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?
Can I get a mortgage to purchase a home in need of improvement?
Can I use gift funds as a down payment?
What is a pre-approved mortgage?
Should I wait for my mortgage to mature?
How can you acquire a home with as little as 5% down?
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,
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.
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.
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. 100% financing
is still available, however, you must meet all the lender’s criteria and have excellent credit.
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. If it is borrowed from a credit card, the debt must be calculated in the ratios.
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 and 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 CMHC, Genworth or AIG.
What is mortgage loan insurance?
Mortgage loan insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation,
Genworth and or AIG. 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, 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
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.
Can I get a mortgage to purchase a home in need of improvement?
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, 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.
Where the improvements are cosmetic, the mortgage loan insurance premium is unchanged from the standard schedule.
Where the improvements are deemed to be structural, the mortgage loan insurance premium is increased by .50% over the
standard schedule. For information on mortgage loan insurance premiums see high-ratio home mortgage financing.
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. Where the mortgage requires
mortgage loan insurance, the mortgage insurance company requires the gift money to be in the purchaser's possession
before the application is sent in to them for approval.
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 90 – 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.
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.
being offered is usually not the best one. It is in your best interest to contact your mortgage associate to do the calculations
and research for various lenders offering better rates.
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.
How can you 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.
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
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.
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 $20,000 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 $20,000 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.
