FINANCIAL AND CONSUMER SERVICES COMMISSION

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Getting a Mortgage

Few people have access to the entire amount of money required to purchase a home outright. A mortgage is a loan that can help you finance the purchase of your home so you do not need to pay the entire price all at once. Your home is collateral for that loan. Keep in mind you will still be required to pay a down payment, as well as other closing costs, which may include a property appraisal, a land survey, title insurance, water testing, home inspection, furnace oil allowance, land transfer taxes, legal fees or other fees.

Can I afford it?

Can I afford this mortgage?

Before shopping for a mortgage, remember to consider what not only if you can afford it today, but also what your future financial position will look like. Is your income stable? How will these payments affect your ability to meet your other financial obligations? Would you still be able to afford this mortgage if interest rates increase and your mortgage payment goes up? If you are buying the house with someone else, it is important to determine if you’d still be able to make the payments without the other person’s help.

Is my credit history healthy?

Lenders use your credit history to decide if they want to lend to you, how much they will lend and at what rate. Before you start looking for a home or a mortgage, you should do all you can to improve your credit situation. Having a lot of credit checks done may negatively affect your credit score.

Can I afford to own a home?

The total cost of owning a home is more than just the mortgage payment. Closing costs (such as legal fees, land transfer taxes, appraisals) should be included in the cost of owning a home. You also need to include other home ownership expenses (such as property tax, home insurance, utilities, maintenance) into your budget. Learn more about budgeting.

Pre-approval

A pre-approval is written confirmation by a lender providing the amount of mortgage you can afford for a fixed interest rate. A pre-approved mortgage does not guarantee that you will get a mortgage contract with the lender. In most pre-approvals, the lender reviews your qualifications to help you to estimate how much you can afford to borrow, what your estimated mortgage payments would be, lock in an interest rate and know the maximum home price you can search for. Just because you are pre-approved for a certain amount does not mean you need to borrow the full amount. Borrow only what fits your budget and you can afford to pay when all your other expenses, debt payments and budget items are considered. Consider looking at homes in a lower price range so you aren’t stretching your budget too thin. Learn more about budgeting.

Mortgage Insurance

Mortgage default insurance, or mortgage loan insurance, is required by lenders if you have less than 20% of the purchase price or the appraised value of the property. This insurance protects the lenders if you default on your payments. You may also be offered mortgage life insurance. While it will also cover your payments, it is not the same as mortgage default insurance. Mortgage life insurance covers your remaining mortgage payments at the time of your death, and is not required by lenders. Your bank may offer you this product, but you have the right to shop around to determine if a different type of insurance is a better fit for you. Learn more about Life Insurance.

Title insurance

Title insurance covers losses related to title fraud and legal expenses to restore a title. There are two types of title insurance. Lender title insurance protects the lender until the mortgage has been paid off, and individual title insurance protects the homeowner from losses even if there is no mortgage. Learn more about protecting yourself from mortgage fraud.

Risks

A mortgage is a big financial commitment and is not without risks. Protect yourself by taking the following steps:

Be honest on the mortgage application.

Fill out all documents completely, accurately and truthfully. Errors or missing information could lead to a mortgage that does not fit your needs and providing false information on a mortgage application is considered mortgage fraud.

Do not apply for a mortgage for someone else.

Applying for a mortgage on someone else’s behalf is called being a “straw buyer”. The straw buyer is liable for the mortgage and could be held criminally responsible for their misrepresentation to the lender. Learn more about misrepresentation and mortgage fraud.

Be cautious of “leveraging”.

Leveraging, or borrowing to invest carries high risks. Be sure to carefully consider the investment and fully understand the risks before deciding to take out a mortgage to invest. All investments carry risk, and if the investment does not perform as expected, you will still be responsible for paying back the original amount of the mortgage and interest. Learn more about borrowing to invest (leveraging).

Read the agreement.

Never sign documents without reading them thoroughly and understanding them. If you are unsure, ask questions until you understand, or obtain a second opinion.