Unimor Capital Corporation

Tag: home ownership

  • Understanding LTV: How it Impacts Your Mortgage Eligibility

    Understanding LTV: How it Impacts Your Mortgage Eligibility

    When it comes to obtaining a mortgage, understanding the concept of Loan-to-Value (LTV) ratio is essential. The Loan-to-Value ratio is a financial metric that plays a significant role in determining your eligibility for a mortgage. This article aims to shed light on what Loan-to-Value is and how it affects your ability to secure a mortgage.

    What is Loan-to-Value Ratio?
    Loan-to-Value ratio, often referred to as LTV ratio, is a key measure used by lenders to assess the risk associated with a mortgage loan. It represents the proportion of the loan amount in relation to the appraised value or the purchase price of the property (whichever is lower). The LTV ratio is expressed as a percentage and serves as an indicator of the borrower’s equity in the property.

    Understanding the Calculation
    To calculate the Loan-to-Value ratio, you divide the loan amount by the appraised value or the purchase price (whichever is lower) of the property and multiply the result by 100 to get a percentage. For example, if you are purchasing a property valued at $300,000 and you are borrowing $240,000, the LTV ratio would be calculated as follows:

    LTV Ratio = (Loan amount / Appraised value or purchase price) x 100
    LTV Ratio = ($240,000 / $300,000) x 100
    LTV Ratio = 80%

    How LTV Ratio Affects Mortgage Eligibility
    Lenders consider the LTV ratio as a crucial factor in assessing the risk associated with a mortgage loan. A higher LTV ratio indicates a larger loan amount relative to the value of the property, which is perceived as a higher risk for lenders. Here’s how the LTV ratio affects your ability to secure a mortgage:

    1. Impact on Interest Rates: In general, a higher LTV ratio often translates to higher interest rates on the mortgage. Lenders charge higher interest rates to mitigate the increased risk associated with a higher loan amount in comparison to the property value. To secure more favorable interest rates, a lower LTV ratio is preferable.
    2. Loan Approval: Lenders have guidelines and restrictions based on the LTV ratio. While the specific thresholds may vary, a lower LTV ratio generally increases your chances of mortgage approval. Lenders are typically more comfortable lending to borrowers with a greater stake in the property, as it serves as a cushion against potential losses in case of default.
    3. Mortgage Insurance: If your LTV ratio exceeds a certain threshold (typically 80%), lenders often require you to obtain mortgage insurance. This insurance protects the lender in case of default, but it adds an additional cost to your monthly mortgage payment.
    4. Down Payment Requirements: The LTV ratio directly influences the down payment required. A lower LTV ratio means a higher equity stake in the property, thus reducing the amount you need to borrow. Consequently, a lower LTV ratio generally leads to a lower down payment requirement.

    Understanding the Loan-to-Value ratio is crucial when applying for a mortgage. The LTV ratio acts as a risk assessment tool for lenders and plays a vital role in determining your mortgage eligibility. Maintaining a lower LTV ratio not only improves your chances of approval but also provides access to more favorable interest rates and reduces the need for mortgage insurance. If you’re planning to purchase a property or refinance an existing mortgage, make sure to consider the Loan-to-Value ratio and strive to maintain a healthy balance between the loan amount and the property value.

  • Inside the Mortgage Approval Process

    Inside the Mortgage Approval Process

    Documents Required to Get the Best Mortgage Rate

    So, you’ve found the perfect home, you put in an offer and it’s accepted­­—with the condition of financing, of course. Now it’s time to seal the deal and this boils down to money. So you call your lender to finalize the mortgage. That’s when you’re going to get hit with a list of paperwork that’s required for your application. Below is a list of paperwork that you may need to complete your mortgage application:

    Personal information: Age, marital status, number, and age of kids.

    Employment details: This includes proof of income (such as T4 slips, copies of your last two paystubs, personal income tax returns, Notice of Assessments from CRA for the last two tax filing years, and a letter from your company stating your position, length of employment and salary).

    If self-employed you’ll need to provide: Incorporation documents, if applicable, as well as financial statements for the corporation for the last two to three tax years. You’ll also be required to submit full personal tax returns as well as CRA Notice of Assessments for both the corporation, as well for you personally. The lender may also ask to see portions of your books, such as your General Ledger or Profit & Loss statements. Talk to your accountant or bookkeeper for these reports.

    Other sources of income: Typically this is a statement on your part, but the lender could ask for back-up documentation. Other income can include pension, rental income, part-time work, etc. You’ll probably be asked for copies of your tax returns, or copies of paystubs or rental income documentation.

    If you already own property: A copy of the mortgage statement on your current property and a copy of last year’s property tax statement and, perhaps, this year’s up-to-date property tax statement.

    Current banking information: Including bank, branch, accounts, and balances.

    Verification of your down payment: This can be a snapshot of a bank account where the money is currently deposited, or a letter from a family member stating that the money is a loan or gift.

    Consent to run a credit history search: Every lender will either verbally ask for permission (and then obtain your Social Insurance Number) or ask you to sign an authorization form allowing them to pull your credit history.

    List of debts (otherwise known as liabilities): This is where people sometimes opt to exclude a few items owed, but you need to resist this urge. Your credit history will show all outstanding money owed, so be upfront and honest. Provide a list of what is owed, to whom you owe it to and what monthly payments, if any, you put towards paying down the debt. The list should include student loans, credit card balances, car loans, monthly lease (or lease-to-own) arrangements and personal loans.

    Copy of the listing: You will need to print off a copy of the listing and include this in your mortgage documentation package.

    Copy of purchase document: You will need a copy of the document you signed to buy the home. Known as the Agreement to Purchase and Sale, it’s the document that states the address, what’s included/excluded and the price, deposit, and down-payment you agreed to.

    Condo documentation: If you’re buying a condo or strata-townhome, you’ll also need to include the condo corporation’s financial statements and status certificates.

    Rural property: You’ll need to include the certificate for the well and/or septic tank if you’re property isn’t on municipal water and sewer.

    If you want to reduce your stress during the financing phase of your home purchase, and you don’t want to or can’t submit all this information prior to finding a property then consider gathering up all this documentation ahead of time. Just having all the documentation at the ready will reduce your workload and free you up to concentrate on last-minute requests.