Shopping for a mortgage can be an overwhelming experience.  Especially if you're a first time home buyer and you have little to no knowledge about the mortgage loan process.  If you've started shopping online, then you've probably already found hundreds of mortgage sites quoting low ball rates for every length of loan term under the sun.  One would think that if you just spend a few hours online you'll find the lowest rate available and receive the best deal.  This is rarely the case.  Don't play the interest game without all of the accompanying information!

Not All Low Rates Are Considered Equal

The cost of a mortgage loan is much more than just the interest rate.  Many lenders will set the interest rate as low as possible and then hike up the fees attached to the loan once you've applied.   To ensure the best deal, compare all of the fees involved with the mortgage loan along with the interest rate.  Examples of fees are: administrative, flood certification, inspection, survey, underwriting, document preparation, tax service, courier service, processing and lender fees.  If you compare companies using this approach, you'll find that a lot of the low rate lenders are not the best deal in town.

What?! I don't qualify for that rate?

The most important thing to learn about mortgages is that rates are based on your individual needs and financial situation.  The rates quoted over the phone and/or online are not always accurate representations of what you'll qualify to receive.  Most rates quoted are applicable only for individuals with perfect credit, a low debt to income ratio and either a large down payment or a lot of equity in their house. 

Here are several qualifying factors that are important to be aware of before shopping for a loan:

1. Credit

Your credit history is important to lenders when evaluating your loan.  An individual with many late payments will not be deemed as trustworthy for payment terms as someone with perfect credit.  Find out what has been documented on your credit report and correct any mistakes as soon as possible.

2. Debt to Income

Lenders use your debt to income ratio to verify that you have the means to pay a monthly mortgage.  To learn how to calculate the two main ratios used in the approval process, check out a previous article on the subject by us here.

3. Down Payment

There are several loans available with little to no down payment required, however, most of these loans come with a higher interest rate.  Evaluate your finances and estimate the maximum amount of money you can afford to put down on your new home.  Once you have made this estimate, find out how much house you can afford by using one of the many mortgage calculators you can find online.

4. Equity

If you are looking to refinance, receive a home equity line of credit, consolidate debts or make home improvements, then you need to know how much equity you have in your house before you apply.  Most of the time, the more equity you have, the more money you can borrow.  To estimate this calculation, the formulas below can help:

Equity Ratio = 100% - (Loan amount ÷ Value of the home)
Equity Dollar Amount = (Current value of the home) - (Loan balance)

Mortgage Brokers Niagara places your loan with Canada's top lenders based on your specific needs and financial situtation.  Our lenders have competitive rates and can handle less than perfect credit and low down payments!  Apply today!

The mortgage approval process is not quick and easy.  You will be required to submit detailed information about your personal financial history and these records will be scrutinized by lenders.  Oftentimes, people have trouble locating the necessary documentation in the first place and that delays the overall process.  If you're looking to purchase a home, it's a good idea to start gathering the necessary personal financial documentation as soon as possible.  Then, when you meet with your mortgage broker or bank representative, you have the information ready to go.

In order to assist with your documentation gathering, here is a general list of what you'll need:

• Most recent two years' Notice of Assessments (NOAs)
• Consecutive pay stubs covering the most recent full month
• Name, address and phone numbers of all employers during the past 24 months, with time periods identified accordingly
• Three months most recent monthly statements for all depository accounts including chequings, savings and short term investments
• Most recent quarterly statements for brokerage accounts and long term investments like RRSPs, pension plans, portfolios, etc
• Name, address and phone number of current/previous landlords for past 24 month period (if applicable)
• List of all current credit obligations (i.e. mortgages, credit cards, car loans, student loans, personal loans, home equity loans, lines of credit, etc) and list the full name, address, account number, monthly payment and outstanding balance for each debt
• Copy of current home owners insurance policy and name and phone number of your Insurance Agent (if applicable)

Special cases:

• Self-employed applicants - provide a copy of the last two year's financial statements and income tax returns
• Rental income - provide a copy of leases/rental agreements for all properties
• Construction loans - provide a copy of construction contracts, blueprints and detailed builder specifications
• Divorce - provide a copy of certificate of divorce and separation agreement, plus any settlement or other documentation showing your right (or obligation) to receive (or pay) alimony or child support
• Bankruptcy - provide all paperwork related to your bankruptcy filing, including discharge documentation
• Gifts - provide a signed letter from each donor furnishing funds for the transaction stating the funds are a gift with no repayment required and the gift amount
• Employment gaps - provide a signed letter explaining any employment gaps during the last 24 month period

While you may not need to provide all of the documentation outlined here, the more you have the better.  Worst case you won't need it, and best case you have it ready as soon as it's needed in the process.  We hope this information helps you!

