Are your COVID-19 government benefits coming to end? We have the information you need to prepare.
Do you live in Calgary? Are you planning on buying a house in the near future? If so, you’ll likely need to start thinking about your mortgage options soon. Purchasing a house can be an intimidating process, that’s why we think it’s so important that all future homeowners in Calgary arm themselves with the information they need to make the process as smooth as possible. Keep reading for everything you need to know about buying a house and applying for a mortgage in Calgary.
Should you spend your entire mortgage pre-approval amount? Find out here.
What Credit Score is Needed For a Mortgage in Calgary?
In order to get approved for a mortgage in Calgary, you’ll need to meet certain criteria.
For starters, you’ll need to prove that your income is adequate enough to help you afford the mortgage payments. You’ll also need to show your lenders in Calgary how much debt you currently carry. More specifically, your lender will want to know what your debt-to-income ratio is, which basically tells the lender how much of your monthly income is dedicated to paying your monthly debt payments.
But in addition to these, your lender will also assess your credit score before deciding whether or not to approve your mortgage application. Generally speaking, lenders in Calgary want to see credit scores of at least 650 to 680 (click here for more information on the minimum credit score required for mortgage approval). The higher the credit score, the higher the odds of mortgage approval.
A low credit score tells your lender in Calgary that your history of making payments is not exactly stellar. There are reasons why your credit score may be low, and missed payments can be the culprit. A lower credit score makes you a bigger risk for lenders and may be an obstacle to getting approved for a mortgage. Even if you do get approved, you would likely be given a higher interest rate, which would make your mortgage more expensive.
Alternative Mortgage Options For Bad Credit Borrowers in Calgary
If you have bad credit, that might stand in the way of you getting approved with a conventional lender in Calgary. That said, there are other options available for bad credit consumers.
Get a cosigner. If you can find someone with a good credit score who is willing to sign on as a cosigner on your mortgage, you may be able to secure a home loan. A cosigner basically promises to take over payments if you ever default on your mortgage. It’s a big responsibility to take on, so it’s important that both you and the cosigner you choose understands what’s at stake.
Work with an alternative lender. There are plenty of lenders available in Calgary to deal with borrowers with bad credit. These lenders have different lending requirements than conventional lenders in Calgary and focus more on other factors, including income, assets, down payment amount, and total debt load.
Interested in the alternative mortgage options available? Check out this.
Calgary borrowers should be aware, however, that be interest rates charged are often higher than what conventional lenders offer to those with a good credit score.
Take time to improve your credit score. If you’re not in a rush to buy a home, you might want to make the effort to improve your credit score. That way you’ll have a much better chance of getting approved for a mortgage. Consider taking the following steps to improve your score:
- Make all payments on time
- Pay down your credit card debt
- Keep your credit card spending to less than 30% of your credit limit
- Don’t close out old credit accounts
- Don’t apply for many loans in a short period of time.
Interested in how much it costs to purchase a house in your city? Click here.
Before you start searching for a home to purchase, you’d be well-advised to get pre-approved for a mortgage.
A mortgage pre-approval will tell you in writing that you are able to qualify for a mortgage based on your current income and credit report. While this isn’t necessarily a promise that you will be approved when you finally make an offer on a home, it is a step in the right direction.
Once you have submitted the appropriate documentation and your lender has had a chance to review it, you’ll be given a certain approval limit. That way you’ll know exactly how much you can afford to spend on a home purchase. This allows you to focus only on properties that you can afford and avoid disappointment. A pre-approval letter will typically specify a term, interest rate, and loan amount.
It’s important to note that pre-approvals don’t last forever. Usually, they’re only good for about 3 months, though in some situations they can last longer. Once they expire, you’ll need to get pre-approved again if you so choose.
Working with a mortgage broker? These are the questions you should be asking.
Comparing Mortgage Products
If you shop around for a mortgage (which you should), you’ll want to make sure that you look at certain important components of different mortgage products that you may be offered by different lenders, including the following:
- Amortization period
- Prepayment options
- Early payment penalties
- Variable or fixed rates
Mortgage Payment Options in Calgary
Like any other type of loan, you have different payment options. The one that you choose will depend on what your lender offers you and what you are more comfortable with. That said, the following are the payment options that you have when you take out a mortgage in Calgary:
- Accelerated bi-weekly – This payment option will allow you to pay off your mortgage faster, saving you on interest.
For a more in-depth look at your mortgage payment options, click here.
Types of Mortgages Available in Calgary
If you’re in the market to get a mortgage, you have a number of options, including the following:
Conventional mortgages. These types of home loans require a 20% minimum down payment. They’re lower-risk mortgages for lenders because they’re considered low-ratio. A down payment of at least 20% will allow you to avoid having to pay mortgage default insurance (or CMHC insurance)
High-ratio mortgages. Any down payment that’s less than 20% is considered a high-ratio mortgage and is subject to mortgage default insurance. That said, at least a 5% down payment is required.
Open mortgages. Borrowers in Calgary can enjoy some flexibility with open mortgages because they allow the mortgage to be paid back at any time without penalty. They come with shorter terms, but longer terms may be permitted as well. Interest rates on open mortgages tend to be higher than closed mortgages.
Closed mortgages. These differ from open mortgages in that they cannot be paid off early or refinanced before their maturity date without any penalties.
Fixed-rate mortgages. The name says it all: fixed-rate mortgages have interest rates that do not change throughout the mortgage term, making them more predictable.
Variable-rate mortgages. The opposite of fixed-rate mortgages, variable-rate mortgages have interest rates that can change at various intervals throughout the term of the mortgage, making them somewhat more unpredictable. They usually come with a lower rate during the initial introductory period but can fluctuate afterward depending on the market.
Home equity lines of credit (HELOC). Also referred to as second mortgages, a HELOC lets consumers borrow against the equity in their home. As long as there is enough equity built up in your property, you could qualify for this type of loan.
The total amount of time that you have to fully repay your mortgage is known as the amortization period. Shorter amortization periods allow you to pay off the loan faster and save money overall in interest, but each payment made is much higher.
Longer amortization periods, on the other hand, allow borrowers in Calgary to make smaller payments. But it takes longer to pay the mortgage off and cost more overall because of more interest paid.
The period you choose will depend on what you’re more comfortable with and what your lender is willing to offer.
The Right Mortgage Product For You
Are you ready to apply for a mortgage in Calgary? Let Loans Canada help you find the best lender and the right mortgage for your unique financial needs. Fill out an application today!