What is a mortgage and why do you need one?
A mortgage is essentially a loan that you borrow from a bank, monoline lender or credit union to buy a home. When you get the loan, you’ll be charged interest to pay back the loan to the bank. The amount of money you’re eligible to borrow for your mortgage is determined by what you can afford – things like your salary, savings, debt and credit score are all taken into consideration.
You’ll likely need a mortgage to be able to afford buying your home (most people can’t buy one by themselves, out-of-pocket). A mortgage allows you to buy a home with only paying a down payment at the time of purchase, which is a percentage of the total price.
How much can you afford for a mortgage?
In Canada, the minimum down payment is 5% for a house that costs $500,000 or less. So, if you’re looking to buy a home in this price range, expect to have a down payment of $25,000. If the house is over $500,000, the minimum down payment becomes 10%. However, there are other costs associated; if the down payment on your mortgage is under 20%, you’ll need to pay mortgage insurance. Also, there are closing costs – like land transfer taxes and lawyer fees – which will be extra on top of your down payment.
You’ll also have to consider “carrying costs” that come along with mortgage payments, including energy bills, property taxes, condo fees, and yes… insurance. Shopping around for home insurance beforehand will give you a good sense of how much your monthly premium will be. With Sonnet, you can get a quote for the home you’re thinking of buying, and save it for later! That way, you can incorporate it into your budget which will be helpful when deciding on how much of a mortgage you can take on.
The mortgage approval process and how long it takes:
Generally, there’s the pre-approval stage which is before you buy, the approval process after you’ve put in your offer, and then refinancing if you already have a mortgage and want to change it.
Pre-approvals take about a week to secure and can last as long as 120 days, which is why Homewise suggests that you get pre-approved while you shop around for homes. The good news is: a pre-approval won’t “lock” you into a price. If housing rates go down, for example, the mortgage you’re pre-approved for will match that trend.
The approval process is (a lot) faster. Once you put in an offer, it will take anywhere from 24-72 hours to acquire based on how quickly you need it (if you’ve purchased a home with a 5-day financing condition, for example). And remember, once you put an offer in, it will have a 60-day hold.
To refinance (take out more money on top of your current loan) or switch (find a new lender) your mortgage, Homewise suggests you reach out around 4-6 months before the end of your term to find out what type of mortgage features and rate is best for you.
Want to start your mortgage process today?