I’ve been working with homeowners for many years and have come to learn what mortgage needs are suitable for my clients. Whether you’re purchasing a home for the first time, using your home as equity for an investment or pleasure, it’s important you meet with a mortgage broker who can provide you with professional unbiased advice. Here are some common questions that people ask.
Before you begin your home search, it’s important to get pre-qualified. The most important factor that lenders use as a rule of thumb for how much you can borrow is your debt to income ratio, which determines how much of your income is needed to pay your debt obligations, such as your mortgage, your credit card payments, and your student loans. Once we determine what price range you qualify for you’ll be able to narrow your home search so you’re only looking at homes that fit your spending criteria.
In addition, knowing that you have been properly pre-qualified provides you peace of mind and gives you confidence that whatever properties may come available you know exactly where you stand.
In Ontario, buyers pay a land transfer tax upon the purchase of land or a home. However, first-time home buyers will receive a rebate of up to $4,000.00 dollars or more depending on where they purchase. You must be at least 18 years of age, cannot have owned a home.
In addition, Canada’s Home Buyers’ Plan (HBP) is a program that allows eligible first-time buyers to withdraw a maximum of $35,000 from their RRSPs without being penalized. The Plan allows borrowers to pay back the withdrawn funds within a 15-year period.
Generally speaking, the best mortgage rates are available to everyone who meets all the lender’s criteria and has a credit score of 680 or higher. Whether your score is 682 or 880, as long as you’re within that range you can qualify for the lowest mortgage rates.
Your credit shows the lenders how you pay your bills. You must have established credit for a minimum of two years with at least two trades, for eg. car loan, line of credit or credit card that you’ve been actively using. Paying your bills on time and keeping your balances under 50% of the limit will keep your credit in good standing.
The legal fees, transfer fees, disbursements, and other costs that must be paid when buying a home. They are in addition to the down payment the HST that is paid on real estate commissions. Closing costs are due on the day the buyer officially takes ownership of the home, and they usually range from 1.5% to 4% of the purchase price.
Any home purchase where less than 20% down is provided requires a “high-ratio” mortgage.
While the mortgage default insurance policy is taken out by your lender, you’ll be required to pay the premiums upfront, at the beginning of your mortgage. The cost of premiums will be added to your mortgage amount for the first 5 years of your term. The premiums vary based on what your down payment will be.
The whole point of “high-ratio” mortgages is to allow people with fewer assets to get into the real estate market and build equity in their home.
For an insured mortgage your maximum amortization period will be 25 years.
A conventional mortgage is where the down payment is 20% or more of the purchase price, a loan to value of 80%.
A fixed-rate mortgage has an interest rate that remains the same for the life of the loan. In other words, your total monthly payment of principal and interest will remain the same over time.
Fixed rate mortgages often appeal to clients who want stability in their payments, manage a tight monthly budget, or are generally more conservative. For example, young couples with large mortgages relative to their income might be better off opting for the peace of mind that a fixed-rate brings.
A mortgage where the interest rate fluctuates based on the current market conditions. The payments will generally remain the same, but the amount of each payment that goes toward the principal or the interest on the loan changes as interest rates fluctuate.
The percentage of a person or household’s gross monthly income that goes to pay the mortgage principal and interest, property taxes and heating costs, plus 50% of any condominium maintenance fees. To qualify for a mortgage, the borrower’s GDS ratio must be at or below 35%.
The percentage of a person or household’s gross monthly income that goes to pay the mortgage principal and interest, property taxes and heating costs, plus all other debt obligations such as car payments, personal loans or credit card debt. To qualify for a mortgage, the borrower’s TDS ratio must be at or below 42%.
Despite the common belief, obtaining a mortgage after bankruptcy is still possible. If you are two years clear of bankruptcy. That is, two years from the time you were discharged, not from the time you declared bankruptcy.
Obtaining a secured credit card is a good way to begin the process. When you apply for a secured credit card, you will be required to provide a security deposit, usually a minimum of $500.00 (depending on the company) in case you default on your account.
You must have 2 years of established credit and your credit card limits will eventually need to surpass a $500.00 limit.
The issue many self-employed individuals face is that the six big banks can no longer provide mortgage financing unless their income is confirmable. However, the range of lenders I deal with provide mortgage options that are tailored for self-employed borrowers specifically.
When applying for a mortgage for a self-employed individual, you must be self-employed for at least 2 years.