The Inspire Playbook
Home Buyers Guide

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Getting pre-approved for a mortgage is free and will give you a clear picture of how much you can afford and what your interest rate will be prior to purchasing a home.  Although it’s not a mandatory step in the process, getting pre-approved will put you in a better position to make an offer as soon as you find the right home or property.

Now, once you’re pre-approved, your interest rate will be locked in for the next 120 days subject to all the conditions.

If the interest rate on the term chosen goes up, the rate you’re pre-approved for will hold if the conditions are satisfied and your closing date is within that 120-day period.

If the interest rate goes down during this time, you can ask to have your pre-approved interest rate adjusted to reflect the lower current rate.

Choosing the lowest mortgage rate possible is not always the best option for your to achieve your goals. It’s easy to obsess over finding the lowest mortgage rate, but in some cases, it may be one of the least important options when all other factors are considered.  These include considering: 

• Prepayment Privileges: Just because you have a 25-year mortgage, doesn’t mean you can’t pay it off sooner.  With an open mortgage you can pay off your mortgage in full at any time, although you’ll pay a higher mortgage rate. With a closed mortgage, you’re limited by how much you can prepay

• The High Cost of Penalties: In Canada the most popular mortgage product is the fixed rate five-year mortgage, even though many first-time homebuyers will eventually feel the need to escape the shackles of their mortgage before the five years are up. Breaking your mortgage can prove costly, especially if you have a fixed-rate mortgage.

• Portability: Who knows where life may take you in the next 2 – 4 years.  Even if you’re purchasing a home with the desire to live in it for many more years to come, sometimes life happens and plans change.  There are an endless amount of reasons why you might want to break your mortgage.  If you purchase a portable mortgage, you can “port” it to your new property and avoid paying costly mortgage penalties. If by chance your new home is more expensive than your current home, you can “blend and extend” your mortgage. 

Doing any of the following may effect the mortgage process prior to funding.  So you’ll want to avoid:

• Applying for or opening a new credit card
• Leasing or financing a new vehicle
• Changing jobs, quitting your job or becoming self employed 
• Missing or skipping any existing bill payments
• Purchasing any big ticket items using your existing credit 

Although specific benchmarks will vary from lender to lender, a credit score above 660 is generally considered good.

Credit scores in Canada range from 300 (the worst) up to 900 (the best).  Scores that fall between 560 – 659 are considered fair, while anything below 560 is poor.

In Canada, most top banks won’t approve borrowers with a score under 600.  If this happens to be you, it doesn’t mean your dream of homeownership is unattainable.  You may be able to obtain a high risk, higher interest mortgage from a private lender.

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