Often the mortgage process includes having an appraisal done on your home, or the home you want to purchase. While fees for appraisers vary, and you need to ask them how much they will charge, it is not uncommon right now for a single detached bungalow in Calgary to be appraised for $ 200 - 225.00 ( and then add GST to that). Some lenderswill pay the costs of an appraisal, while others will expect you to foot that bill.
Appraisers are different from the assessors the City of Calgary uses for their tax assessment purposes. City assessors will only see the outside of the home, whereas, appraisers will inspect the inside as well. The city assessment is posted on their taxation website for anyone to see. You can check yours by looking up your address at www1.gov.calgary.ab.ca/fairshare.
Do not be dismayed if you find your property value on the City’s website to be lower than you expected. Most properties are undervalued there, but it is common knowledge within the real estate and mortgage industries, so lenders take that into consideration. While their policies will vary, at least one lender takes the city assessment and automatically adds 10% to it for a more realistic value.
Many lenders want appraisal reports that fit their own reporting criteria. For this reason, these lenders will only accept appraisals done by those on their ‘approved’ list. Do not think you can get an appraisal done by the appraiser of your choice, and then go shopping for the best mortgage deal. You may end up having to pay for a second appraisal, depending on the lender you actually take the mortgage out with.
Finally, appraisals are not an exact science. The appraiser will look at your home and also, comparable homes in your area, to decide on its value. Rather than coming out with an exact dollar value, they are likely to find a range your house falls within. It may be a discretionary decision, or even at times, a political decision as to what figure in that range the appraiser settles on. The older a home is, the greater that range of possibilities might be.
When lenders are looking at your application to approve or decline your mortgage, they are all looking at the same kinds of things. They vary, at times, with the emphasis they put on different parts of your application, and your mortgage broker can direct to those lenders best suited to your own strengths and weaknesses.
The common areas that all lenders consider are listed here, and will each be elaborated on in future newsletters. For additional information or answers faster than that, call me with your questions at any time.
The Five C’s of Credit:
Character: The lenders look for residence stability and income stability, especially over the last 3 years. Re-finance your mortgage before you switch jobs, not after.
Capital: Lenders want to be assured you have the downpayment without borrowing it. To accomplish this they will need copies of bank statements ( not just bank books), receipts from RSPs, or a gift letter from someone giving you the money.
Capacity: Lenders need to know your ability to handle the payments on the mortgage as well as continue handling any existing debt. Your Gross Debt (GDS http://www.wisemortgage.ca/images/help.jpg) do not exceed 32% of your gross income. Your Total Debt Service (TDS http://www.wisemortgage.ca/images/help.jpg) must not exceed 40% of your gross income. The TDS http://www.wisemortgage.ca/images/help.jpg would include any monthly payments on credit cards, car leases, or loans on any kind, heating costs, plus half of your condominium fees if applicable.
Collateral Lenders need to know that the property being mortgage has sufficient value in it to protect their investment in you. They need to know that if you walked away from your obligations, there would be sufficient value there to recoup their losses.
Credit Lenders will check your credit history. They are looking for a proven track record of having some credit, and using it wisely. Next month’s newsletter will deal with this topic in some depth.