The Mortgage Application and CMHC
For traditional institutional lenders, the mortgage application
consists of 4 components: 1) capacity to repay (income); 2) likelihood
of repayment (credit history based on a credit bureau); 3) equity
(down payment); and 4) security (the property).
If your down payment (the portion of the purchase price not being borrowed)
is less than 25% of the purchase price, the mortgage must be insured through
the Canada Mortgage and Housing Corporation (CMHC), regardless of which
lender through which the mortgage is arranged. This is called a high ratio
mortgage. CMHC is a government-owned insurer who protects the lenders against
loss due to default on their mortgages. The insurance premium is based on
the mortgage amount and the Loan-To-Value (LTV) of the loan. As long as your
credit history is good and income is sufficient to service the debt, you will
be offered the best rates available, even with as little as 5% available for
down payment.
How Much Can You Afford?
There are 2 key ratios you should concern yourself with: GDS and TDS.
GDS is Gross Debt Service. The key figure here is 32%. Your payment
of Principal, Interest, Property Taxes and Heat (PITH) (and ½ Condo Fees
if applicable) should be no greater than 32% of your gross income. For
example, if your monthly income is $5,000, then your total payment of PITH
and condo fees should not exceed $1,600. At today's interest rates, that
equates roughly to a mortgage of $250,000.
TDS is Total Debt Service and the key figure here is 40%. Your total
of all other expenses (credit card, line of credit, student loan, car lease)
in addition to the PITH cannot exceed 40% of your gross income. Using the
$5,000 monthly figure, that equates to $2,000. As far as credit cards are
concerned, lenders look at the monthly minimum payment (usually 3% of the
balance) for the purposes of their calculations. A $15,000 visa/line
balance translates to a monthly minimum payment of $450 (3%).
Why Choose Owemanco?
As a mortgage broker, the banks offer Owemanco a rate guarantee of
up to 120 days (compared to 60 days at the branch). Should the rate
climb between approval and your closing date, the lender will offer you
the lower rate, provided you close within the 120-day period.
Another advantage to dealing with Owemanco is that your credit score
is maintained. Every time a lender (or anyone) inquires into your
credit history, your score is marginally reduced. We access your credit
report only once and attach it to the application which we submit
electronically to the lenders, and as they do not order their own, your
credit rating is preserved.
Documentation Required
Regarding documentation, we will require the following to process
the application:
- Confirmation of income and employment via a job letter
and pay stub
- Confirmation of down payment via copy of your bank statement
- Agreement of Purchase & Sale (for purchases only)
- Name of a solicitor who will be handling the transaction for you
- Completed and signed mortgage application
Feel free to complete a confidential online application. We would be
happy to advise you of your mortgage options once we see your completed
application.
