February 2004 Issue

Dear Home Buyer,

 

As your first home purchase specialists, we work on your behalf to find the home and mortgage that suits your needs. Best of all - our service is "FREE"*. 

Note: This newsletter is designed to be a general overview of topics encountered in the home buying process.  It is not to be construed as legal advice.  Please consult a professional.

If you find this email useful, feel free to please pass it on. 

In this Issue


  • Pre-approvals - What does it mean?
  • Equity mortgages

Pre-approvals - What does it mean?

A pre-approval is a commitment from a lender stating the amount you are qualified to purchase.  The pre-approval also holds the interest rate for you for a specified term, typically between 60-120 days, depending on the lending institution.  A pre-approval approves you, the borrower, and not the property.  Once you've made an offer on the property, you'll need to submit property information to the lender so they can approve the property as well. 

It is easy to get a pre-approval.  You can even apply over the telephone or online.  Ideally, you would have your employment letter at this time so when your mortgage broker inquires about your salary, you have an accurate number to provide him/her.  Oftentimes, your employment letter is not available.   In this case, the mortgage broker will rely on the information you provided.  The pre-approved amount could be lower if the salary you stated is less than what is reflected in the employment letter.

Although it is possible to apply over the telephone or online, I recommend that you take the time to meet with your broker.  There is more to obtaining a pre-approval than just submitting an application.  A personal meeting will allow the mortgage broker to personally understand your needs and to tailor fit the mortgage to your requirements.   He will also have the chance to explain the mortgage process, options and costs.

In addition, a good mortgage broker will monitor the rates for you.  When the rate drops, the broker will lock in the rate with the lending institution so that you get the lowest possible rate upon closing.  If the rate rises and the pre-approval is getting close to the expiry date, he will lock in the rate and extend the term before the rate increases.  

Equity mortgages

An equity mortgage (or No Income Qualification mortgage) is one that is granted based on your equity in your home.  

Many of the chartered banks and traditional lenders offer equity mortgages to self-employed individuals.  With these sources, you need a reasonable down payment (as low as 10%, in some cases), excellent credit and have been in business for some time.   You'll still have to declare how much you earn, but the lender will not verify your income.  Note that not all traditional lenders will give you their best rate for an equity mortgage.  Your broker should be able to point you to the institution that offers the best rate for equity mortgages. 

If your credit is not perfect, however, there are non-traditional sources of equity financing.  Be prepared to pay a much higher rate (7-16%) depending on the your credit and the level of financing you require.

 

Resources:

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