What To Know When Getting A Mortgage

Buying a house can be overwhelming, especially for first-time homebuyers. Between the price tag, the documents, the decisions and all the unsolicited advice from people who are just trying to help…we get it. 

Here at Cortel, we know all about the homebuying process. While your mortgage is just one aspect of that process, it’s an important one. After all, you’ll be living (and paying) that mortgage for years after the sale closes and you move into your home. 

To cut through the noise, we developed a checklist of just 4 items to keep in mind when selecting a mortgage. If you do your homework, in this order, we’re confident that you’ll feel confident in your choice.

There’s a calculation, sometimes known as the DTI (Debt to Income Ratio), that you can perform yourself to determine the threshold of affordability for your home. Forbes calls it the “28/36 Rule.” 

In essence, you want to ensure that all your housing-related costs on a monthly basis—your mortgage, property taxes, utilities—remain below 28% of your total household income. That, plus your other debt obligations—student loans, car loans, etc.—should ideally be below 36%. The Canada Mortgage and Housing Corporation places those thresholds a little bit higher at 32% and 40%, respectively.

You’ll also have to consider the upfront costs for the home. That will include your down payment, which should be at least 20% of the price of the home, plus closing costs, which could run as high as 4% of the price of the home. 

All of these calculations will come into play when you are being approved for a mortgage, so best to think about them in advance and how they fit with other regular expenses such as entertainment, groceries, and clothing. 

Options for mortgages vary quite widely, but there are a few critical features to weigh in order to decide which mortgage best fits your situation: 

It’s also worth taking a look at penalties to find out what happens if, for whatever reason, you need to break the terms of your contract. 

It’s possible that your first offer may be your best one. If you or your family members have been long-term customers at a bank, for example, it’s likely a mortgage specialist at that bank will offer you a discounted rate and favourable terms on your mortgage to ensure you don’t get your mortgage elsewhere. Still, do your due diligence by shopping around. In addition to visiting lenders such as banks and mortgage companies, consider using a broker. Brokers can tap into a network of lenders who don’t deal directly with homebuyers.

Pre-approval refers to the process by which a lender examines your finances to determine a) the maximum mortgage for which you qualify; and b) the interest rate for which you’re eligible. To get pre-approved you’ll need to set up a meeting with a potential lender, where you’ll need the following documents: 

It’s also a good idea to check your credit score before the meeting, just to ensure there aren’t any mistakes or surprises when the lender performs their check. 

Getting pre-approved doesn’t guarantee a final approval, but it will give you a much better idea of what your mortgage will look like. The interest rate given upon pre-approval is typically in effect for 60-120 days after. Still, remember to ask the lender how long you have to mull over your decision and shop around.