Mortgage FAQ's
If you still have more questions, please don't hesitate to contact us . . .
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 should 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, 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. There are exceptions that allow up to 44% of your total income. Your credit score will impact that ratio.
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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Can I get a mortgage to purchase a home?
Subject to qualification, yes. In fact, even purchasers with 5% down may qualify to buy a home and make improvements to it. For high-ratio financing, both Canada Mortgage and Housing Corporation, Genworth or AIG, insured mortgages are available to cover the purchase price of a home as well as an amount to pay for immediate major renovations or improvements that the purchaser may wish to make to the property. This option eliminates the need to finance the renovations or improvements separately. Some conditions apply.
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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 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' 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. Even with a pre-approved mortgage, you will still want to write a clause in your purchase agreement subject to financing, to allow for the final mortgage approval to be done. Contact any of our experienced mortgage brokers, Susan Zanders, Alicia Zanders or Donna Styba at VERICO ZANDERS & Associates Mortgage Brokers Inc. to help get you started!
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What is a down payment?
Very few home buyers have the cash available to buy a home outright. With a mortgage, you will 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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What is the minimum down payment needed for a home?
A minimum down payment of 5% is required to purchase a home, subject to certain maximum price restrictions. Some lenders will use a sliding scale on higher priced homes to calculate the minimum amount. These amounts vary from lender to lender and regions. In addition to the down payment, you must also be able to show that you can cover the applicable closing costs (i.e. legal fees and disbursements, appraisal fees and a survey certificate, where applicable).
Regardless of the amount of your down payment, at least 5% of it must be from your own cash resources or a gift from a family member. It cannot be borrowed.
Lenders will generally accept a gift from a family member as an acceptable down payment provided a letter stating it is a true gift, not a loan, is signed by the donor. Where the mortgage loan insurance is provided by Canada Mortgage and Housing Corporation (CMHC), the gift money must be in the your possession before the application is sent in to CMHC for approval.
Mortgages with less than 20% down must have mortgage loan insurance provided by either CMHC, Genworth or AIG (AIG United Guaranty Mortgage Insurance Company Canada).
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How can I acquire a home with as little as 5% down?
Most lenders now offer insured mortgages for both new and resale homes with lower down payment requirements than conventional mortgages - as low as 5%. Low down payment mortgages must be insured to cover potential default of payment, and their carrying costs are therefore higher than a conventional mortgage because they include the insurance premium.
You will still have additional costs beyond the 5% downpayment. Some of those costs include legal fees and property tax adjustments to name a few. The costs vary, depending if it is a house, townhouse or apartment that you are purchasing. Check with your mortgage broker to get a complete estimate of all costs. Your solicitor will have the final exact costs, but at least you will have a close estimate.
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Can I use gift funds as a down payment?
Most lenders will accept down payment funds that are a gift 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. When the mortgage requires mortgage loan insurance, mortgage insurers require the gift money to be in the purchaser's possession, and to provide proof of this such as bank current bank statements, before the application is sent in to them for approval.
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How can I use my RRSP to help buy my first home?
Today, about 50% of first-time home buyers use their RRSP savings to help finance a down payment. With the new federal government's Home Buyers' Plan, (in the new federal budget in February 2009) 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.
For the complete Canada Home Buyers Plan publication, including the forms you need here is the pdf link, check our Useful Links page under RRSP - Home Buyers Plan.
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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 or Genworth, an approved private corporation or AIG (AIG United Guaranty Mortgage Insurance Company Canada). This insurance is required by law to insure lenders against default on mortgages with a loan to value ratio greater than 80% (less than 20% downpayment). 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.
Insured Mortgage Premiums can be found at the insurers websites:
CMHC http://www.cmhc.-schl.gc.ca
Genworth http://www.genworth.ca/
AIG http:// www.aigug.ca/home.html
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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.
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How will child support affect my 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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Can I get a mortgage for the purchase of my home and to make improvements?
Subject to lenders qualifications, yes! Insured mortgages are available to cover the purchase price of your home as well as an amount to pay for immediate major renovations or improvements that you may wish to make to the property. This option eliminates the need to finance the renovations or improvements separately. The lender will require an official quote for the work to be done and included with your mortgage application. So it its "amost" your dream home, inquire about the "Mortgage Plus Improvements" option when discussing your purchase with the brokers at VERICO ZANDERS & Associates Mortgage Brokers Inc. They have helped many new home purchasers over the years with this unique product.