Although the exact amount and types of closing costs will vary with every mortgage loan, there are a few guidelines you can use to estimate your closing costs.  We'll go through them in this article.

1. Lender Fees

Fees will vary from lender to lender.  Your mortgage broker's job is to help you choose the lender with the best combination of rate and fees, from their pool of available lenders.  These fees can range from $0 to $1000, depending on the lender and the applicant.  Examples of these fees are underwriting fees and processing fees.

2. Third Party Fees

These are fees paid to various third party services, independent of your mortgage broker and lender.  Often times these fees are negotiable and your mortgage broker may be able to assist with getting you the best price.  Examples of these fees are appraisals, credit reports and inspections.

3. Title and Attorney Fees

Title searches are mandatory and the fees vary from province to province.  The exact title related fee will be determined by the closing attorney you use.  Attorney fees make up the remaining bulk of your closing costs.  Hiring an attorney is required to close your mortgage loan and if you don't have one, your mortgage broker can recommend one.  Along with performing the title search, an attorney will provide you independent legal advice on the terms of your mortgage deal.  Most have predetermined prices for closing on a mortgage, and their fees also cover the transferring of funds between all parties involved in the deal.

4. Government Fees

Last, but not least, are fees set by government authorities in your particular province and municipality.  Examples could be registration fees, land transfer taxes, city taxes, and other taxes applicable in your local area.

Overall, it's a good idea to set aside approximately $5,000 to cover closing costs when you are buying a home.

There are many factors involved when an underwriter reviews your application for a mortgage loan.  This article will shine some light on how you can calculate two qualifying ratios on your own before you even start the mortgage application process.

First, let's look at the key pieces of data you'll need to calculate these ratios:

• Monthly housing expenses
• Monthly personal debt obligations
• Monthly income

Monthly Housing Expenses

Your monthly housing expenses primarily consist of the monthly principal and interest payments identified in your mortgage agreement.  In addition, housing expenses include property taxes and home insurance.  For some people, condo/management fees would also be applicable.  The sum of all these figures is your monthly housing expenses.

Monthly Personal Debt Obligations

​Your monthly personal debt obligations include all of the payments you make to service your personal debt, from all credit sources.  Examples could be credit card payments, student loans, car payments and payments on lines of credit.  For revolving charge accounts where the balance stays the same every month, 5% of the balance is typically used to calculate the monthly payment.  The sum of all your monthly debt service payments is your total monthly personal debt obligation.

Monthly Income

Your income can be derived some several sources.  The most important thing to have is documentation from the income source, which is typically your last two years Notice of Assessments and recent pay stubs.  Here is a brief list of typical income sources:

• Salary - Income derived from any kind of salary, whether it's monthly, weekly or hourly.  Two year employment history is usually required.
• Commission and bonuses - In the case of non-regular commissions and bonuses, you can average the last two years of this type of income from your Notice of Assessments and recent pay stubs, then add it to your regular salary.
• Self-employment income - Generally for self-employment cases, the underwriter will average the income you've earned over the last two years from your Notice of Assessments.  In some cases, year to date profit and loss statements will be taken into consideration as well.
• Other income - This can be income derived from rental properties and interest from investments.  Certain restrictions apply regarding the amount of time the income has been recognized.  These types of income will most certainly require documentation from previous years Notice of Assessments.

Once you've identified all the different types of income that apply to you, based on the documentation you have for them, calculate your annual salary for each of the last two years and then determine your average annual salary.  Divide that average annual figure by 12 and you will arrive at your monthly income figure.

Qualifying Ratios

​Now that you've calculated your monthly housing expenses, personal debt obligations and income, you can use this data to determine two important qualifying ratios that underwriters use when considering your mortgage loan application.  These ratios are called GDS (Gross Debt Service) and TDS (Total Debt Service).

GDS is the sum of your monthly housing expenses and heating costs divided by your monthly income.  For cases where condo fees are applicable in the housing expenses figure, you only consider 50% of those fees in this calculation.  The resulting figure should be no higher than 0.32, or 32%.

TDS is the sum of your monthly housing expenses (still only 50% of condo fees, if applicable), heating costs and personal debt obligations divided by your monthly income.  The resulting figure should be no higher than 0.4, or 40%.

If your answers are higher than the guidelines written here, then in order to be approved for a mortgage, chances are you'll have to save more money for a down payment or pay off some existing debt.  However, every case is unique, and if you have a high credit score or some valuable assets, that may help you get approved.  If you calculate your ratios before meeting your broker or bank representative, you'll have a much better idea of your personal financial situation and how likely you are to be approved for a mortgage.  For those who aren't likely to be approved, these calculations will give you a better idea of the things you'll need to work on in order to own to a home!