The Top 5 Tips Buying a Home in Canada
Tags: Tips, Home Buying, Business, Advice, Canada

As a Mortgage Underwriter, I frequently get asked by friends and family, “How do I get approved for a Mortgage”?

The simple answer would be to Google the process or ask a Representative at your Financial Institution to review it with you. But after being in the industry for a few years, I’ve come to realize that perhaps my insight as an Underwriter could be helpful for those who are looking to buy or currently in the buying process.

But first, what is a Mortgage Underwriter?

Simply put, Underwriter’s are the decision makers in determining whether to approve or decline your Mortgage application. We review your application and use supporting documents to evaluate if you are able to afford the home you wish to purchase.

These Top 5 Tips will help any home buyer on what they need to know before commencing the home buying process and setting themselves up for success in hopes for an approval.

Good Credit

Time and time again, I have emphasized to anyone who has asked me for advice on buying a home what’s one of the things they can do and I always say — Good credit.

Your credit score is one important aspect in determining your creditability in the loan application. In Canada, credit scores run from 300 to 900 and essentially the higher the number — the better the credit score. Ideally, you want your credit score to be at the minimum 660 range but it will depend on your financial institution, your credit profile (such as minimal debts) and the application as a whole.

A Good credit score gives me a snapshot of the client’s overall financial health and trustworthiness to be able to repay debts. Let’s say I review a client that has multiple late payments on their credit cards and loans, maxed out credit cards and all around poor management of credit — this indicates a poor level of financial trustworthiness based on the current review. The weaker the credit score, the weaker the purchasing power.

2. Stable Income

While there are various income sources and positions (Part-time or Self-employed) this section of my Tips is more so emphasizing the overall purpose of income in a mortgage application.

Your income stability showcases the Underwriter a level of job security and assurance that you are able to pay for this large loan.

For example, if you have a permanent full-time job that in itself proves guaranteed long-term income (should nothing change).

Your Financial Institution will be able to go more in depth depending on your income source but the purpose is that Underwriter’s will be looking to see if your income stability suits the mortgage request.

3. Down Payment

Buying a home requires a level of cash upfront known as the Down payment. The remaining difference is the mortgage itself.

In Canada, there are minimum down payment requirements depending on the price of the home:

Less than $500,000 : The minimum down payment is 5% of the purchase price.

: The minimum down payment is 5% of the purchase price. $500,000 to $900,000 : The first $500,000 requires 5% and 10% for the remaining amount above $500,000.

: The first $500,000 requires 5% and 10% for the remaining amount above $500,000. $1 million+: The minimum down payment is 20% of the purchase price.

If you are putting less than 20% for the down payment, you will require to purchase mortgage insurance. The 3 Canadian Mortgage Insurer’s in Canada are CMHC, Sagen (previously Genworth Canada), and Canada Guaranty. Further details can be reviewed on the Government of Canada’s website:

https://www.canada.ca/en/financial-consumer-agency/services/mortgages/down-payment.html

The down payment requires verification by the Underwriter. What this means is, the source of the amount you have saved needs to be confirmed. For example, if the down payment of a home is $50,000 — your Underwriter will require to see where this amount came from and where it currently is held. Did the amount come from savings? Was it gifted by a family member? And is the amount sitting in a bank account? Maybe an Investment account?

Although there may be even more questions from your Underwriter depending on your application, the purpose is to ensure the funds are legitimate and ultimately verified.

4. Know what you can and can’t afford

Most Financial Institutions will have an affordability calculator on their website where you are able to input your current income earnings and what you have saved up to determine what you approximately might be able to afford when applying for a mortgage. Doing a quick search to check out the calculator is a helpful tip in determining your affordability level.

It’s important to determine early what you are able to afford and what you can’t. Keep in mind that aside from the Down payment, there are Closing costs and potential moving costs as well. The point is to ensure you aren’t stretched out too thin.

5. The Property

The property is the security that is being used to secure the mortgage request. As an Underwriter, the collateral is viewed to ensure it is suitable to live in but also used as the security. We want to ensure the property is not falling apart, not too old, or other potential issues.

Your Financial Institution will go more in depth with you depending on which property you choose to purchase but the point is that the home you wish to purchase is the Financial Institution’s leverage should something unfortunate happen to the mortgage being loaned out (such as default of payments). So ultimately, the collateral will be reviewed to ensure its suitable for the buyer and for the Financial Institution as well.

The Bottom Line

The home buying process can be daunting and an overwhelming process for anyone. There are many items to keep in mind and in check throughout but if it works out and you are approved — it’s worth it. You are hopefully one step closer to purchasing your new home — Good luck!