Without financing, very few of us would be able to afford a home. Fortunately, mortgage financing is widely available to just about everyone, and with some basic knowledge of financing requirements and options, you could be owning your new home with greater ease and a less cost.

Prepare

Regardless of who you obtain financing from, you will likely need to prove your ability to repay it. The information usually requested is proof of income, proof of employment, proof of current debt and bill payments. Be sure to have all this handy before you apply. You can expect your credit rating to be checked as well.

The more debt you have, the less you will be able to borrow at decent rates. If you plan on buying a home soon, be careful how you use your credit. Perhaps hold off on financing that new car until after you buy your home.

Rates

Mortgage lending is a competitive business and you are best off to do a little "window shopping" before applying at your local bank. Be careful of "cash back" or other gimmicks as they will often have a higher rate and end up costing you more money in the end.

Also, be sure to talk to a mortgage broker as well as the various banks. In most cases, a mortgage broker can get you financing at lower rates than the banks. They also have access to institutions and investors who will lend to you even if you do not qualify for bank financing, and often provide a bit more service than banks, such as meeting you at your home to fill out paperwork.

High Ratio Financing

When you finance more than 75% of the value of the home, you will likely be required to pay mortgage insurance. This adds between 1.0% and 3.1% to the cost of the mortgage. This is usually added to the mortgage balance and therefore, you must "qualify" for the total amount. Simply stated, the more down payment you have, the less the cost of insurance.

There are now several mortgage insurance companies in Canada, CMHC is just one of them. This "insurance" protects the lender, not you. CMHC is a crown corporation, while the other companies are private or public corporations. All offer the same general services to the lenders, and can each come after you for money owed if you default.

Assuming Financing

In many cases people may not qualify for decent financing even though they have plenty of money and ability to repay a mortgage. In such instances, assuming a mortgage is often the best way to finance a house. Most mortgages in Alberta are assumable if the seller and the bank agrees to let you assume it. Collateral mortgages, such as a "line of credit" are not assumable.

You do not need to "qualify" to assume a mortgage, but you will need to convince the seller that you are trustworthy as they can be liable if you default within the first year after assumption. You must also come up with enough money to pay the sellers the balance between the selling price and mortgage balance. For example if you buy a home for $300,000 and assume a $250,000 mortgage, you will have to have $50,000 in cash.