be ready to bear some extra expenses in the form of insurance tariff, estate taxes, brokerage, moving costs, house and pest inspections expenditures, and others.
Before making an application for a house credit, select a real estate to buy and resolve whether to apply by yourself or to take a credit broker. Estimate your monthly revenues, expenses and also net gains to appraise the mortgage credit options. Collect all the needed papers and make you best to raise your chances of the mortgage credit consideration to the maximum.