Whether you’re looking at a condo, townhouse, rancher or a two-story property, there is nothing quite like your first home! However, the mortage process can be intimidating – and that’s where we come in.
As your dedicated mortgage professional, we will work with you to arrange your mortgage financing. Our pledge is to provide you with top-notch service, extensive options and unbiased advice to ensure you are on the right path – now and into the future. With access to hundreds of lending institutions offering competitive rates and a variety of mortgage products, we shop the market to present YOU with the best mortgage option to suit your unique needs.
YOUR PROFESSIONAL TEAM
Congratulations on making the first step towards homeownership! Before you begin, we want to introduce you to professionals (outside of us!) who will help you along the way:
Realtors: Partnering with a realtor saves you time and money, while navigating the home buying process. A good realtor will work with you to understand your wish list and provide you access to properties that haven’t hit the market, as they understand your search area, trends and bidding strategy. Not to mention, a good realtor can save you money and help to ensure you secure your dream home in a competitive market.
Lawyer/Notary: Once you find your dream home and secure financing, you will need the expertise of a lawyer/notary to draw up the mortgage documents and register them for you. This is the last step in the home buying process, but it is vital that it is handled with care. We would be happy to make an introduction with one of my partners when the time is right.
Insurance Provider: Once you have confirmed the purchase of your home, you will need to purchase home insurance in order for the home to close. Partnering with a good insurance provider can make all the difference and ensure you receive the right coverage for your contents and space!
Whenever possible, have an inspection done so that you’re completely informed about what you can’t see behind the walls.
Mortgage Preparation
One of the most important factors in home ownership is understanding your budget and determining how much you can afford to ensure you find the perfect home in your price range. When talking about budget, it is important to consider the purchase price budget, as well as your cash flow budget.
So, what’s a cash flow budget you ask? Take into consideration monthly funds that go beyond just your mortgage payment.
Costs to consider:
• Property Taxes
• Home Insurance
• Condo or Strata Fees
• Heat
• and more!
Being house rich and cash poor can limit your ability to enjoy not only your home but experience life outside its four walls. The home you can comfortably afford may be dramatically different once you make a cash flow budget. You should always make sure you are comfortable with the monthly fees based on your situation today.
To help determine your budget, download Mortgage Scout’s Canadian Mortgage App from Google Play or the Apple iStore. This handy tool will help you calculate mortgage payments, affordability, income required to qualify and even estimate your closing costs! It also allows you to connect directly with me through the app so that I can answer any questions you have right in the palm of your hands!
Another feature of my app is the ability to get pre-qualified within 60 seconds! This is a great next step to getting you on the road to homeownership as it ties into your budget, and will confirm what you can afford by providing you with an estimate on your maximum purchase price.
Once you have your budget and prequalification in hand, connect with your realtor and start shopping the market! You can also visit www.rew.ca to see current home listings and find a realtor in your area!
Before shopping for a home, it’s important to understand the maximum purchase price you can afford.
Down Payment Options
Your down payment is the amount of money you need to put down on your new home. Once you have determined your budget, you will have an accurate idea of the final cost of the home you can afford. This will allow you to estimate your down payment and start saving.
The ideal down payment for purchasing a home is 20%. However, I know in today’s market that it’s not always possible. Therefore, if you have less than 20%, you must account for default insurance.
Did you know? If the purchase price is less than $500,000, the minimum down payment is 5%. If the purchase price is between $500,000 and $999,999, the minimum down payment is 5% of the first $500,000, and 10% of any amount over $500,000.
For properties valued at over $1M, you must have a minimum down-payment of 20%.
Sources of Down Payment: You have several options when it comes to your down payment
• Your own savings account or RRSP’s. Thanks to the Federal Government’s Home Buyer’s Plan, first-time homebuyers are able to leverage up to $35,000 from your individual RRSP’s (maximum of $70,000 for a couple)
• A gift from an immediate family member
NOTE: If your down payment comes from a savings account, TFSA or RRSP, the bank will want 90 days of statements to ensure the funds are accounted for. Gifted funds rarely require 90 days of proof.
It is always a good idea to check with us for qualifying criteria and availability to ensure your source of down payment is eligible.
Don’t be house rich and cash poor! Allow approximately 32% of your household monthly income before deductions to cover your monthly mortgage payment (including property taxes, heating costs and half of any maintenance fees).
Mortgage Insurance
Mortgage default insurance is designed to protect the lenders from any losses should there ever be a foreclosure.
