Mortgage Information

Most applications are designed to elicit information about the financial ability of the applicants and the property value/marketability. The lending institution may ask for a standby or processing fee. Standby fees are commonly related to non-residential transactions and represent a payment to guarantee a specified set of mortgage terms (e.g., the interest rate), for a defined period. Application fees are more commonly found in residential mortgages. Whether or not the fee is refundable and under what circumstances a refund would be made will vary by individual lender.

Once the offer is accepted, the application is forwarded to the lender. Several items normally accompany the application: namely, proof of income, a copy of the agreement/contract, copy of the listing, payment for processing costs (administration fee), confirmation of down payment, and any other documentation that will support information included on the mortgage application.

Pre-Approved Buyer

The buyer usually visits his/her mortgage broker or lending institution and, after discussion/disclosure of financial position, receives a pre-approval certificate, outlining the maximum amount that can be borrowed, the interest rate to be charged, and the monthly payments. The approval is subject to a satisfactory appraisal of any house being purchased and confirmation of taxes. The interest rate is normally guaranteed for a 60–90 day period and the monthly payment is based on an estimate of taxes. In condominiums, common expenses are also estimated. The offer should be conditional on the lender approving the property, arranging a satisfactory appraisal, and any other conditions spelled out in the pre-approval document.

The terms pre-approved and pre-qualified may not have the same meaning from the lender’s perspective. Take the time to read the exact terms of the certificate carefully.

Listing, Offer, and Acceptance

While financing methods on a sale will vary from one brokerage to another, certain common patterns emerge in most transactions subject to particular variances at a local level.

· At the point of listing, the maximum amount, interest rate, and even the source of funds for any new mortgage will be partially dictated by the type, location, and value of the property.

· The financial circumstances of the buyer must be assessed. The downpayment provides an indication of probable financing requirements, and information as to the buyer’s income, obligations, stability, and future prospects of income stream will assist in determining the payments that the buyer can afford. Many sales representatives prefer that the buyer complete mortgage application forms before viewing property, to determine the amount of financing required.

· Prior to preparing any offer, the buyer should have received pre-approval, or the salesperson might have a mortgage professional:

· Qualify the buyer financially;

· Predetermine the type and amount of new mortgage necessary;

· Predetermine the probable interest rate, payments, term, and special privileges for the mortgage;

· Predetermine the lender who will be approached;

· Predetermine the amount of time that will probably be involved to arrange a mortgage;

· Predetermine the expenses involved in arranging a mortgage; and

· Predetermine the probability that the mortgage will be arranged.

The buyer’s ability to arrange financing is vital for protection of the seller, who, in accepting an offer, will effectively take the property off the market on the risk that this mortgage can be arranged for the buyer within the specified time limit.

Mortgage Insurance

Two organizations currently offer mortgage insurance to approved lenders: Genworth Financial Canada and Canada Mortgage and Housing Corporation. The mortgage insurance fee, a percentage of the mortgage amount, varies according to a graduated scale based on loan to value (LTV) ratio: the higher the LTV, the higher the premium. Mortgage insurance is due on closing and can be paid either separately or added to the mortgage.

An underwriting or application fee also applies. Mortgage insurance fees may also be subject to provincial sales tax. In Ontario, for example, mortgage insurance fees are taxable goods pursuant to the Retail Sales Tax Act. Eight percent tax on the fee must be paid at closing.

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