Getting a Home Mortgage

Four Steps in Getting a Mortgage

Making the decision to buy a home is one that will change your life forever. This is going to be among the largest investments you’ll ever make, and you’ll need to take your time in getting a mortgage. After all, you’ll spend years paying it back, so it’s critical you’re able to confidently work your way through the intimidation and confusion associated with obtaining one. The first step is to understand the process, so let’s break it down into four clear steps. 

Step 1: Financial Assessment and Mortgage Application

Good things come to those who are patient. While it may be tempting to run out and find the right house and fill out an application, take a step back with a financial analysis. Know how much money you will need to borrow while keeping in mind what your budget will allow. Critical factors like your total monthly income, savings, monthly expenses, credit score, and ability to cover your down payment should be considered. 

Once a thorough financial analysis has been completed, it’s time to fill out a mortgage application. This can be done on the phone, online, or face-to-face with a mortgage associate. Remember, the information you provide will need verified, so it can speed up the process by having things like proof of income, tax documents, bank statements, and employer contact information readily available. 

Step 2: Analyze Your Mortgage Options

There is no such thing as a one-size-fits-all mortgage. Every homeowner comes with their own unique set of needs and circumstances, so it’s important you’re aware of your options and pick the one that’s best aligned with your goals. There are four primary types of Canadian home financing loans you’ll encounter and need to understand. 

Fixed Rate Mortgage

A fixed rate mortgage offers the stability in knowing your interest rate and monthly payment won’t change during the specified term, which typically lasts between one and 10 years. 

Is a Fixed Rate Mortgage Right for You?

  • You plan to live in your home for five or more years. 
  • You like the idea of a rate that doesn’t change. 
  • You don’t anticipate negative changes in your monthly income or an increase in spending. 
  • The thought of a higher monthly payment seems too risky for you.

Adjustable Rate Mortgage

The Adjustable Rate Mortgage (ARM) is shorter than a fixed rate mortgage, typically lasting between 3-5 years. However, during that time, the interest can go up or down, meaning your monthly payment can do the same. 

Is an Adjustable Rate Mortgage Right for You?

  • You don’t plan on staying in the home longer than five years. 
  • Changes in your monthly payment is a possibility you can keep up with. 
  • Possible increases in your monthly payment is something you can afford. 
  • There is a possibility your income will increase. 

Combination Rate Mortgage

As the name implies, a Combination Rate Mortgage is a blend of fixed interest rates and adjustable interest rates.

Is a Combination Rate Mortgage Right for You?

  • You want some control over interest rate management.
  • The benefits of both long and short-term rates offers the most advantage in your situation. 
  • You find the stability of a fixed interest rate appealing, but you aren’t closed to the possibility of a monthly payment increase or decrease. 
  • You like the stability of a fixed interest payment.

Lines of Credit

Although less traditional, obtaining a line of credit can provide a way to finance your home while allowing you other opportunities. 

Is a Line of Credit Right for You?

  • You like the idea of only taking out the amount you need from what you’re granted. 
  • You only want to pay interest on what you use. 
  • You like the idea of the ability to invest in other things like home improvements, college, or debt consolidation. 

Step 3: The Approval Process

After you’ve selected the type of mortgage best suited for your needs, your mortgage associate will process the application along with any supporting documentation. Once approved, you’ll be called in to discuss final steps like additional documentation that must be provided within 10 days of approval. 

Step 4: Legal Representation

It’s a good idea to hire a lawyer to take a final look at your mortgage before you make that final step of signing the documents. This ensures you are aware of all the terms and conditions, and no fine print slips through the cracks. Just some of the details this secures include:

  • You’re agreeing to the interest rate discussed.
  • All names and addresses are spelled correctly. 
  • Any confusing language is cleared up for proper disclosure. 

When everything is in order, fees will be paid that will allow the official transfer of ownership, so make sure to bring a bank draft check to cover the down payment and closing costs as personal cheques are not accepted.

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