Purchasing a home with less than 20% down means you will need default insurance. This amount is calculated based on your loan-tovalue ratio (mortgage loan amount divided by the purchase price). The insurance premium is typically added to your regular mortgage payment meaning there are no out of pocket expenses. If preferred, the premium can also be paid as a single lump sum
NOTE: Some additional insurance measures that are required are title insurance, mortgage protection insurance and property + fire insurance. In addition, some provinces require a tax on the insurance premium, which is payable at your lawyer/notary office.
For more information on the three Canadian providers, visit the websites below:
Canada Mortgage and Housing
Corporation (CMHC)
www.cmhc-schl.gc.ca
Sagen
www.sagen.ca
Canada Guaranty
www.canadaguaranty.ca
NOTE: If your down payment comes from a savings account, TFSA or RRSP, the bank will want 90 days of statements to ensure the funds are accounted for. Gifted funds rarely require 90 days of proof.
It is always a good idea to check with us for qualifying criteria and availability to ensure your source of down payment is eligible.
Get pre-approved for a mortgage! This does not guarantee the mortgage but can help determine your budget, lock in a rate and assist with putting in a competitive offer by reducing the subject to financing!
Closing Cost
The following is a list of closing costs to help you calculate the true expense of purchasing your new home.
LAND TRANSFER TAX: A tax that is charged whenever a property is purchased. These taxes vary by municipality, but the provincial base is 0.5% for the first $52,800, 1% on the next $52,800.01 to $264,000, and 1.5% on the portion over $264,000.01.
NOTE: Ontario, British Columbia, Prince Edward Island, and the City of Toronto offer land transfer tax rebates for first time homebuyers.
GST/HST: This tax is only charged on brand new homes or substantially renovated homes. If a property is valued at $450,000 or less, and will be your primary residence, you may be eligible for a partial rebate but certain conditions may apply. Contact your lawyer/notary for more detailed information.
LEGAL FEES: Your lawyer/notary will charge you a fee for drawing up the mortgage and conveyance of title. Your lawyer/notary will also conduct a property title search to examine public records on the property and confirm the property’s rightful legal owner. The title search should also reveal if there are any claims or liens on property that can affect your purchase. The amount of the fee will depend on the individual that you use. The typical cost is $1,500. This includes: Land Title Registration, Title Insurance, courier fees, etc.
SURVEY: If you’re purchasing a single-family home, you’ll need to give your lender a survey certificate showing where the property sits within the property lines. Some exceptions are made, however, on low loan-to-value deals and acreage properties. A survey will cost approximately $350, but the lender will often accept a copy of an existing survey.
PROPERTY TAXES: Something that most buyers don’t take into consideration are the property tax balance you will be responsible for upon closing. The amount varies based on location and time of closing; however a good rule of thumb is that if you take possession halfway through the year, you would be expected to pay 50% of the taxes for the year upfront. This is included in the final amount owing when you sign your documents with the lawyer/notary.
CONDO/STRATA FEES: It is important to note that if you are purchasing a condo, townhouse or another property with condo/strata fees that you will need to account for your portion during the month of possession. For example, if your monthly amount totals $304.65 and you close four days prior to month end, you would owe $39.31. These fees are something that your lawyer/notary will include in your purchasers’ statement of adjustments – a document that breaks down all the fees and owing balance prior to signing the final paperwork.
Insurance:
After You Buy
Now that you have finished signing your mortgage paperwork and getting the keys to your first home, there are a few things to keep in mind after you buy to protect your investment and ensure future financial success.
Maintaining your home and protecting your investment: Becoming a homeowner is a major responsibility. It’s up to you to take care of your home and protect what is likely your biggest investment.
Make your mortgage payments on time: There are many options when it comes to mortgage payment frequency. Whichever schedule you choose, always make your payments on time. Late or missed payments may result in charges or penalties, and they can negatively affect your credit rating. If you’re having trouble making payments, please contact me as soon as possible.
Plan for the costs of operating a home: You will have several ongoing costs besides your mortgage, property taxes and insurance. Maintenance and repair costs are at the top of the list, along with expenses for security monitoring, snow removal and gardening. If you own a condominium, some of these costs may be included in your monthly fees.
Live within your budget: Prepare a monthly budget and stick to it. Take a few minutes every month to check your spending and see if you’re meeting your financial goals. If you spend more than you earn, find new ways to earn more or spend less.
Keep your credit score healthy by keeping credit cards as low as possible, paying bills on time and keeping your current credit cards open.
