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Blog 4 - Getting a mortgage in Canada

 

Five big banks in Canada 

In Blog 3, I shared my perspective about the pros and cons of renting and owning a house. Not unless you can afford to buy a house, then you don’t need a mortgage.

First, you must have a full time job. Some banks require at least 6 months of continuous employment and proof that you’re no longer probationary. 

Second, you must have credit history or credit score. In Canada, there are credit bureaus (Equifax and Transunion) that keep a record of all your financial borrowing whether active or paid. This includes credit cards, car loans and line of credit. Based on your credit dealings, the credit bureaus can generate your credit score. The acceptable credit score for most banks is 680. The higher your credit score, the better.

In case you don’t have yet a credit score, some banks will accept a letter from your landlord stating you pay your rents on time. 

Unlike in the Philippines, there is no credit bureaus. You must take a good care of your credit score because if you have a good credit score you can negotiate with the interest rate whether a mortgage or car loan.

The third thing you need to get a mortgage is down payment. Most banks require a minimum of 5% down payment. So if you’re buying a $200,000 house, your required down payment is $10,000.

The fourth thing you need is the closing cost. Usually banks calculate the closing cost at 1.8% of your house value. Closing cost is basically the legal fees involved in the transaction of your mortgage.

These are the typical requirements of most banks. Some banks will offer life insurance to mitigate the risk. Some banks will lower your interest rate to partially off-set the cost of the life insurance.

Also banks are not the only source of mortgage in Canada. There are quasi-banking institutions that provide mortgages, too.

I would suggest to get a mortgage pre-approval from the banks. In this way you will have an idea of how much you can afford. Mortgage pre-approval is free. 

Be practical in choosing a mortgage and live within your means.

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