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ARTICLES
Make
House Hunting Easier: Pre-Qualify for a Mortgage
Beginning your
search for a home? Now may be a good time to consider entering the
housing market!
If you're
uncertain about taking the plunge, you can make your house hunting
more worry-free by pre-qualifying for a mortgage before you settle
on the house of your dreams. This means that you can look for
a home knowing in advance how much you can expect from us.
How much house
can you afford? Most financial institutions will complete a pre-qualification
certificate based on your income, the amount of your down payment,
and any current liabilities. Many institutions will even guarantee
their terms and conditions at a specific interest rate if you
purchase your home and funds are advanced within 90 days of approval.
If rates go up during those 90 days, you receive the approved
rate and if they go down, you receive the lower rate. This means
that you could realize substantial savings in interest costs.
If you are
buying a new home, this guarantee can be for a longer period of
time. For details, CONTACT US.
To determine
the maximum amount of mortgage financing for which you qualify,
visit our office where one of our mortgage consultants will prepare
a "purchase profile" by calculating your gross debt
service (GDS).
In real terms,
most lending institutions look for a GDS ratio in the range of
27 percent to 32 percent. This is the percentage of gross household
income the lender will allow borrowers to direct towards financing
to cover mortgage principal and interest payment and property
taxes. Financial institutions also include heating costs.
For example,
if your gross household income is $80,000 and the GDS is 32 percent,
then the amount available to you to make mortgage and tax payments
should not exceed:
$80,000 x
32% = $25,600 or, a monthly amount of $25,600/12 = $2,133.33 per
month.
Assuming an
interest rate of 8.50 percent on a five year term and 25 year
amortization (and a monthly loan factor of 7.96), a payment of
$2,133.33 per month will finance a mortgage of $235,000, if taxes
and heating costs are $233.33 per month.
You will also
need to provide:
- A copy
of the signed and accepted Agreement of Purchase and Sale
- A copy
of a real estate listing and a picture of the home
- Evidence
of the source of the down payment (GIC, CSB, BANKBOOK, OHOSP,
RRSP)
- Proof of
income
- Application
fee of $75.00 or $165.00 per dwelling depending on whether or
not an appraisal is available
**
(Article prepared by C.M.H.C. - January 1991)
For further
information, please contact us at your
convenience.
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