What can I Afford?
You will qualify for a mortgage based on the size of payment that you can handle comfortably considering your current financial situation. You are allowed to borrow an amount such that the monthly payment not exceed 32% of your gross income. Further all debt service including mortgage, car payments, credit card payments, alimony/child support etc must not exceed 40% of your gross income.
Calculating an Affordable Mortgage
Your monthly payment may be the lesser of these two calculations:
Income x 0.32
(Income x 0.4) - Monthly Payments
Income includes all regular income from employment or self-employed income supported by documentation (balance sheets) for both you and your spouse, as well as investment income, including rents from other properties and from this property, providing that the rental accomodation is legal. This is gross income - before taxes.
Monthly Payments include all charge cards, Visa, Mastercard, Amex etc and also department stores, oil company cards etc. Also included car payments and any other regular payment such as child support or alimony.
When using the mortage calculator:
Purchase Price is the price paid less amount down
If Down Payment is less than 25% of the value of the property then you will qualify for a high-ratio mortgage.
Calculate your High-Ratio Purchase Price as the price paid less the amount down multiplied by 1.02
If you don't know the property taxes and insurance use 2% of the full price paid for the home as an estimate
The First Step
Get a pre-approved mortgage certificate
A pre-approved mortgage certificate guarantees a specific mortgage (amount and interest rate) for a time period of 30-120 days, subject to property appraisal
A pre-approved mortgage helps you focus your house-hunting on properties that you know you can afford. A pre-approved mortgage may also give you an advantage when negotiating with vendors as they know you are serious. Your offer therefor may be more readily accepted, since it doesnt depend on securing financing later.
Applying for a Mortgage
The following steps will be undertaken to assure that you qualify for a Mortgage:
Your Lender will require:
A copy of the real estate listing.
A copy of the accepted Offer to Purchase.
Information on the source of your down payment.
Income verification if you are employed.
A letter from your employer verifying your place of employment and income, or T4s and Notice of Assessment, or T1 General Tax Return and Notice of Assessment.
Income verification if you are self-employed.
3 years of Financial Statements and 3 years of Notice of Assessments, or 3 years of T1 General Tax Returns and 3 years of Notice of Assessments.
Your Lender will order a property appraisal and credit report.
If your down payment is less than 25%, yours will be a high ratio mortgage on which you will pay insurance premiums. You may pay the premium in cash or have it added to your mortgage. Your lender will apply to Canada Mortgage and Housing Corporation (CMHC) or GE Capital Mortgage Insurance Company of Canada (GEMI).
You will be required to pay for the mortgage application, credit report and property appraisal.