Lenders we deal with...
Frequently Asked Questions
Questions
- How much can I afford to pay for a home?
- What is a home inspection and should I have one done?
- What is the minimum down payment needed for a home?
- What is mortgage loan insurance?
- What is a conventional mortgage?
- How does bankruptcy affect qualification for a mortgage?
- How will child support affect mortgage qualification?
- What type of documentation will be required to obtain a mortgage?
- Can I get a mortgage to purchase a home?
- Can I use gift funds as a down payment?
- What is a pre-approved mortgage?
- Should I wait for my mortgage to mature?
- What is a down payment?
- How can you pay off your mortgage sooner?
- How can you use your RRSP to help you buy your first home?
- What are the costs associated with buying a home?
- What should the length of my mortgage term be?
- What are the monthly costs of owning a home?
- Should you go with a short or long-term mortgage?
- What is a fixed rate mortgage?
- What is a variable rate mortgage?
Answers
How much can I afford to pay for a home?
To determine 'affordability' you will first need to know your taxable income along with the amount of any debt outstanding and the monthly payments. Assuming it is your principal residence you are purchasing, calculate 32% of your income for use toward a mortgage payment, property taxes and heating costs. If applicable, half of the estimated monthly condominium maintenance fees will also be included in this calculation.
Second, calculate 40% of your taxable income and deduct all of your monthly debt payments, including car loans, credit cards and lines of credit payments. The lesser of the first or second calculation will be used to help determine how much of your income may be used towards housing-related payments, including your mortgage payment. These calculations are based on lenders' usual guidelines.
In addition to considering what the ratios say you can afford, make sure you calculate how much you think you can afford. If the payment amount you are comfortable with is less than 32% of your income you may want to settle for the lower amount rather than stretch yourself financially. Make sure you don't leave yourself house poor. Structure your payments so that you can still afford simple luxuries.
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What is a home inspection and should I have one done?
A home inspection is a visual examination of the property to determine the overall condition of the home. In the process, the inspector should be checking all major components (roofs, ceilings, walls, floors, foundations, crawl spaces, attics, retaining walls, etc.) and systems (electrical, heating, plumbing, drainage, exterior weather proofing, etc.). The results
of the inspection should be provided to the purchaser in written form, in detail, generally within 24 hours of the inspection.
A pre-purchase home inspection can add peace of mind and make a difficult decision much easier. It may indicate that the home needs major structural repairs which can be factored into your buying decision. A home inspection helps remove a number of unknowns and increases the likelihood of a successful purchase.
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What is the minimum down payment needed for a home?
A conventional mortgage has a minimum downpayment that is 25% of the purchase price. Mortgages with less than 25% down must have mortgage loan insurance provided by either CMHC or GE allowing up to a minimum of 5% downpayment. However, certain criterias must be met by the borrower.
There are also programs available now that may allow as little as 0% downpayment depending on the client's credit history, employment status/history etc.
Consult with you mortgage consultant to see what the minimum downpayment you may qualify for.
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What is mortgage loan insurance?
Mortgage loan insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, and GE Capital Mortgage Insurance Company, an approved private corporation. This insurance is required by law to insure lenders against default on mortgages with a loan to value ratio greater than 75%. The insurance premiums, ranging from .50% to 3.75%, are paid by the borrower and can be added directly onto the mortgage amount. This is not the same as mortgage life insurance.
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What is a conventional mortgage?
A conventional mortgage is usually one where the down payment is equal to 25% or more of the purchase price, a loan to value of or less than 75%, and does not normally require mortgage loan insurance.
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How does bankruptcy affect qualification for a mortgage?
Depending on the circumstances surrounding your bankruptcy, generally some lenders would consider providing mortgage financing.
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How will child support affect mortgage qualification?
Where child support and alimony are paid by you to another person, generally the amount paid out is deducted from your total income before determining the size of mortgage you will qualify for.
Where child support and alimony are received by you from another person, generally the amount paid may be added to your total income before determining the size of mortgage you will qualify for, provided proof of regular receipt is available for a period of time determined by the lender.
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What type of documentation will be required to obtain a mortgage?
Some of the items you may need to provide are:
- personal information, including identification such as your driver's license,SIN etc.
- immigration papers for recent immigrants and non-residents
- letter of employment from employer on company letterhead
- 2-3 Notice of Assement (NOA)
- most recent pay stub
- bank statements, RRSP, credit card information, lines of credit etc...
- Business registration number or articles of incorporation if self employed
- financial statements, balance sheet etc... if self-employed
- letter of discharge if previously bankrupt
The type and amount of documentation can vary significantly on each individual's case and the particular lender's underwriting requirement for a specific situation. Your mortgage consultant can evaluate individual case and tell you exactly what you will require.
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Can I get a mortgage to purchase a home?
Subject to qualification, yes.
If you're like most "renters" or "non-home owners " the down payment may be the biggest thing holding you back. However if you have a steady source of income and you wish to own a home instead of paying a landlord we can probably find a mortgage to suit you. It's best to consult with a mortgage advisor since there no cost to you, for them to evaluate your situation and see what you may qualify for.
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Can I use gift funds as a down payment?
Yes.
Most lenders will accept gifted money from family as an acceptable down payment. A gift letter signed by the donor is usually required to confirm that the funds are a true gift and not a loan.
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What is a pre-approved mortgage?
A pre-approved mortgage provides an interest rate guarantee from a lender for a specified period of time (usually 60 to 90 days) and for a set amount of money. The pre-approval is calculated based on information provided by you and is generally subject to certain conditions being met before the mortgage is finalized. Conditions would usually be things like 'written employment and income confirmation' and 'down payment from your own
resources', for example.
