First Mortgage Financing

A first mortgage is generally taken out for one of 2 reasons: to purchase a property or to take equity out of a property.

First Mortgage Financing When Purchasing a Home

When purchasing a home it is important not to start looking for a home until you determine the amount of a first mortgage you qualify for and can repay. There is no point in setting your sights on a house you are not going to be able to pay for so it is better to speak to a local mortgage broker to get pre-approved for a mortgage first.

To obtain a standard mortgage with a 5% down payment you will need to:

  1. Be able to prove your income: if employed, through a paystub and job letter; if self-employed, through 2 years of tax assessments.

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  2. Have good credit (the worse your credit is the more money you will need as a down payment) – generally a 650 credit score or higher with at least the past two years of all credit being paid up-to-date and on time.
  3. Have your debt service ratios in line with what the bank and CMHC will be looking for – 32% GDS (total housing payments divided into gross income) and 42% TDS (total housing payments plus payments to loans and credit cards divided into gross income).
  4. Be able to prove where your down payment came from. You must be able to provide 3 months of bank statements showing that you have had the down payment and that it was not borrowed. The only way around this is if the lender grants an exception for you to receive the money as a gift from an immediate relative and then he or she has to sign a document swearing same and that you do not have to pay back the money.

First Mortgage Financing When Refinancing a Home

Before you can even determine if a first mortgage is a possibility you must check to ensure that your existing first mortgage is not closed. If it is open then you may be able to refinance it to take equity out of your home.

Most lenders will offer to finance up to 80% of the value of your home. Your mortgage rate will depend on your income and credit. Generally speaking, if you have a good rate on your existing first mortgage and the new first mortgage will bear a higher interest rate, you may be best suited to consider a second mortgage.