The basics of a worry-free mortgage loan
Well before you find your future home, there are a number of steps you must take:
- How much can you realistically invest in the purchase of your home?
- Where will you start to look for a loan secured by immovable hypothec?
- What term should you choose for your mortgage loan?
- What is amortization?
By doing business with a mortgage broker, you will be sure to deal with a professional who is required to perform every transaction according to generally accepted practices, in line with his ethical obligations. Mortgage brokerage has been under the supervision of the Autorité des marchés financiers (AMF) since May 1, 2020.
Making a budget to determine your borrowing capacity
Before you even start your search, you must establish a realistic budget based on your lifestyle and your goals. Accuracy is key here: a budget is only useful if it takes into account all your needs and your personal or family situation. The purpose of this exercise? To determine how much you will have each month, once you have fulfilled all your other obligations, to live in, finance and heat your future home.
The difference between your net monthly household income and your total monthly expenses (food, clothing, transportation, insurance, other debt, etc.) must be sufficient to cover your mortgage payment (principal plus interest), property taxes and heating costs (and, if applicable, 50% of your condo fees).
If it is not, you will have to lower the purchase price you were considering and, of course, the amount you were planning to borrow. Also, make sure you have enough money to cover the indirect costs of the transaction such as property inspection, notary, moving costs, property transfer taxes (commonly known as “welcome tax”), etc.
This will enable you to set a reasonable ceiling for your purchase price.
You must also estimate your borrowing capacity. To do this, you may choose to obtain a mortgage pre-approval with the help of your broker. Although optional, mortgage pre-approval will help you determine your purchasing power, guarantee a rate, and show your legitimacy as a potential buyer. When it is time to buy, you will still need to obtain final approval of your mortgage loan, according to the terms of your promise to purchase.
How much do I need to borrow?
You have found the home you want and are this close to becoming a homeowner! To do so you certainly need to take out a mortgage loan. In order to calculate the amount you will borrow, you need to know the purchase price of the property, the remuneration you will have to pay to the real estate broker (if applicable), and the amount of your down payment. In addition, if the mortgage is for the purchase of a house or other residential property, the broker’s remuneration will be paid by the lender who extends the loan!
The down payment is the money you have saved towards the purchase of a home: you can subtract it from the purchase price since you will not need to borrow that amount. Your down payment will have an impact on your loan because the higher it is, the lower your loan payments will be.
Once you have your mortgage loan
Your mortgage broker is required, under his ethical obligations, to advise you properly and provide you with all necessary or useful information. Thus, he will recommend options tailored to your needs that will help you reduce your amortization period, so that you can reimburse your loan as quickly as possible but without using up all your liquidities.
You want more information on the steps following the obtainment of your mortgage loan? The OACIQ designed for you the Buyer’s Guide, a quick reference guide containing a wealth of useful information for your transaction. See also the Mortgages section on the AMF website.
You may also contact the Info OACIQ agents with additional questions.