Loan Articles


The type of mortgage to apply for depends on different factors such as the current interest rate, amount of down payment, closing costs, credit history, and others. Homeowners can choose from closed and open, high ratio, conventional, pre-approved, all-inclusive, and other types of mortgages, depending on the above factors.

Requirements

The requirements vary from bank to bank and are different depending on whether you are a business owner, self-employed, or a salaried professional. Generally, your employment history, position, and income level determine the loan amount. Financial institutions favor applicants with a steady hourly pay and high income. They also offer loans to borrowers who receive income from other sources such as child support, social security, pension, etc. Your assets and debt-to-income ratio are also taken into account, along with your credit history. The types of assets required depend on the mortgage applied for. Borrowers who apply for a pre-approved or zero down mortgage pay the closing costs at the end of the term (at closing). They are usually required to show their asset statements proving that they have savings at a bank.

Obviously, borrowers should pledge their property as collateral. There are different sources for the closing costs and the down payment that financial institutions accept. These include gifts from family and relatives, cash from the sale of real estate, individual retirement accounts, and mutual funds. Acceptable sources are also jewelry, collectables and antiques, boats, and personal vehicles. The list includes real estate, your life insurance policy, and bonds and stocks. Your financial institution is also interested in your monthly income before deductions and income tax. You should provide documents proving your stated income, including commissions, salary, bonuses, wages, etc.

They will look at your expenses, including child support and alimony, as well as your credit card and loan payments. This is done to determine whether you will be able to meet your mortgage payments. The total expenses (monthly loan and mortgage payments) are divided by your income to calculate the debt-to-income ratio. For example, a borrower has a monthly income of $4,800 and pays $850 each month. The mortgage payment is $1,350 a month. The debt-to-income ratio will be 45.83 percent ($2,200/$4800). Most mortgage companies and banks prefer debt-to-income ratios of less than 45 percent. In some cases, you will need a guarantor or cosigner to guarantee repayment. Applicants who donít qualify often apply together with a cosigner.

Types of Mortgage Loans

Canadian homebuyers can choose from different types of loans, including first, 6 month convertible, fixed term, variable or fixed interest rate, and multiple term mortgages. Financial institutions also offer bridge financing and home equity lines of credit. Many borrowers opt for a cash back mortgage that comes with cash back of up to 5 percent. This amount is paid at closing. Likely candidates are first-time buyers. You can use the money to finance the purchase of a vehicle, furniture, or household appliances or to pay the closing costs. Homebuyers are usually asked to make a down payment. Those who offer less than 20 percent down are required to purchase a mortgage insurance policy. The premium varies depending on the amount of the down payment.

Closing Costs

These are costs and fees that borrowers pay at closing. Examples include exam and escrow fees, appraisal, survey and attorney fees, processing and recording fees, pre-paid interest, transfer taxes, and others. While the closing costs are usually paid by the borrower, the seller may cover them in some cases.