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credit, and the down payment. If you are self-employed or earn commissioned income, your gross earnings will be treated differently if you are requiring high-ratio financing (buying with less than 25 percent down). If you are self-employed, CMHC restricts lending institutions to using a three-year history, and they are allowed to consider only your net income, not your gross income. This amount is found on your tax notice of assessment. If you earn a commission at your work, 80 percent of the commissioned income is considered, as well as an average of last year’s income.

      Changing jobs

      If you have changed jobs, the lender will want to see that you have been in your current field for at least one year and that the job position is permanent. If, for example, you have been a desk clerk for the past ten years and you have simply changed companies, but not changed careers from a desk clerk to a shoe salesman, then the bank will want a letter from your employer stating that the position is permanent.

      History of bankruptcy

      If you have declared bankruptcy in the past, you must wait two to three years from your discharge date before applying for a loan and have at least one year of re-established satisfactory credit. After suffering a financial crisis, the best thing to do is to apply for a secured credit card.

      Credit report

      To obtain a copy of your credit report, contact the automated service of Equifax Canada at 1-800-465-7166 or log on to www.equifax.ca. A service fee may be required, and your credit report will be mailed to you.

      Acquiring a co-signer or guarantor

      Buyers who do not have stellar credit rating may be able to getrelatives such as parents or grandparents to be guarantors or co-signers on the loan — they are legally guaranteeing the full loan payments. If the applicant were to miss a payment, the co-signer or guarantor would be responsible for it.

      Minimum age to purchase a home

      In order to enter into a legally binding contract, you must meet the age of majority. In Alberta, Saskatchewan, Manitoba, Ontario, Quebec, and Prince Edward Island, the age of majority is 18. In British Columbia, New Brunswick, Nova Scotia, Newfoundland, Nunavut, Northwest Territories, and Yukon, it is 19.

      Calculating affordable mortgage payments

      The easiest way to determine how much money you will be able to borrow as a mortgage loan is to consult with one or two lending institutions. These lenders will apply standard tests, based on your family’s current income and debts, in order to determine the amount of money they will lend to you. They will ask for information about your finances and make a thorough credit check, in order to be sure you are able to repay a loan.

      If you would like to find out how interest rates have been changing in the past ten years, log on to www.bankofcanada.ca/en/rates.htm

      Lenders look at your income and your other financial obligations when they assess how much you can afford to pay in mortgage payments. Allow no more than 32 percent of your gross monthly income (before deductions) to make your monthly housing payments. This test of your ability to repay a mortgage loan is generally referred to as the gross debt service ratio.

      The Canada Mortgage and Housing Corporation (CMHC) Web site has complete forms to determine your maximum housing payment, based on your financial obligations: www.cmhc-schl.gc.ca. Some lending institutions and realtors also provide these forms on their Web sites.

      Correlation between interest rates and borrowing capacity

      As interest rates increase, a person’s qualifying mortgage amount decreases because higher interest rates mean higher monthly payments. Therefore, the lower the interest rate, the more money you can qualify for. The higher the interest rate, the less money you can qualify for.

      Lenders might not look at your income and other financial obligations

      There are lending institutions across Canada that do not require a confirmation of income if you provide 30 percent to 35 percent of the down payment, because of the equity in the property.

      Where Do I Get a Mortgage?

      Many institutions and individuals lend money for mortgages. These institutions include insurance companies, banks, trust companies, credit unions, finance companies, and pension funds. Mortgage brokers don’t usually lend money, but they can find a lender for you. There are more than 2 500 of them in Canada, primarily in British Columbia, Alberta, Ontario, and Quebec.

      New house and new condominium builders may also offer lower-than-current market rates by “buying down” the interest rate charged by the lenders so that they can sell their homes faster. A buy-down is usually for a short term and is usually not renewable at the end of the term.

      The Difference between a Bank’s Mortgage Specialist and an Independent Mortgage Broker

      Shopping in several places for the best mortgage loan can be a waste of time. A good place to start when buying a home is to consult a mortgage broker, who can shop a variety of institutions on your behalf. Mortgage brokers are independent and not affiliated with any specific lending institutions. Their role is to find a lender with the terms and rates that will best suit you.

      Sometimes a mortgage broker will charge you a fee for its services. This charge is more likely if you have a poor credit history and will probably be a small percentage of the value of the mortgage, for example, 1 percent to 2 percent. But in most instances, the broker’s fees are paid for by the lender.

      Mortgage brokers can guarantee an interest rate for a client during the time you are shopping for a home. This guarantee protects you if interest rates rise because as they rise, the amount of mortgage financing a borrower qualifies for declines. This reduction may either cause you to lose your dream home or result in a larger down payment being required from you. The length of time a mortgage broker will guarantee an interest rate varies from lender to lender. Usually the period is from 60 to 120 days.

      A mortgage broker can pre-qualify clients by completing a mortgage application and gathering the necessary documentation. A mortgage pre-approval is issued once the lender has reviewed and verified the financial information you have submitted on your mortgage application. The lender assesses your income, expenses, and credit history, and it verifies the down payment amount. From that information, it is able to determine the amount for which you would qualify. The benefit of having a pre-approval is that you can shop confidently for a home in your price range and avoid last-minute complications or problems.

      When buying property, it is in your best interest to know about all of the financing options available to you. A mortgage specialist’s focus is on the lending options available, but the decision is yours. Mortgage specialists work with Canada’s leading financial institutions, and it is usually the lender who pays the fees, not the client. But always check first.

      Lenders have varying loan policies within their institution, and they offer a myriad of products in addition to mortgages. A mortgage specialist’s sole focus, however, is on getting your loan approved, and it will therefore find the financial program that best suits your individual needs.

      After seeing a mortgage specialist or banker, you should be able to determine what kind of home you can afford. This will allow the realtor to know which homes you will be pre-qualified for. Most often, realtors will ask to see a letter of commitment from the bank.

      Letter of commitment

      A letter of commitment is a letter from the lending institution stating how much it is willing to give you, and at what rate and terms. This letter shows the realtor that you are ready, willing, and able to start searching.

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