Most successful real estate professionals will want to ensure you have a pre-approved mortgage in place before they take you out looking for a home. This is to ensure that they are showing you property within your affordable price range.
In summary, a pre-approved mortgage is one of the first steps a home buyer should take before beginning the buying process.
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Should I wait for my mortgage to mature?
Lenders will often guarantee an interest rate to you as much as 90 days before your mortgage matures. And, as long as you are not increasing your mortgage, they will cover the costs of transferring your mortgage too. This means a rate promised well in advance of your maturity date, thus eliminating any worries of higher rates. And if rates drop before the actual maturity rate, the new lender will usually adjust your interest rate lower as well.
Most lenders send out their mortgage renewal notices offering existing clients their posted interest rates. The rate you are being offered is usually not the best one.
If you are working with a mortgage broker, they will try to get you the best rate they can in order to keep your business. They can investigate the possibility of a lower interest rate with that lender or another lender.
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What is a down payment?
Very few home buyers have the cash available to buy a home outright. Most of us will turn to a financial institution for a mortgage. However, you will still need to raise the money for a down payment.
The down payment is that portion of the purchase price you furnish yourself. The amount of the down payment (which represents your financial stake, or the equity in your new home) should be determined well before you start house hunting.
The larger the down payment, the less your home costs in the long run. With a smaller mortgage, interest costs will be lower and over time this will add up to significant savings.
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How can you pay off your mortgage sooner?
There are ways to reduce the number of years to pay down your mortgage. You'll enjoy significant savings by:
Selecting a non-monthly or accelerated payment schedule
Increasing your payment frequency schedule
Making principal prepayments
Making Double-Up Payments
Selecting a shorter amortization at renewal
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How can you use your RRSP to help you buy your first home?
Today, about 50% of first-time home buyers use their RRSP savings to help finance a down payment. With the federal government's Home Buyers' Plan, you can use up to $20,000 in RRSP savings ($40,000 for a couple) to help pay for your down payment on your first home. You then have 15 years to repay your RRSP.
To qualify, the RRSP funds you're using must be on deposit for at least 90 days. You'll also need a signed agreement to buy a qualifying home.
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What are the costs associated with buying a home?
First and foremost, you have to make sure you have enough money for a down payment - the portion of the purchase price that you furnish yourself.
To qualify for a conventional mortgage you will need a down payment of 25% or more. However, you can qualify for a low down payment insured mortgage with a down payment as low as 5%.
Secondly, you will require money for closing costs (up to 2.5% of the basic purchase price).
If you want to have the home inspected by a professional building inspector ( highly recommended ) you will need to pay an inspection fee. The inspection may bring to light areas where repairs or maintenance are required and will assure you that the house is structurally sound. Usually the inspector will provide you with a written report. If they don't, then ask for one.
You will be responsible for paying the fees and disbursements for the lawyer or notary acting for you in the purchase of your home. We suggest you shop around before making your decision on who you are going to use, because fees for these services may vary significantly.
There are closing and adjustment costs, interest adjustment costs between buyer and seller and (depending on where you live) land transfer tax.
Finally, you will be required to have property insurance in place by the closing date. And you will be responsible for the cost of moving.
Remember, there will be all kinds of things you'll have to purchase early on - appliances, garden tools, cleaning materials etc. So factor these expenses into your initial costs.
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What should the length of my mortgage term be?
The length of mortgage terms varies widely - from six months right up to 40 years. As a rule of thumb, the shorter the term, the lower the interest rate the longer the term. The higher the rate.
While four or five year mortgages are what most home buyers typically choose, you may consider a short-term mortgage if you have a higher tolerance for risk, if you have time to watch rates or are not prepared to make a long-term commitment right now.
Before selecting your mortgage term, we suggest you consult with a mortgage advisor.
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What are the monthly costs of owning a home?
Needless to say, you'll have financial responsibilities as a home owner.
Some of them, like taxes, may not be billed monthly, so do the calculations to break them down into monthly costs. Below you will find a list of these expenses.
The Mortgage Payment
For most home buyers, this is the largest monthly expense. The actual amount of the mortgage payment can vary widely since it is based on a number of variables, such as mortgage term or amortization.
Property Taxes
Property tax can be paid in two ways - remitted directly to the municipality by you, in which case you may be required to periodically show proof of payment to your financial institution; or paid as part of your monthly mortgage payment.
School Taxes
In some municipalities, these taxes are integrated into the property taxes. In others, they are collected separately and are payable in a single lump sum, usually due at the end of the current school year.
Utilities
As a home owner, you'll be responsible for all utility bills including heating, gas, electricity, water, telephone and cable.
Maintenance and Upkeep
You will also have to cover the cost of painting, roof repairs, electrical and plumbing, walks and driveway, lawn care and snow removal. A well-maintained property helps to preserve your home's market value, enhances the neighbourhood and, depending on the kind of renovations you make, could add to the worth of your property.
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Should you go with a short or long-term mortgage?
A longer-term mortgage is worth considering if you have a busy life and don't have time to watch mortgage rates. Our 4, 5 and 7-year mortgages let you take advantage of today's rates, while enjoying long-term security knowing the rate you sign up for is a sure thing.
If you want to keep your mortgage flexible right now, you can explore a shorter-term mortgage that usually allows you to take advantage of lower rates and save.
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What is a fixed rate mortgage?
The interest rate on a fixed-rate mortgage is set for a pre-determined term - usually between 6 months to 25 years. This offers the security of knowing what you will be paying for the term selected.
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What is a variable rate mortgage?
It is mortgage in which payments are fixed for a period of one to two years although interest rates may fluctuate from month to month depending on market conditions. If interest rates go down, more of the payment goes towards reducing the principal; if rates go up, a larger portion of the monthly payment goes towards covering the interest.
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