Whether you’re new to Canada or just buying your first home, we understand the mortgage process can feel overwhelming. But don’t worry! We’re here to help you learn more about the process so you can finally get started buying your new home!
Here’s what you need to know about applying for a mortgage in Edmonton:
For starters, you’ll need at least 5 per cent of the purchase price of a home to get a mortgage. If you can put down more than 20 per cent (although not very common), you can avoid the added expense of mortgage insurance, a type of insurance protecting the lender if you default on the loan. Some builders offer down payment plans to help you get into your home faster, so this is definitely something you’ll want to ask about if you need a little extra help.
Your mortgage will come with an interest rate based on your credit score. The better your score, the lower your rate. Some rates are fixed for the term of the mortgage, but others are adjustable: they stay the same for a few years, then change.
Finally, you need to recognize your mortgage payment will include money for property taxes and homeowners insurance in addition to the money that goes to pay down the loan. Initially, the bank will tell you a maximum monthly payment they’ll allow, and you have to choose a home where your total mortgage payment will fit within those guidelines. If you’re considering a new condo, you’ll also want to take condo fees into account.
Finding a Lender
When it’s time to apply for a mortgage, you have a few choices. You can approach a variety of different lenders, fill out the mortgage application, and compare the offers you receive. You can also work with a mortgage broker who will do this work for you. Keep in mind, a good builder will have preferred lenders who are familiar with the process and can help you.
Gathering Your Paperwork
Your mortgage application will require a little paperwork, and if you’re missing anything, that can slow down the process. Talk to your lender about the specifics of what they need, but generally speaking, you will need to show the bank identification, pay stubs from the past few pay cheques, the previous year’s tax return, and any other information that helps the lender understand your financial situation.
Initially, you should get pre-approved for your mortgage. The bank will take all of your financial information, then give you an approval letter. This will show how much money they will lend you in the form of a monthly payment and what your interest rate will be. The pre-approval will lock in mortgage rates for a certain period of time (usually between 30 and 90 days) depending on the lender.
You’ll use this pre-approval to shop for a home. If you’re buying a resale, the pre-approval shows the seller you’re serious about making an offer on their home. They may be more likely to approve your offer than someone without pre-approval. If you’re buying a new home, the pre-approval offer shows your maximum budget. You’ll have to work with the builder to make selections that don’t exceed this amount.
Remember there’s no rule stating you have to take the maximum amount the bank approves. It’s important to stick to a home that’s affordable for you. In some cases, the bank’s limit is not realistically affordable based on a family’s current budget. It doesn’t take things like vacations or school tuition into account.
Moving from Pre-Approval to Mortgage
Once you’ve set up a contract to purchase your home, the lender will start converting your pre-approval to an actual mortgage. Depending on the type of home you’re buying and the type of mortgage the builder uses, you’ll either convert the pre-approval to a mortgage just before you move into your home or before the builder breaks ground. Your builder or lender can help you understand when you’ll take on your mortgage.
Taking on a mortgage is a big step, but don’t let that stop you from moving into the home of your dreams. There are plenty of people willing to help you throughout the entire process – including your builder. Don’t be afraid to approach them with any questions you may have.
For further home buying help, check out our previous post on the best mortgage apps to help you buy your first home!