Cash, Cash, Cash…
You’ll definitely need the big bucks to buy a house or condo in Toronto. For purchases up to $500,000, you’ll need a minimum of 5% down payment and for purchases between $500K and $1,000,000 you’ll need a minimum of 7% down. Closing costs are over and above that.
When asked by a bank lender or mortgage broker how much cash you have, give them an exact figure for your total and tell them that includes money you’ll need for closing costs so there’s no confusion.
Your cash can come from your bank account, your RRSP, any GICs or Term Deposits or from the bank of Mom and Dad or any combination thereof.
Income… Real Money From An Employer Or Business
It may seem obvious but mortgage approvals are calculated based on your income, not on the property in the vast majority of situations.
The only way to show your ability to repay a mortgage is to prove that you have enough money coming in via employment letters, pay stubs and your tax returns.
Generally speaking, you’ll need to verify that you have enough income to offset the mortgage payment and to keep your debts relatively low in relationship to your income, which creates room for your mortgage payment.
Self-employed people often keep their stated income for tax purposes very low to avoid paying tax but this ends up biting them in the butt when they go to apply for a mortgage and can’t prove that they have the income to qualify for a higher loan.
First Thing’s First – Make Sure You Have Good Credit
Many home buyers don’t understand how important having good credit is when considering purchasing a condo or house.
The home-buying process begins well before you start physically looking for real estate. A credit score, which significantly impacts the home financing process, is built on good spending habits and a pattern of responsible borrowing established over a lifetime.
One of the biggest factors banks and mortgage brokers consider when qualifying you for a mortgage is your credit score. We understand, trying to figure out your credit score can be confusing and even a bit overwhelming, but the reality is that you can easily monitor your credit profile.
Check Your Beacon Credit Score
Credit scores are not used to predict how rich or poor you are. The point of credit scores is to measure how likely you are to be able to repay a loan.
Everyone who's ever borrowed money to buy a car or a house or applied for a credit card or any other personal loan has a credit file.
Because we love to borrow money, that means almost every adult Canadian has a credit file. More than 21 million Canadians have credit reports. And most of us have no idea what's in them.
Are there mistakes? Have you been denied credit and don't know why? Is someone trying to steal your identity? A simple check of your credit report will probably answer all those questions.
You may be surprised by the amount of personal financial data in your credit report. It contains information about every loan you've taken out in the last six years — whether you regularly pay on time, how much you owe, what your credit limit is on each account and a list of authorized credit grantors who have accessed your file.
Credit score numbers can range from 300 to 900. The higher the number, the better. For example, a number between 750 to 799 is shared by 27 per cent of the population.
In addition to an overall score, your credit bureau account includes a notation that includes a letter and a number relating to all your debt history. The letter "R" refers to a revolving debt, while the letter "I" stands for an instalment account.
The numbers go from 0 (too new to rate) to 9 (bad debt or placed for collection or bankruptcy.) For a revolving account, an R1 rating is the notation to have. That means you pay your bills within 30 days, or "as agreed."
When banks and other lenders are trying to figure out whether or not to approve you for a loan, they rely heavily on credit scores. That makes healthy credit vital if you want access to financing.
There are all kinds of new and easy ways to monitor your credit score. The simplest in Toronto is through Equifax, one of the two predominant credit scorers we have. You can go to their site at Equifax.com and arrange to get your own score for minimal cost.
It’s an easy way to view your credit profile and identify possible problem areas that are holding your credit score back.
Credit scores are a crucial component of the home-buying process, impacting everything from the size of a mortgage payment to the interest rate on a home loan.
People with subprime credit may face financial barriers to homeownership, making it difficult for their dream home to become a reality.
If you have a credit score below 640, it’s advantageous to take the time to improve your credit score before looking to secure your home loan. Not only will that likely save you thousands in monthly interest, but taking that time will offer a clearer picture of how you can save for a down payment as well.
If you apply for a mortgage loan with a spouse or partner, the lender will look at both scores. It’s important to work together to improve both of your scores before you take on a joint mortgage application.
These components must be in alignment in order to qualify for mortgage financing.