What to expect when making an offer?
Check out this article
Do you want content like this delivered to your inbox?
Share
Share

STEP ONE OF THE BUYER PROCESS: Finding out what you can afford.

North Group
Jan 11 5 minutes read

What property can I afford?

Ah, the house hunt. It is by far the most exciting step in the buying process. But it’s actually not the first step. 

Before looking for a home, you want to ask yourself, “What property can I afford?”  And the only way to figure out what you can or cannot afford is to set your home-buying budget based on the maximum amount available from lenders. Once pre-approved, your North Group expert can help you determine the neighborhoods and the different home types in your price range for a more focused home search.  

But first, mortgage pre-approval is the key step in understanding what properties you can afford.


MORTGAGE PRE-APPROVAL: WHERE DO I START?

Knowledge is power. Therefore, understanding everything that impacts qualifying for a mortgage is a smart place to start. Here’s what you should consider:

Income vs. Expenses

Your monthly income vs. your expenses provides your expense-to-income ratio. If your ratio is 32% or lower, you have a better chance of pre-approval.

Debt

Lenders aren’t fans of debt. Owing no more than 40% of your gross income will help you qualify for mortgage pre-approval. 

Your Credit Score

Lenders tend to provide pre-approval to buyers with high credit scores of 700+. If your score is between 650 and 700, you can still get approved, but your interest rate won’t be as low as those over 700. Scores below 650 can still qualify, but usually require a higher down payment and include higher interest rates. This is because lenders view lower scores as higher risks. 

Mortgage Stress Test

Banks measure your income against either their best rate plus two percentage points or 5.25% interest, depending on which is higher. This makes it harder to qualify.

120 Day Lock-in

Once pre-approved, most lenders lock in your interest rate and mortgage approval amount for 120 days. If interest rates drop, you still get the lower rate, so it’s worth getting pre-approval before you start your house hunt.  

DOWN PAYMENT

Your down payment is based on the price of the home. Here’s how much you’ll need:

•  5% of the purchase price for homes $500,000 or less

•  5% of the first $500,000 of the purchase price and 10% for the balance over $500,000 for homes $500,000 to $999,999

•  20% of the purchase price for homes $1 million or more

Based on current housing prices, you’re likely looking at more than a 5% down payment.

WHERE TO GET MORTGAGE PRE-APPROVAL?

Mortgages are available through banks, credit unions, mortgage companies, insurance companies, trust companies, and loan companies. 

That’s a lot of options. It’s not a bad idea to start at your bank. But don’t settle on a mortgage without seeing what else is available. When you go to any one lender, they only show you the mortgage products they offer. 

A mortgage broker, on the other hand, considers all the mortgage products available and recommends the ones with the best terms and rates based on your financial situation. Choices allow you to make an informed decision. Need help? Reach out and we can also introduce you to one of North Group’s preferred partners.

WHAT PAPERWORK WILL YOU NEED TO PREPARE?

When applying for approval, you’ll feel less stressed if you’re armed with accurate information, including:  

•  Valid government identification

•  Proof of employment such as recent pay stubs or a letter from your employer

•  Two most recent notices of assessments from the CRA as proof of income for the self-employed 

•  Proof you have the savings for your down payment and can cover closing costs

•  A list of your assets

•  A list of all debts and financial obligations, including account numbers

Speed up the process and avoid delays by getting this information ready ahead of time.

Even if mortgage pre-approval feels impossible, we always say it’s best to bite the bullet and get it done. It’s the first necessary step in your home-buying process.

Have more questions about the process? Shoot us an email and one of our North Group experts will be happy to help.

We use cookies to enhance your browsing experience and deliver our services. By continuing to visit this site, you agree to our use of cookies. More info

Terms of Use

This website is operated by North Group/Amy Youngren, REALTOR®, a Salesperson who is a member of The Canadian Real Estate Association (CREA). The content on this website is owned or controlled by CREA. By accessing this website, the user agrees to be bound by these terms of use as amended from time to time, and agrees that these terms of use constitute a binding contract between the user, North Group/Amy Youngren, REALTOR®, and CREA.

Copyright

The content on this website is protected by copyright and other laws, and is intended solely for the private, non-commercial use by individuals. Any other reproduction, distribution or use of the content, in whole or in part, is specifically prohibited. Prohibited uses include commercial use, “screen scraping”, “database scraping”, and any other activity intended to collect, store, reorganize or manipulate the content of this website.

Trademarks

REALTOR®, REALTORS®, and the REALTOR® logo are certification marks that are owned by REALTOR® Canada Inc. and licensed exclusively to The Canadian Real Estate Association (CREA). These certification marks identify real estate professionals who are members of CREA and who must abide by CREA’s By-Laws, Rules, and the REALTOR® Code. The MLS® trademark and the MLS® logo are owned by CREA and identify the professional real estate services provided by members of CREA.

Liability and Warranty Disclaimer

The information contained on this website is based in whole or in part on information that is provided by members of CREA, who are responsible for its accuracy. CREA reproduces and distributes this information as a service for its members, and assumes no responsibility for its completeness or accuracy.

Amendments

North Group/Amy Youngren, REALTOR® may at any time amend these Terms of Use by updating this posting. All users of this site are bound by these amendments should they wish to continue accessing the website, and should therefore periodically visit this page to review any and all such amendments.