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How to get a Mortgage in Canada? Do I qualify for a mortgage loan? What is the Mortgage approval process in Canada?

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Having rented for many years in an apartment, we have finally decided to buy our own house. Little did we realize that getting a mortgage approved in Canada is complicated and not easy. It sounds easy to hear when someone purchased a house, it seems like they got it without much effort. But i came to realize that all things must be organised properly for us to get a house of our own and with a little more luck. We haven't approached any banks yet for a mortgage because we want to save up enough money to pay for down payment. I know the banks will be able to explain more details for us, but i like to hear from experiences that other people go through, to see if there are an tips and suggestions that they can offer on the internet.
asked in Yarmouth by Nicole Burnard (130 points)

1 Answer

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Usually the banks have a tighter and stricter rules when it comes to applying for a mortgage loan. On top of that if you have a bad credit ratings (If you are not used to paying back your credit card balance on time or missing credit card balance payments), then you are going to have a bit of a problem with the banks. The other alternative is to approach a mortgage broker who would help you find another financial institution that will accept your financial condition and provide you with a mortgage loan for buying a house. Be aware though that a mortgage broker takes a fee which is usually 1% of the purchase price of your house. With a mortgage broker you could also get a higher mortgage loan than if you apply through the banks.

The banks uses some complex calculation to calculate the amount of mortgage loan you can get from them. The simple rule of thumb to calculate it on your own is to multiply your annual salary income by six times. For example, if your annual income is $60,000, then you will be eligible for approximately $60,000 x 6 = $360,000 mortgage loan amount. But this is provided that you already have about 20% of the purchase price of the house as down payment. If your purchase price of the house is $600,000, then you need down payment of $120,000 ready in cash in your bank account. The remaining $480,000 will be financed by the banks as mortgage loans. However, using the above rule wherein your annual income multiply by six times should come up to $480,000. Otherwise, the banks could reject your mortgage application.

Current car loans or unpaid credit card balances will affect your mortgage approval chances or at the least it will affect your mortgage interest rates, which could go higher up due to your bad credit ratings.

The banks also look at if it is a condominium or town houses you are buying which will usually have monthly maintenance fees. Property taxes is also another factor that the banks look at when making decisions about approving your mortgage loans. Then they look at your income and expense ratio taking into accounts the above factors and they come to conclusion whether you will qualify or not for the mortgage.

An illustration scenario would be like this:

(1) You approach the bank and get pre-approved before buying a house. This way you would know how much roughly is the purchase price of the house that you can possibly afford and what price range you should be looking at.

(2) You go out and find a house within the price range that the banks just pre-approved you for. At this point you can make a bid to purchase the houses.

(3) If you are successful in making an offer for a house and the seller had accepted your offer, you have about three days or a week to get a confirmation letter from the banks and give that letter to the seller's real estate agent. The banks will look at your house that you just made an offer to purchase and if you do qualify for that purchase price, then they will issue the confirmation letter to the seller's real estate agent.

(4) There is usually a closing date that the seller would want to close the deal but you can offer to extend or pre-pone the dates upon the approval by the seller.

(5) Based on the agreement you signed, you could ask to get a house inspection done on the property you are purchasing. Some seller doesn't want you to conduct a house inspection and if you accept the condition, then you cannot do a house inspection. House inspection are usually done by a qualified house inspection company. It is done to check for any potential huge cost problems that could arise after you purchase the house. If any major problem was found during the house inspection, then you could possibly renegotiate with the seller to bring down the house price.

(6) You need to look for a real estate lawyer who would help you change the ownership of the house to your name. What the real estate lawyer does is essentially uses the mortgage money from the bank to pay off the seller and then change the ownership property title to your name.

(7) On the day of the closing date, if you are married or have a common law partner, he / she will have to be there to sign with the lawyer as well. Your partner does not have to be there with you when you approached the bank for a mortgage loan but only with lawyer, your partner has to be there to consent on the mortgage loans and property title ownership change.

(8) After that, the lawyer will provide you with all the details on the agreements you signed and you will pay them their lawyer fees.
answered by Andrew Randall (193 points)

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