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MORTGAGES

Most people can’t walk up to a house; open up their wallet and pay for it on the spot. A mortgage is a way to finance your home and pay for it over a period of time. It is important to know how much you can afford to spend before you shop for a home. One of the first things that you should do before you start house hunting is get a pre-approved mortgage with a rate guarantee. Pre-approval is invaluable as it allows you to know what you can spend on a home before you start looking and protects you against interest rate increases while you search.

FIND A MORTGAGE BROKER/SPECIALIST

Mortgages are a big deal and you want someone on your side when you take one out. There are a overwhelming number of lenders who want to finance your mortgage; a good Mortgage Broker will make sure you get the best rate possible, work with you to decide the type of mortgage that works best for you (closed vs. variable), help you decide on the length of the term and amortization, and how much you cash you wish to put as a down payment. You’ll want to be able to reach this person easily, they should be detail orientated, and they should be someone who you can relate to and trust.

ORGANIZE YOUR FINANCES:

Once you choose a lender, they’ll help you figure out how much money you can spend on a home. You’ll need enough funds to cover your deposit and balance owing, (down payment) as well as closing costs. (land transfer, legal fees, moving costs, utility hook ups, and insurance) The larger the down payment, the lower your monthly payments will be during the term of the mortgage. The source of money for your down payment is often either your savings or the net proceeds from the sale of a home you already own.

Lenders will ask you several personal questions about your finances to determine what they are willing to lend to you. They’ll want to know how much debt you are carrying, how well you are at paying that debt back, how much income is coming in, and how much cash is in reserve. You’ll have to calculate your Gross Debt Service Ratio which is your monthly principle, interest, taxes, and heat divided by your Gross combined monthly income. This must be lower than 32%. Another ratio used is the Total Debt Service Ratio which is your monthly principle, interest, taxes, heat, as well as other debt commitments divided by Gross combined monthly income. This must be lower than 40%.

If you are planning on moving from one home to another you will want to know if your mortgage is portable, if you can qualify for bridge financing, and how long you are comfortable carrying the two mortgages.