When you buy a house but your down payment makes up less than 20% of the purchase price, not only do you need to meet the lender’s (bank’s) criteria for qualifying for a mortgage but you also need an insurer’s approval (CMHC, Genworth or Canada Guaranty). Why? The government has mandated this because they feel that putting less than 20% down is considered higher risk.

The mortgage agent and the lender can do what is called a “pre-approval”. This is where they will check your credit, income, downpayment etc. and essentially give their opinion on how much you will be able to afford. This is before you have made an offer on a home. Sometimes they will ask for proof of your income. This will give an even more confident “opinion” so you should provide it for them to review.

A “pre-qualification” is when no credit check is done. It is even more of an opinion and not recommended if you are actively house shopping.

Insurers like the ones mentioned above do not do pre-approvals. They can only approve you when they have reviewed the home that you have bought (hopefully conditional on financing)! In other words, you need to have an accepted offer in hand. They are checking not only you and your ability to afford the mortgage, but also the house itself to make sure it is not a shack!

So if you are putting less than 20% down and involving an insurer, you do not have an official approval. The insurer has had a chance to review the offer and the house.

If the insurer and the lender approve of the purchase, then they will issue a “conditional approval”. This is exactly as it sounds – it is an approval with conditions. These conditions must be met. Thus, every approval is actually a conditional approval. You will get the money from the lender to purchase the home only after you have met all of these conditions set out in the mortgage commitment document. These conditions ask you to prove your income, where the downpayment and closing costs came from, and may also include others such as selling your existing home or paying off some debt.

Lenders are generally giving you a lot of money to buy your home. So please don’t be surprised when they ask you to provide them with a pile of paperwork to support everything that you have told them is true!! Things like letters of employment, paystubs, income tax documents, separation agreements, etc. etc. etc.

Please do not be offended by this! Times have changed so if other people are chirping in your ear about how they didn’t have to provide so much proof, please explain to them that the rules have tightened up recently and they just keep getting tighter!

Here’s why:

1) The government sets a lot of rules and laws and we must abide by them.

2) There is a lot of fraud in this industry so if you see a rule, it is probably there for a reason. That is, somebody has tried to abuse it!

Home buying can be stressful but with a little knowledge, it can be a smooth process.

Choose an experienced, honest and ethical broker that will protect you.

Try to keep a sense of humour about it and don’t sweat the small stuff! Life is too short!!!

Please do not hesitate to call or write to us to discuss! We’re always here to help.

 

Robert can be contacted at 905-574-9200 Ext. 215 OR by email at mortgages@robertfloris.com. You can fill out an application online at https://application.malink.ca:8112/App/MARC/FLORISR/en-ca/1896 with absolutely no pressure and no obligation.

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