Determine the right purchase budget first!
There are many points to determine before embarking on the adventure of finding a property.
The first step (after the dream of the new property 😴) is the financial side. The famous prequalification letter that allows us to know our maximum borrowing capacity at the financial institutions and mortgage insurers.
Hum...maximum borrowing capacity...what does that mean???
Banks use a multitude of criteria to determine your maximum mortgage amount.
Here are the 4 main criteria:
Usable income will be the main element of the calculation of the debt ratios.
Criteria put in place are to be respected whether for an employee, a self-employed worker or even a retiree.
Before lending you an amount in the 6 figures, the bank must analyze your history of good payer.
Equifax, the main credit agency in Canada, accumulates the last 6 years of each of your lines of credit.
Each limit overrun on your credit card, late car payment, etc. affects your score.
Bad habits from 4 years ago could affect your qualification today!
A credit that improves with the good advice of an apoint broker.
A purchase with 0% down payment has not existed in Canada since 2009!
The minimum down payment to be paid to the seller is 5% of the price of your purchase.
On the other hand, it can be from your savings, a gift from a relative or from a loan on another property.
There are certain programs that allow you to borrow a down payment!
In the financial language, we will use the abbreviations ABD/ATD.
These are the two ratios that a mortgage lender uses to determine your ability to repay the obligations related to your new purchase.
The ABD corresponds to the percentage of your gross income necessary to pay the mortgage payment + property tax (municipal and school taxes) + heating costs and, if applicable, condominium fees.
For example, a family with a monthly gross income of $10,000, if the purchase of their new property costs $2,000 per month, the ABD would be 20% ($2,000/$10,000).
For the ATD, we simply add all of your obligations related to your personal debts other than property (car loan, credit cards, student loan, etc.).
If we add a personal loan with monthly payments of $500 in our previous example, our ATD would be 25%! ($2500/$10000).
How to get this famous prequalification letter?
This is the beginning of the adventure with your mortgage broker who will make sure to have all the information and documents about you in order to search with nearly twenty financial institutions following your first appointment.
In addition, having access to an appointment with a broker with us is simple and efficient!
Once your letter is in hand, it’s time to start property visits, ideally accompanied by your real estate broker 🎉.