It can be an exciting but overwhelming experience if you are applying for your first mortgage. There is a lot of information available, and it can be quite strenuous to understand it all.
That is why we have created this quick guide on all the essential things that you should know when it comes to acquiring your first mortgage.
Acquiring A First-Time Buyer Mortgage
To purchase your first house you may choose to get pre-approved from a financial institution, such as a bank or a mortgage investment corporation (also known as MIC). These professionals will assess what you can afford based on your finances.
The bank or the mortgage investment corporation may apply two different debt ratio formulas, GDS (Gross Debt Service Ratio) and TDS (Total Debt Service Ratio), to see if you are eligible for a mortgage based on your income, living expenses and debt.
GDS looks at the percentage of your income that needs to cover the ongoing costs of the home, such as home insurance, real estate taxes, and mortgage repayments. TDS assesses if your income can cover all your debt, such as credit cards, student loans, personal loans, and others. If you exceed 35% on your GDS or 40% on your TDS, you might not be eligible for the amount of mortgage you want.
If you are pre-approved, it means you have a base to start house-hunting. If you can secure the home and the mortgage, you will receive ‘final approval’ meaning you have obtained the mortgage and the agreed interest rates.
Type Of First-Time Buyer Mortgages & Interest Rate Options
There are different types of mortgages available as a first-time buyer. These include:
- Closed, which means you are locked into a set mortgage interest rate. The catch is that these types of mortgages offer the lowest interest rates.
- Open, which means that your interest rate can be changed, and you will have to adjust your payments to meet the changes.
- Convertible, which is the most flexible option which lets you change the type of mortgage you have over a specific time without incurring a penalty.
Alongside your first-time buyer mortgage, you will have to consider the interest rate you will have to pay. There are two distinct types of interest rate settings:
- Fixed Rate means your interest rate stays consistent throughout your entire mortgage term. You will know how much you will have to pay week-in-week-out.
- Variable Rate means your payment amount fluctuates in response to the prime rate. You will have to be more flexible on your payments and be ready to know that changes can happen.
The more information you have on obtaining your first home mortgage, the better you can prepare for it when visiting a bank or mortgage investment corporation.
CTA: Whether you’re looking to borrow or invest, Alta West Capital can help. We offer several lending solutions for first time buyers, individuals and families that are new to Canada, self-employed business owners, real estate investors and more. Alta West loans are fast and flexible to fit your needs. Visit our website to apply online or contact us directly — call (403) 254-9075 or email firstname.lastname@example.org.