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How does bankruptcy affect my qualification for a mortgage?
Depending on the circumstances surrounding your bankruptcy, generally some lenders will consider providing mortgage financing. Most lenders who provide mortgage financing to past bankrupts will look at a minimum of 2 years re-established credit and prefer 2 different types of credit to include a revolving credit such as a credit card and a loan. Typically a minimum amount of credit is looked at such as $2,500. In some cases lenders will also consider non reported credit, such as letter from the applicants financial institution, lease agreements or other regular bills. Every lender is different and has specific guidelines regarding bankruptcy. The team at VERICO ZANDERS & Associates Mortgage Brokers Inc. is very experienced in helping clients who have had a past bankruptcy. Contact them to discuss your mortgage options.
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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 20% 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 (approximately 1.5% of the basic purchase price).
If you want to have the home inspected by a professional building inspector - which we highly recommend - 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 - (known as PPT Property Transfer Tax, which is a BC tax) a one-time tax based on a percentage of the purchase price of the property and/or mortgage amount.
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. Your mortgage broker at VERICO ZANDERS & Associates Mortgage Brokers Inc. would be pleased to provide you with a complete estimate of closing costs based on your purchase.
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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 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 rate, mortgage term and 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, cable and internet.
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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What is a closed mortgage?
A closed mortgage is a mortgage that may have certain pre-payment privileges. It is restricted as to the amount that can be pre-paid. Not all closed mortgages are created equal. Check with your mortgage broker to find out how your prepayment priveleges are calculated.
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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 25years. The rate does not change during the selected term. 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?
A mortgage which is based on the prime rate. The interest rate itself is prime or prime plus or prime minus. 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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Should I 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 if the rates move down.
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How can I pay off my mortgage sooner?
There are ways to reduce the number of years to pay down your mortgage. You'll enjoy significant savings by:
Selecting an 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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Should I wait for my mortgage to mature or renew before the term is up?
In a market where rates are declining, it may make sense to break your mortgage before the maturity date. Taking advantage of a lower rate can shorten the amortization on your term, not to mention the amount of savings! Typically providing us the principal balance amount and the amount of the penalty can help us to calculate if it saves you money. If the mortgage is 120 days or less to maturity, we can get your mortgage approved and hold the rate. 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 to a lower rate 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. Phone us and let us investigate. If you don't, you may end up paying a much higher interest rate on your renewing mortgage than you need to.
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What does a mortgage broker do for me?
A mortgage broker works for you! VERICO ZANDERS & Associates Mortgage Brokers Inc. is a mortgage broker. We are not paid by the hour as in a bank or credit union, and our business is mortgages, not how many other accounts we can sign you up for. We have access to all lenders and mortgage products. Typicallly we will find out the best options for your mortgage needs. We are usually paid by the lender and work at no cost to you. Often we can source the best mortgage pricing and are aware of current market condtions. We will negotiate on your behalf, structuring deals to meet the criteria of the lenders. If you deal directly with a Financial Institution and your mortgage is declined, for whatever reason, you must begin the application process all over again with another lender. At VERICO ZANDERS & Associates Mortgage Brokers Inc. we can quicky redirect the application to another or several lenders for consideration. Thereby saving you time and money!
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What does AMP designation for a mortgage broker mean?
The AMP (Accredited Mortgage Professional) is a relatively new national designation for mortgage professionals in Canada. Launched in January 2004, the AMP designation was developed a part of CIMBL's (now known as CAAMP) ongoing commitment to increasing the level of professionlism in Canada's mortgage industry through the development of educational and ethical standards. The AMP designation sets a single national proficiency stand for Canada's mortgage professionals. Susan Zanders, Mortgage Broker at VERICO ZANDERS & Associates has held her AMP designation since 2004. She has exceeded all the educational requirements every year.
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What is CAAMP?
CAAMP stands for Canadian Association of Accredited Professionals. It is a national organization promoting ethics and professional standards accross Canada. Susan Zanders, Alicia Zanders and Donna Styba, mortgage brokers at VERICO ZANDERS & Associates Mortgage Brokers Inc. are members of CAAMP.
For more information http://www.caamp.org
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