A real estate project is carried out in several stages. If the main objective for the future owner is to find the property that ideally meets his expectations, it also consists of financing his purchase. And unless you have the total amount, you will have to contact a financing organization to take out a mortgage.

Here are six steps to develop to succeed in a real estate financing plan.

Step 1: Take stock of your contribution

Although not essential, a personal contribution is very widely encouraged when preparing to apply for a mortgage. These contribution could be from several sources such as:

• personal savings (e.g., Housing Savings Plan)
• donation, inheritance
• actual or estimated sale of the current home for an owner

A good contribution represents between 10 and 30% of the price of the property. The larger the contribution, the more attractive the interest rate will be. However, a real estate loan is possible without contribution. That is, financing at 100%, on the condition of presenting a solid proof of repayment.

 Step 2: Assess your debt capacity

Evaluating your debt capacity means determining the monthly amount devoted to repaying the loan. This sum must not exceed 33% of your monthly income.

Several parameters must be taken into account to know your debt ratio:

• Monthly net income (including social benefits and deduction of charges)
• The amount of the contribution
• The loan repayment period
• The interest rate charged by the bank

The total amount of the loan (excluding additional costs such as insurance, guarantees, etc.) can thus be assessed and the monthly repayment installments.

Step 3: Choose between a fixed rate and a variable rate

When applying for a mortgage, the bank will ask you to choose between fixed and variable rates. Each has positive and negative points.

1. Fixed rate

Advantage: Determined at the time of the loan agreement with the bank, it is the same throughout the repayment term. It allows long-term visibility on the amount to be repaid and the duration of the loan.

Disadvantage: It is higher than the variable rate, and if the rate is renegotiated, it incurs additional charges.

2. Variable rate

Advantage: It is lower than the fixed-rate

Disadvantage: It fluctuates according to financial indices. It can therefore decrease or increase depending on the economic situation. However, there are safeguards to limit the consequences of the variable rate. For example, the possibility of deferring the variation throughout the loan and not the number of monthly payments remains the same. 

Step 4: Compare loan offers

To compare loan offers is to play competition between banking establishments to obtain the best offer. The process can be done individually or through a broker such as Breezeful. 

Breezeful is an online mortgage broker that gets you the best mortgage online fast. They search over 30+ banks to provide the most competitive rates, closing the best one unique to each Breezeful customer.

Do you know?

You don’t need a fortune to start a real estate business. All you need is the proper knowledge. If you dream of starting your own real estate business from the comfort of your home, contact Addy.

Addy is a proptech that makes homeownership attainable for all Canadians. Through its crowdfunding real estate investment platform, users can invest a custom amount of capital ranging from even CAD$1 up to CAD$1500 into properties listed in Addy’s marketplace. By investing within the bounds of their budget, investors can enter the real estate market without making any life-altering financial sacrifices.