How To Get A Mortgage

April 12th, 2011

I still get phone calls and emails from people who have been working for a few years and are tired of paying someone else’s mortgage, but haven’t a clue how to go about buying their first home. I’ve attended a few first time home buyers seminars and the biggest question that always comes up is how do I know what I can qualify for? How much downpayment do I need?  Who do I talk to to find out? I’m going to argue that the best advice you can seek is independent advice, i.e. not advice from the same people who are making a direct profit off of you for selling you on something they are promoting. Mortgage brokers are that independent voice. We deal with ALL the lenders out there and know what the advantages of one lenders products are over another. Our job, if we’re doing it properly, is to match you up with the lender that offers you the features/flexibility that you need. We get paid pretty much the same by each lender. We’re working for you ultimately, as we want you to be a satisfied returning customer. If all goes well, then you are also very likely to recommend our services to others. Word of mouth advertising beats all other forms of advertising. You want to buy a house. Checking your bank account, you notice that you don’t have the $300,000 sitting there ready to go. What do you do? Wait and keep saving until you do? Of course by the time you have $300K saved, the house you were looking at is now $600K. Let’s say you’ve managed to save $15K in some way shape or form. You and your spouse both have good jobs earning a total family income of say $80K/year.  You’ve paid all your bills on time and your ready to buy. First thing you need to do is contact your mortgage (genius) agent and provide them with your personal and financial information. What do you need to bring to that meeting? Some form of ID. For me, so I can check the spelling of your name. One piece of photo ID is best (like a drivers licence) so I can try and match you to your picture. You’ll either need to have your SIN number memorized (many do) or have it written down someplace safe. (Note: please keep your SIN card some place safe. Avoid carrying it with you if you can, because if you lose your ID along with this card, you’ll have a devil of a time replacing your ID) As for proof of your income, it is most helpful if I can see a recent paystub or last years T4. I’ve had a few people make some fairly audacious claims for income and when asked for proof showed significantly less. This just means more work for me in the end. With your recent personal and financial information, I can review fairly quickly and tell you approximately what you can afford. Until I’ve actually entered someone’s information and pulled their credit, I can’t give them any solid figures. There are two ratios that I need to calculate based on income, property taxes, heating costs, condo fees and other monthly expenses. Once those are determined then I can tell you what size of mortgage you can afford. When I do this I call it a pre-approval. What banks call a pre-approval is something significantly different, as most (all but 1) don’t pull your credit. When they finally do get around to checking it, they then see something and cancel their pre-approval. At this point  you’re not very happy, as you have just finished negotiating a deal with a seller with the understanding that the bank said everything was fine. Hopefully then you’ll turn to a broker to assist you. As a general rule of thumb, in most cases I can take the gross annual income, in our example above $80K/year and multiply this by 3.5 to give you a ballpark figure as to what you can afford. If you are debt free (or rates are low), then this number could go hire. If you have a large car loan you are paying down, then the number will be lower. In our example, the couple should be able to afford a mortgage of approximately $280K. Add to that the $15,000 in savings and you have a purchase price of $295,000. The couple can now confidently make an offer on a house up to that amount. That’s the simplest version of getting a mortgage I can cover. Next week, I’ll look at the advantages/disadvantages of cashback mortgages (so you can use some of your savings to buy a lawnmower, a rake, a shovel, furniture, etc.) and maybe touch on purchase plus improvements for those houses that need repairs or small renovations.

P.S. Did I mention my services are free 98% of the time?

One response to “How To Get A Mortgage”

  1. walshsurvey says:

    Excellent Advice as usual, Mr Mortgage Genius.