Seven Steps to Mortgage Financing
Congratulations, you’re ready to buy your first place! Now you understand all the important information when it comes to securing your mortgage, we can get started.
BE PREPARED
• Contact information for your employer and your employment history (such as a T4 or recent paystub)
• Proof of address and your address history
• Government-issued photo ID with your current address
• Proof of income for your mortgage application
• Proof of down payment (amount and source)
• Proof of savings and investments
• Details of current debts and other financial obligations
GET A RATE HOLD
NOTE: Pre-approval does not mean that a lender has fully reviewed your documentation and you may still need the approval of a mortgage insurer
SHOP THE MARKET & MAKE AN OFFER
OFFER IS ACCEPTED
• Introduce me to your realtor
• An appraisal may be required, which will be determined and arranged by myself
• Send in any remaining documents required for financing (income confirmation, down payment confirmation, etc).
• Arrange a home inspection
• Receive the lender’s approval on property and final approval letter
REMOVE CONDITIONS
PURCHASE HOME INSURANCE
LAWYER/NOTARY OFFICE
Glossary of Terms
The period of time required tocompletely pay off a mortgage if all conditions are met and all payments are made on time.
An estimate of the current market
value of a home.
An increase in the value of a home or other possession from the time it was purchased.
A mortgage that can’t
normally be paid off or renegotiated before the end of the term without the lender’s permission and a financial penalty. Some closed mortgages allow for extra or accelerated payments, but only if specified in the mortgage agreement.
The date when the sale of the
property becomes final and the new owner takes possession of the home.
A mortgage loan equal to or less than 80% of the value of a property (that is, where the down payment is at least 20%). Conventional mortgages don’t usually require mortgage loan insurance.
Failing to make a mortgage payment
on time or to otherwise abide by the terms of a
mortgage loan agreement. If borrowers’ default on their mortgage payments, their lender can chargethem a penalty or even take legal action to take possession of their home.
This insurance protects the lender in the event that the borrower defaults on their mortgage.
The cash value that a homeowner has
in their home after subtracting the amount of the mortgage or other debts owed on the property. Equity usually increases over time as the mortgage loan is gradually paid. Changes in overall market values or improvements to a home can also affect the value of the equity.
A mortgage with a locked-in interest rate, meaning it won’t change during the term of the mortgage.
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 or 100% of the annual site lease for leasehold tenure if applicable. To qualify for a mortgage, the borrower’s
GDS ratio must be at or below 35 or 39% (depending on the lender).
A mortgage loan for more than 80% of the value of a property (that is, where the down payment is less than 20%). A high-ratio mortgage usually has to be insured against default with mortgage loan insurance provided by CMHC or a private company.
A thorough examination and assessment of a home’s state and condition by a qualified professional. The examination includes the home’s structural, mechanical and electrical systems.
A tax charged by many
provinces and municipalities (usually a percentage of the purchase price) that the buyer must pay upon closing.
The last day of the term of a
mortgage. The mortgage loan must either be paid in full, renegotiated or renewed on this day.
Protects the family of a borrower by paying off the mortgage if the borrower dies.
The length of time that the
conditions of a mortgage, such as the interest rate and payment schedule, are in effect. At the end of the term, the mortgage loan must either be paid in full, renewed or re
A flexible mortgage loan that lets a borrower pay off or renegotiate their loan at any time, without having to pay penalties. Because of this flexibility, open mortgages usually have a higher interest rate than closed mortgages.
An acronym that stands for mortgage “Principal and Interest Payments, Property Taxes and Heating Costs”. All the main costs paid by a homeowner on a monthly basis
A fee charged by your lender if you pay more money on your mortgage than the prepayment option allows.
The ability to prepay a portion of the mortgage principal before it is due and without penalty. This extra payment on the mortgage would be applied directly to the principal, as your regularly monthly payment covers the interest.
The amount a person borrows for a loan (not including the interest).
These are taxes that are charged by the municipality based on the value of the home. In some cases, the lender will collect property taxes as part of the borrower’s mortgage payments and then pay the taxes to the municipality on the borrower’s behalf.
Protects against losses or
damages that could occur because of anything that affects the title to a property (for example, a defect in the title or any liens, encumbrances or servitudes registered against the legal title to a home).
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% or 44% (depending on the lender).
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. VENDOR: The seller of a property.
A type of mortgage where the seller, not a bank or other financial institution, finances the mortgage loan for the buyer.
