FREQUENTLY ASKED QUESTIONS
Why use a Mortgage Broker as opposed to a bank?
When dealing with one bank, you are limited to that bank's line of products, which may not include the mortgage product that best suits your needs.
By working with a Mortgage Broker you will have the access to a much wider range of mortgage products designed to fit your unique needs. You can also benefit from lower rates as Mortgage Brokers have access to the wholesale mortgage rates.
Working with a Mortgage Broker will also give you access to expert advice, as mortgage brokers are typically experienced professionals who specialize in mortgages – something that may not always be the case when arranging your mortgage through the branch.
Are there any fees involved with a Mortgage Broker?
In most instances, there are no fees involved. Mortgage Brokers receive a commission from the lending institution where your mortgage is placed.
In cases where you do not qualify for a mortgage due to bad credit, job instability or other similar factors, your application may have to be submitted to a non-traditional lender, where a brokerage fee could be charged. In these situations, however, any fees should be disclosed to you prior to proceeding.
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 towards it.
If your credit score is 680 or higher, 39% of your gross income can be spent towards mortgage payments, property taxes, heating and where applicable, 50% of maintenance/condo fees. If your score is less than 680, the ratio cannot exceed 35%. This is known as Gross Debt Service ratio or GDS.
The second ratio used to calculate your affordability is known as Total Debt Service or TDS. TDS is calculated by adding your monthly debt obligations, such as car loan payments and credit card payments, to your GDS. If your credit score is 680 or higher, your TDS cannot exceed 44% of your gross income. If lower than 680, it should not be higher than 42% of your gross income.
What is a pre-approved mortgage?
A pre-approved mortgage (very commonly referred to as “pre-approval”) provides an interest rate guarantee from a lender for a specified period of time (usually 90 to 120 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”, “down payment from your own resources” and similar.
Most successful real estate professionals will want to ensure you have a pre-approval 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. A pre-approval is usually the first steps a home buyer should take before beginning the buying process.
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. To qualify for a conventional mortgage you will need a down payment of 20% or more. However, you can also apply for insured mortgages with 5%, 10% and 15% down payment.
Secondly, you will require money for closing costs (typically 1.5% of the purchase price). These closing costs typically include fees and disbursements payable to the lawyer or the notary acting on your behalf, various adjustment costs such as property taxes and utilities, provincial sales tax on the mortgage insurance premium for insured mortgages, and land transfer tax fee.
See the “Calculators” section of this website for detailed calculation of Land Transfer Taxes that could be applicable to you.
If you want to have the home inspected by a professional building inspector - which is 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, ask for one.
Finally, you will be required to have property insurance in place by the closing date. You will also be responsible for the cost of moving.
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.
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 rate, term or amortization.
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.
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.
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.
What is the minimum down payment needed for a home?
The minimum down payment needed for a purchase of a home is 5%. However, through the program known as “Zero-Down”, you may qualify to get a cash-back equivalent to 5% that you can use as a down payment towards the purchase of your home. Talk to your broker about the details of this program.
What can I use for a down payment?
Can I use gift funds as a down payment?
Most lenders will accept down payment funds that are a gift from immediate family as an acceptable down payment. A gift letter signed by the donor(s) and recipient(s) is usually required to confirm that the funds are a true gift and not a loan.
There are certain mortgage programs, however, that restrict borrowers from having gifted funds as a source of the down payment. Ask your Mortgage Broker about these programs.
How can you use your RRSP to help you buy your first home?
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 $25,000 in RRSP savings ($50,000 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.
Even if you have already saved for your down payment, it may make good financial sense to access your savings through the Home Buyers' Plan. For example, if you had already saved $25,000 for a down payment - and assuming you still had enough "contribution room" in your RRSP for a contribution of that amount you could move your savings into a registered investment at least 90 days before your closing date. Then, simply withdraw the money through the Home Buyers' Plan
The advantage? Your $25,000 RRSP contribution will count as a tax deduction this year. Use any tax refund you receive to repay the RRSP or other expenses related to buying your home.
While using your RRSP for a down payment may help you buy a home sooner, it can also mean missing out on some tax-sheltered growth. So be sure to ask your financial planner whether this strategy makes sense for you, given your personal financial situation.
What is a conventional mortgage?
A conventional mortgage is usually one where the down payment is equal to 20% or more of the purchase price, a loan to value of or less than 80%, and does not normally require mortgage loan insurance.
What is mortgage loan insurance?
Mortgage loan insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation; Genworth Financial Canada, an approved private corporation; and Canada Guaranty, the newest private provider of mortgage loan insurance in Canada. This insurance is required by law to insure lenders against default on mortgages with a loan to value ratio greater than 80%. The insurance premiums are paid by the borrower and can be added directly onto the mortgage amount. This is not the same as mortgage life insurance.
How does bankruptcy affect qualification for a mortgage?
Depending on the circumstances surrounding your bankruptcy, there are lenders who would consider providing mortgage financing to discharged bankrupts. Typically, the banks would consider former bankrupts if two years have elapsed since the discharge of the bankruptcy, and if client has two years’ worth of re-established credit history, based on at least two trades. Ask your mortgage broker for more detailed requirements.
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.
How will child support affect mortgage qualification?
Where child support and/or alimony are paid by you to another person, generally the amount paid out is included in your mortgage qualifying ratios.
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.
What should the length of my mortgage term be?
The length of mortgage terms varies widely - from six months right up to 25 years. As a rule of thumb, the shorter the term, the lower the interest rate and 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 answer the following questions:
1. Do you plan to sell your house in the short-term without buying another? If so, a short mortgage term may be the best option.
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:
Should I wait for my mortgage to mature?
Lenders will often guarantee an interest rate to you as much as 120 days before your mortgage matures. And, as long as you are not increasing your mortgage, they will cover the costs of transferring your mortgage as well. 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. Always investigate the possibility of a lower interest rate by talking to a mortgage broker. If you don't, you may end up paying much higher interest rate on your renewing mortgage than you need to.
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