Buying a new home or valuable property is like everyone’s dream. The feeling of owning a house is equal to every class of people. But purchasing a house is also very expensive. So, if you do not have lots of money lying around near you or have a big bank balance, you need to take mortgage loans to fulfil your life-long dream.
Mortgaging, the whole process can be pretty tiresome. So, here we are with our overview of mortgaging and its process to help you through it.
Types of mortgage
There are around six types of mortgage options, according to the mortgage law of Canada. Such as low ratio mortgage, high ratio mortgage, fixed and variable ratio mortgage, open and closed mortgage.
Comparison of different kinds of mortgages
a. Low & High ratio mortgage
This type of mortgage requires a down payment of 20% or more than the real value of the property. For this, you don’t need insurance to cover.
When the contribution of the borrower doesn’t cross 20% of the total value, in this case, you must need insurance coverage from Canada Mortgage and Housing Corporation.
A low ratio mortgage loan is given by any private bank or online moneylender, whereas the federal government gives the other.
b. Fixed & variable ratio mortgage
The company has determined and fixed interest in the property and the contact. Fixed-rate interests generally are safe to approach because you know what you will be paying for the rest of the time.
On the contrary, variable interests could be less in the first few years, and over time, it will increase which may be unaffordable for your budget.
c. Open & Closed mortgage
This is the most fluid way to remove your burden of interest. The borrower can repay the interest at any time without any penalty. As it is the long-term case for the whole process, generally small amounts are paid and big amounts with exceptions.
In this case, the contract is very strict about the amount, down payment, negotiation, etc.
How to handle the preparation process successfully in just seven steps
1. Check your budget and credit report
Before you go into the tiresome journey of the mortgage process, just as a precaution, take a step back and review your credit reputations and personal details. If you don’t check it beforehand, in between the process, your loan can be stuck unless you fix the problem. If you have a clean credit report, you can also get good deals in the interest ratio and from the reputed institutions.
So, download your annual credit report or collect it from the office; whatever is easier for you and then review it.
Firstly, check the personal details such as your name, address, and other information. Secondly, check if there is any illegal account or organization has been opened without your consent.
Report it to the authority, and they are bound to give you an answer within 30 days. Finally, check your previous reputation regarding bank loans and if it is negative, work on it so that it does not happen this time.
2. Work on the credit score
In your credit report, there is no credit score. So, unless you have a clean record, you need to work on your credit score. It is easy to get your credit score.
According to mortgage rate law Canada, in different private banks, the lender considers the score 600 to 640, but the national banks will issue you a loan even in a lesser score. Average of it in different states is only 500.
35% of your credit score depends on the debt you have paid on time. The other 30% of the score depends on how many debts you are currently on. So, try to keep your debt list as short as you can. And for a better result, do not take loans for a few months before the process.
3. Calculate your affordability
Choose a house according to your affordability. You cannot buy a lavish house and bear the loan for the rest of your life. In this way, you would not even get a lender to help you out.
4. Choose the type of loan you want
We discussed the different types of loans and their advantages and disadvantages. The choice is yours, which is easier, more comfortable and a better option for you.
For example, a 100000 dollars money with 5% interest for 10 years and the other option 20 years. If you choose 10 years of pay time, then you have to pay a higher rate monthly but the time will be shorter where 20 years of the timeline will be longer, but the monthly rate will be lower.
5. Complete paperwork
Work on covering and arranging all the paperwork needed for the process. Talk to your advisor and work as they suggest. First, you need to collect your income verification certificate to prove to the lender that you can pay your debts with interest and income taxes.
If your income is from alimony or child support, you need to submit your court order with other documents. You need to submit the proof of assets that if you lose your present income source, you have a backup.
You must list up your liabilities, debts, etc. there is other additional paperwork such as rent, monthly debits, etc. so that the lender can have a clear idea of the financial situation of you.
6. Negotiate for the best mortgage rate
Do not jump into the first offer of interest rate from the first lender. Check the reviews both online and offline, get help from family and friends who have been to the process, and then use your intuition to choose the best interest ratio for your house loan.
7. Consider preapproval
The whole mortgaging process is too stressful, so you should make your work easier by taking precautions. Getting preapproval is like doing work beforehand. It doesn’t mean that your work is done.
Instead, it means the process will be less tiresome by arranging all these beforehand. The credit report, credit score, income verification certificate, back up or proof of assets, liabilities, and rents, and other special documentation should be prearranged, and it will help you getting preapproval.
The lender also notices your preparation while negotiating the deal. So, preparedness will make your first impression way better.
The bottom line is preparedness is the key to make this tiresome and stressful work less difficult. When it comes to the ultimate dream, everyone will dive right into it no matter how difficult it is. But if you work with a prepared knowledge from your advisors and papers, your journey towards your dream house will be smooth. Hope, this article will help you fulfilling your dream.