For most individuals, a house is the most expensive acquisition that a person makes in his lifetime. More often than not the house is purchased on money borrowed from professional lenders. It is therefore imperative to know exactly what one is in for when one is getting their first mortgage in Ontario.
Broadly speaking, the private mortgage lender lends you the money that you require for your house and expects you to pay back the same within a specified time along with interest. There are two basic types of players in the mortgage market: lenders and brokers. You have the option of going directly to an authorized lender, or you could approach a mortgage broker who helps you obtain the mortgage from any of the several lenders in the market. It is a jungle out there and it might be helpful to have someone who can help you navigate it. But remember that the fee that the mortgage broker charges may be higher than what the authorized money lenders charges. Also, be aware of the fact that most of these brokers are not licensed and hence are not bound by any regulation.
What Do Private Mortgage Lenders in Ontario Look For?
Private mortgage lenders in Ontario are mainly concerned about your credit report. In a credit report, they scrutinize your debt ratio which is an indicator of your earnings and how much you owe, as well as your overall credit rating. Proof of earnings is another key criterion to decide whether the lender will finally approve your loan amount or not. This information is generally obtained from tax returns and pays stubs submitted by you. To get the mortgage without much hassle, it is important to keep your records clean and unquestionable. But what if you have a not-so-perfect credit report? – Well in that case several other lenders can still give you a loan, by charging you a higher rate of interest.
Why Do Private Mortgage Lenders Sometimes Turn Down Mortgage Requests?
This may be due to factors such as bad credit reports, low annual income, or even when they are not satisfied with the house that you plan to buy.
How Much of a Mortgage Loan Can You Reasonably Expect From These Lenders?
A kind of thumb rule states that you can get a loan amount that is 4-5 times your annual income. So the more you earn, the bigger the mortgage you are eligible for.
What Is The Process of Obtaining a Mortgage?
You can either approach the lender to get a fair assessment of your situation and ask them how much they are willing to give you and then look for a house in that budget. You can even select a house and then apply to the lender for payment. Whichever way you go, you have to first obtain an ‘Agreement in Principle which states the amount the lender is willing to pay for your house. This document is valid generally for 3 months or so. After this, you are expected to complete the ‘Mortgage Application’ and submit the same with the required documents about your financial stability and creditworthiness. The house is then inspected by a qualified valuer.
After your mortgage application is found to be satisfactory the lender will issue a ‘Mortgage Offer’, or an ‘Offer of Advance’. This document will also state the conditions on which the lender is offering you the mortgage.
What Are The Fees Associated With The Mortgage Application Process?
One is generally required to pay an ‘Administration or Application fee’ for setting up the mortgage. A separate ‘Valuation Fee’ may sometimes also be charged.