Читать книгу Your First Home - Kimberley Marr - Страница 5

A logical starting point when buying a home is to determine how much money you have to spend. Most first-time buyers don’t have enough money to pay cash for their home so they need a mortgage.

A mortgage is a lien or charge recorded against the home in favour of the lender. It is an agreement or contract between a borrower (i.e., home buyer) who wants to borrow money in order to purchase a home and a lender (i.e., lending institution or person) willing to loan the money. The mortgage contains terms that the borrower agrees to with the lender. In return for the loan, the lender wants something to assure that the borrower will pay back the money — this is called collateral, which is normally the home that is purchased.

The lender also wants a promise that the borrower will pay back the money. The lender evaluates the risk in lending the money. Although the lender has the home as collateral, it really doesn’t want your home (it’s not in the business of collecting property that is in default of the owner’s mortgage payment). Lenders want you to repay the borrowed money with interest. Lenders, more specifically financial institutions, make a profit by borrowing money from their customers through deposits, such as Guaranteed Investment Certificates (GICs), and other interest-bearing products at one rate then turning around and lending this money to borrowers at a higher rate. The profit is the difference between the interest rate paid by the lender to use the funds on deposit and the interest rate it charges the borrower (the “spread”), less the costs to originate and service the mortgage.

The lender underwrites the loan by starting with a credit check on the borrower. This gives the lender insight about borrowing and repayment track records and how the borrower uses credit. It tells the lender whether a borrower regularly and historically pays bills on time. This is important because if a borrower has a poor repayment history, the lender may think that he or she will not repay the mortgage loan on time, so the lender may either charge a higher interest rate to offset the risk or decline the loan.

If your credit report confirms that you have a good repayment history, the lender will classify you as good or an “A” customer and will want to see proof that you have a job. The lender will request a letter from your employer outlining your salary and stating how long you have been employed there.

If you are self-employed, this makes things a little trickier. In this case, depending on the lender, you will be requested to provide the past two or three years’ worth of notices of assessment, and possibly tax returns and/or financial statements.