Buying a home in the often scary real estate landscape of Toronto can be challenging enough, especially with today’s stiff competition, so knowing exactly what mortgage you can afford (and how to even get one) is more important than ever.
To take things back to the basics, a mortgage is a loan from a bank or other lender that a buyer uses to purchase or maintain a piece of real estate that is paid back in agreed upon regular instalments. The purchased property serves as collateral for the loan.
Virtually any aspiring homebuyer in Toronto will need to secure a mortgage to make their purchase, so Paul Faykiss, Associate Vice President of Real Estate & Secured Lending Products at TD, shared everything a buyer needs to know before getting their mortgage, from figuring out how much you can afford to choosing which lender to go with.
Figure out what mortgage you can afford.
The very first step in getting a mortgage for an aspiring Toronto homebuyer is figuring out what mortgage you can afford. The easiest way to get a rough estimate, Faykiss says, is to use one of the many online calculators rather than crunching the numbers yourself. It will ask you questions about where you want to live, your salary, your expenses, and how much you have saved for a downpayment, as this will affect the size of the mortgage you need.
“It’s also good to keep in mind that while these tools can give you a sense of what you can afford, they’re not definite,” Faykiss told Daily Hive. “The final number on how much mortgage you will be approved for only comes after a full application and approval.”
Make an appointment and get pre-approved for a mortgage.
After calculating what mortgage you can afford, the next step for many aspiring buyers is to get pre-approved for a mortgage. That way, once you’ve found a house that you want to put an offer in on, you’ll have a much easier time getting the mortgage. It will also give you a clearer picture of the highest amount you’ll be able to spend on a home.
“Banks often offer a number of ways to apply for a mortgage,” Faykiss said. “At TD, for example, you can make an appointment to see one of our TD Mortgage Specialists or apply for a mortgage online to buy a home.”
Know what factors mortgage lenders take into consideration.
Lenders take into account a wide range of factors, including your gross income, credit history, assets, and liabilities. All Canadian buyers looking to get a mortgage from a federally-regulated lender also have to undergo the OSFI Mortgage Stress Test.
“In order to pass the mortgage stress test, you’ll need to qualify at your contractual mortgage interest rate plus 2%, or [at] 5.25%, whichever is greater,” Faykiss said.
Essentially, the lender uses a higher qualification threshold than what you’ll actually be paying. For example, if the interest rate on your mortgage is 3.65%, then the mortgage lender will act as if you need to have enough money to pay a 5.65% interest on your loan (since 3.65% plus 2% is greater than 5.25%).
Also, buyers who are putting less than 20% down on their home are required to purchase mortgage insurance, which is factored into the price on the stress test.
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Choose a lender that works for you.
With so many banks and lenders out there, it can be hard to know who to go with. Faykiss advises looking at what each lender offers in terms of rates and payment plans and seeing what parameters work best for you.
“I would say a few important factors to look for are a lender that offers the mortgage solution that suits you best, flexibility in mortgage payments, and last but certainly not least, a lender you trust,” Faykiss said.