How to Get a Mortgage in Alberta
A Step-by-Step Guide to Getting a Mortgage in Alberta
If you're planning on buying a home in Alberta, getting a mortgage is the first step in the process. While it may seem daunting at first, the process can be straightforward if you know what to expect.
You can use online mortgage calculators to get an estimate of how much you can afford, but it's important to speak with a mortgage broker to get pre-approved for a mortgage. A mortgage broker will be able to tell you everything you need to know about getting a mortgage in Alberta.
Preparation for a Mortgage Application
Assessing Your Financial Situation
When you apply for a mortgage, the lender will want to know about your income, debts, and assets. It is important to have a clear understanding of your financial situation before you apply.
You can use a mortgage calculator to get an estimate of how much you can afford to borrow based on your income and expenses.
To assess your financial situation, you should gather the following documents:
Bank and investment statements
Letters of employment and Pay stubs
Tax returns, T1 Generals and Notices of Assessment
Debt statements
Separation Agreements
Anything else your mortgage broker requests
Understanding Credit Scores
Your credit score is an important factor in determining whether you will qualify for a mortgage and what interest rate you will be offered. A good credit score is typically 680 or higher. If your credit score is lower, you may still be able to qualify for a mortgage, but you may have to pay a higher interest rate.
To improve your credit score, you should:
Pay your bills on time
Keep your credit card balances low
Avoid opening new credit accounts
Actively use credit and then pay it off quickly
Applying for a Mortgage
There are many lenders to choose from when you're looking for a mortgage in Alberta. An easy way to compare rates from all lenders is to work with a mortgage broker.
Mortgage brokers will find you the best interest rate available and help you consider other factors like:
Variable vs fixed rates
Fees and charges
Terms and conditions
Customer service
Reputation and reviews
You can apply for your mortgage through a mortgage broker. After you apply, the broker will give you rates from a few lenders. Once you pick the lender, you can get your pre-approval.
Pre-Approval Process
Before you start looking for a home, it's a good idea to get pre-approved for a mortgage. A pre-approval is official confirmation of your mortgage amount and rate.
To get pre-approved for a mortgage, you'll need to provide your broker with some basic information, such as your income, personal identification, and financial records. They'll use this information to determine how much you can afford to borrow and provide you with a pre-approval letter.
Some benefits of getting pre-approved for a mortgage include:
Knowing your budget before you start house hunting
Locking in an interest rate for a set period of time
Negotiating with confidence when purchasing
Understanding your timelines for conditions on an offer
Mortgage Payment and Costs
Mortgage Payments
When you purchase a property in Alberta, you will need to make regular mortgage payments. These payments will cover both the principal amount of the loan and the interest charged by the lender. The amount of your mortgage payments will depend on the size of your mortgage, the interest rate, and the amortization period.
Down Payment
In Alberta, the amount required for a down payment varies depending on how much the home costs:
$500,000 or less: 5% of the purchase price
$500,000 to $999,999: 5% of the first $500,000 of the purchase price and 10% for the portion of the purchase price above $500,000
$1 million or more: 20% of the purchase price
Closing Costs
When you purchase a property, you will need to pay closing costs, which can include legal fees, property insurance, moving costs, and more. These costs can vary depending on the purchase price of the property and the location of the property.
Property Tax
It's important to note that mortgage payments are not the only costs associated with owning a home. You will also need to pay property taxes, which are assessed by your local municipality, and may be subject to change each year.
Mortgage Insurance
If your down payment is less than 20% of the purchase price of the property, you will need to pay default mortgage insurance. This insurance protects the lender in case you default on your mortgage payments and is offered by CMHC, Sagan and Canada Guarantee.
The cost of mortgage insurance will depend on the size of your down payment and the purchase price of the property.
Special Considerations
First-Time Home Buyers
There are various programs available to help first-time buyers get their first home. In Alberta, your main options are:
Tax-free savings account (TFSA)
Registered retirement savings plan (RRSP)
If you’re saving to buy your first house specifically, an FHSA is likely a good choice, as it’s designed exactly for that. An FHSA can also be helpful to avoid spending the money on other purchases, as the withdrawal rules are quite strict.
That said, if you’re saving money more generally or if you’re not sure you’ll use the money for your first house, a TFSA is a more flexible option. Unlike an FHSA, you can use the money in your TFSA for any purchase, not just your first home.
There is also the Home Buyers’ Plan, which allows people to use up to $35,000 from their RRSP to purchase a home without having to pay tax on the withdrawal. Note that you must repay the money within 15 years, starting the second year after you made the withdrawal.
Bad Credit
If you have bad credit, it can be more difficult to get approved for a mortgage. You may be subject to a higher interest rate or require a larger down payment.
However, there are steps you can take to improve your credit score, such as paying off debts and making payments on time. You may also consider getting a co-signer or applying for a mortgage with a lower loan-to-value ratio.
Little or No Down Payment
Buying real estate in Canada typically requires a down payment, which can be challenging for many people. However, it's possible to purchase a property without saving up for a down payment by borrowing the down payment.
This is what’s known as a no down payment or zero down mortgage. A mortgage without a downpayment or a “no down” mortgage is a bit of a misnomer. There is no such thing as a mortgage with no down payment at all.
With a no down mortgage, you’re still technically making the down payment, you just don’t need to have the down payment in your savings. Instead, you’re taking out a loan to cover the down payment.
Talk to a Mortgage Broker
If you're unsure about the mortgage process or want to find the best deal, consider talking to a mortgage broker. A mortgage broker is a licensed professional who can help you find and apply for a mortgage that meets your needs. Here are some reasons why you should consider working with a mortgage broker:
Access to multiple lenders: A mortgage broker has access to multiple lenders, including banks, credit unions, and private lenders. This means they can shop around for the best mortgage rates and terms on your behalf.
Expert advice: A mortgage broker can provide you with expert advice on the mortgage process, including how to improve your credit score, how much you can afford to borrow, and what type of mortgage is best for your situation.
Save time and effort: Applying for a mortgage can be time-consuming and stressful. A mortgage broker can handle the paperwork and negotiations on your behalf, saving you time and effort.
No cost to you: In Alberta, mortgage brokers are paid by the lender, so there's no cost to you for their services.
Apply for a mortgage with Spire Mortgage today and get your mortgage journey started.
