Unless you’re independently wealthy, buying a home will require the use of a mortgage – a financial instrument used by banks that is defined as:
“A legal agreement by which a bank or other creditor lends money at interest in exchange for taking title of the debtor’s property, with the condition that the conveyance of title becomes void upon the payment of the debt.” (Oxford)
With a payback calendar that typically takes years if not decades, a mortgage is the usual way of purchasing real property. The key to buying a home is to determine beforehand how much you can spend. This is referred to as being pre-approved or pre-qualified for a mortgage, an essential part of the financial process. You’re only setting yourself up for disappointment if you have visions of owning a $1 million home, but only qualify for a mortgage covering half that amount.
To pre-qualify for a mortgage you will be required to provide financial information to your mortgage broker, banker or other financial institution. This information will typically include such facts as your total savings and any investments. It will also include information about your work, employment history, wages, debt loads or any other information the lender deems of interest.
The lender then reviews the information to determine exactly how much they would be willing to lend. Knowing what funds are potentially available will help you in deciding the price range of the homes you should be looking at. You must also provide a down payment out of your savings before a lender will provide a mortgage. This is a percentage of the purchase price that varies from province to province. If buying a home is a goal, then you should begin saving for a down payment as soon as possible.
Remember: the larger the down payment the smaller the mortgage – and the smaller the mortgage the quicker you will own your property outright, which is the goal of every homeowner.