What To Know Before You Look For Your Dream Home

1. Get familiar with your credit report 

Reviewing your credit report is an excellent place to start if you’re thinking about applying for a mortgage. There are a few places that you can pull your credit report to review it (e.g., Equifax or TransUnion). The things you’ll want to look for are:

What is your credit score?

Credit score ranges: 

800 - 850 = Excellent 

740 - 799 = Very Good 

670 - 739 = Good 

580 - 669 = Fair 

300 - 579 = Poor 

Typically the minimum credit score someone needs to be approved for a mortgage is 680 but this differs from lender to lender and situation to situation. However, it is a good idea to aim for a score above 680. 

Do you see any accounts you’re unfamiliar with?

If yes, you should call the company that states you have an account with them to try to clear up the situation and get it removed from your credit report. 

Do you have outstanding payments on any of your debts? 

If yes, you should try to settle these debts prior to applying for your mortgage. Having no outstanding payments can boost your credit score, and makes you look more reliable in the lenders eyes.

TIP: If you have larger loans (e.g., car loan) it might be a good idea to reduce that debt with a lump sum payment. 

2. Speak with a mortgage agent / get pre-approved 

It’s extremely important to set your expectations for what you’re going to be able to afford during the home buying process. The reason being is that you don’t want to start looking at homes and get your hopes up on a dream home that may be out of reach for you and your current situation. The best way to set your expectations before looking at homes is to speak to a mortgage agent and get a pre-approval. This will tell you and your real estate agent exactly how much you can afford when it comes to your home search. A mortgage agent will also be able to help you figure out your goals regarding your home budget, for example are you willing to compromise your current lifestyle to increase your down payment, or is it important for you to maintain your lifestyle? Do you need help budgeting, and if so, what does that look like? In my professional opinion getting a pre-approval is an crucial beginning step of a home buying journey as it can save time and headaches in the long run, while setting realistic expectations. 

Why a mortgage agent is a great place to start: 

- Get independent advice on your financial options 

- Save time with one-stop shopping 

- We negotiate on your behalf 

- More choice means more competitive rates 

- Ensure that you're getting the best rates and terms 

- Get access to special deals 

- Things move quickly! 

- Get expert advice

- No cost to you

- Ongoing support and consultation

I go through this topic in much more detail in my blog benefits of using a mortgage agent.

3. Determine where your down payment will come from

There are a few options when it comes to the source of your down payment. First, you need to remember that lenders are going to want to see a 90 day history (AKA paper trail) of your down payment source, this is enforced by Canada’s Anti-Money Laundering policy. This can be a quick task if your down payment has been in your account for at least 90 days or it can be a more complicated task if you have a lot of larger transactions going into your account which will all need to be explained. Here are a few sources of where your down payment can come from: 

- Personal Savings 

- Gifted (this requires a confirmation letter from the person who gifts the funds) 

- Loan from a financial institution (e.g., line of credit or personal loan) 

- RRSP Withdrawal / Home Buyers Plan 

- First Home Savings Account 

- Home Sale Proceeds 

Note: “mattress money” is not an acceptable form of down payment. 

4. Know the terminology

Amortization: The number of years it takes to repay the entire amount of the financing based on a set of fixed payments.

Closed Mortgage: A mortgage that cannot be prepaid or renegotiated for a set period of time without penalties.

Fixed Rate: A mortgage which the interest is set for the term of the mortgage.

Insured: When the borrower puts less than 20% down payment on their home and they are required to pay default mortgage insurance to protect the lender. 

Open Mortgage: A mortgage that can be repaid at any time during the term without any penalty. A good option if you are planning to sell your property or pay-off the mortgage entirely.

Pre-Approval: This is a definitive answer of how much someone can borrow, their interest rates as well as terms and conditions of the loan. This step requires a full mortgage application to be taken including submitting documents and pulling a credit report. A pre-approval can speed up the home buying process. 

Pre-Qualification: This is an estimate of how much someone can borrow based on financial information provided to the lender. This step does not include a credit report and does not hold as much weight as a pre-approval. 

Term: The period of time the financing agreement covers. The terms available are: 6 month, 1,2,3,4,5,6,7,10 year terms, and the interest rates will be fixed for whatever term once chooses.

Uninsured: A mortgage with a purchase price over $1,000,000 cannot be insured against default, and therefore is uninsured. 

Variable Rate: A mortgage for which the interest rate fluctuates based on changes in prime (i.e., the lowest rate a financial institution charges). 

5. Know what lenders are going to be looking for

As a borrower it’s crucial to know what lenders are going to be basing their approval on. Below is a list of criteria the lenders will go through when considering your application for a mortgage. 

Income: Do you make enough to afford the ongoing mortgage payments? 

Assets: What assets do you have to your name? 

Debts and Credit History: Do you have a lot of debts? Have you been making your existing debt payments? Why do these debts exists? 

Down Payment: Where is the down payment coming from? Is there a 90 day paper trail to prove these funds have been obtained legitimately?

The Property: Is the home worth the lenders investment if the worst case scenario of the borrower defaulting occurs? 

Bonus: I've gone into detail about the Canadian Mortgage Stress Test in another blog, which is also very beneficial to be aware of. 

6. What documents are required during the application process 

- 2 pieces of ID 

- 3 pieces of employment history 

- 3 years of address history 

- Income and Employment Documents. Including pension, investments, child tax benefit, support payments, etc. 

- Down payment source 

- List of assets 

- List of outstanding debts 

• Current mortgage statement 

• Lines of credit

• Bankruptcy or consumer proposals 

• Separation or divorce agreements

7. Closing costs need to be considered

Click here to watch my TikTok about what closing costs are expected.

8. Employment changes

As I stated above, lenders are going to take your employment and income into consideration when looking at your mortgage application. That’s why it’s important to keep your employment stable and consistent throughout your mortgage journey. If you do end up switching jobs and this leads to a higher salary, that’s great! However, things get sticky if you’re changing from a salary to commission based or hourly income without guaranteed hours. Major shifts in your employment may impact your ability to qualify for your mortgage. 

9. Hold off on opening new accounts

Due to each loan having specific terms and conditions, it is important to not open any new accounts while going through the mortgage process as increasing your monthly payments or debts could impact your chances of getting your mortgage approved. 

In conclusion, if you're thinking about purchasing a home and require a mortgage these are some easy steps to take before going out there and searching for your dream home. I am always happy to go through each topic in more detail, and assist throughout the entire mortgage process. 

You can book a meeting with me here.