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Down Payments

Depending on how much you have saved and whether you are being supported with a gift from the bank of mom and dad, what you are able to put towards a down payment will vary. In Canada, the minimum down payment is 5% of the purchase price, however there are also benefits to putting down over 20%.

Before the creation of the Canadian Mortgage and Housing Corporation (CMHC), the minimum, 20% down was a major barrier to many Canadians wanting to purchase a home. To combat this barrier and encourage home ownership, CMHC began offering mortgage default insurance; if you default on your payments, they will reimburse the lender. They charge an insurance premium on mortgages offer by lenders with smaller down payment and lower interest rates. This premium, of course, covers any losses they may incur if a mortgage default does occur.

So, why put down a larger down payment? Your mortgage amount will be less, payments smaller, and less interest paid over the life of your mortgage. With over 20%, you will save money by not having to pay any mortgage insurance premiums. Between 5% and 20%, the more money down, the lower the insurance premium.

It is also important to make sure to account for closing and other unexpected costs, so completely draining your savings towards a down payment is not the best course of action.

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Self Employed? Get Approved!

Self Employed? Get Approved!

As a self employed individual to get approved, means taking advantage of write-offs that allow your income to be in a lower tax bracket. However, this may also hurt your ability to qualify for a mortgage. Lenders generally require two year of Tax Returns; two years Notice of Assessment  along with two years Financial Statements. For those self-employed, Tax Returns show a lower number for income, this will hinder qualifying based on income necessary to service the mortgage.

Our advice:

Think ahead. Two years prior to seeking a mortgage, work to get your personal taxable income to a larger number. A key piece if you are self employed to get approved.

Work with a certified accountant, lender will be more inclined to consider financials prepared and submitted by a professional that will consider you financial goals of getting a mortgage.

If you want a mortgage sooner rather than later and haven’t planned for this when filing your taxes, you can use Stated Income so long as you have been in the same profession for at least two years before becoming self-employed. More documents will be required, including bank statements that prove consistent income.

Lastly, you may have to consider a B lender. B lenders will be more flexible in considering your income. Of course, this does come at a cost of a higher interest rate. Once you have had time to increase your income,  you may be able move to the A lender space.

What’s in a Good or Bad Credit Score

For many clients in the pre-approval process, their credit report and credit scores are a source of stress and mystery. Even with the endless information available at the click of a mouse, there seems to be no straightforward summary. This is they key information for What’s in a Good or Bad Credit Score.

So, what determines a good (or bad) credit score?

Good Credit

From the time you get your very first credit card, your credit is being built. Keep in mind these relatively simple habits to develop that will ensure you achieve a desirable high number.

  • Pay your credit cards and all bills on time –including your cell phone and Internet!
  • Pay your parking tickets on time – that’s right, unpaid tickets will affect your credit score.
  • It’s ok to have more than one credit card, but keep it under control. The key is to not be continuously using your limits to the max! A good rule of thumb is keeping utilization under 30% of your available credit.
Myths

It is a common misconception that once a credit account is closed, you are no longer liable to pay; maybe the refusal to pay is rooted in principal, perhaps from a dispute with the cable company over a late charge. No matter the reason, once the creditor has reported the missing payment, you score goes down for 120 or until the creditor closes the account. But it doesn’t end there; they may send your account to a collection agency that will then add their own feels. The worst part, you now owe more money! The longer this goes on, the worst of an effect it has on your credit and the more difficult it becomes to recover you score.

You may have also heard that your credit score falls every time it’s checked. This is not necessarily true. Sites like Credit Karma allow you to check your score as many times as you like without damaging your score – although theses score may not be exactly what the credit bureau holds, they are certainly a good indication.

What DOES affect your score is a lender or creditor looking into your credit report. The more times lenders check (especially in a short period of time), the greater chance your score is going to decrease.

The Benefit of Using a Broker

To address that last point; many mortgage shoppers will have their credit pull multiple times within a short time frame when shopping around at various lenders (who each look into their credit report).

A huge benefit to using a broker is we will only check your credit once! Of course, that certainly doesn’t limit our reach; we have access to all sorts of lenders and the in depth knowledge of each lenders criteria for qualification, so we can find the perfect one that meets all your needs!

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How to Get Your Credit Report

How to get your credit report is so important as Lenders look to credit reports to assess the risk of a given borrower. Your score is a number from 300 to 900 that reflects how you have handled your finances in the past. The lower the number, the more risky you appear to lenders, so you are likely to be offered higher rates. It is always recommended to keep an eye on your credit. In Canada, you can receive a free copy of your credit report once a year from both Equifax and TransUnion.
The bureaus refer to your credit report as “client file disclosure” and “consumer disclosure” respectively. Ordering your “free report by mail” does not effect your score. Check your report for errors inconsistent with your true financial history and balances such as late payments; amount owing; or missing accounts. If you do find an error, report it it to the credit bureau to be corrected. We are happy to connect to answers all of your credit related questions. With over 25 years experience in the mortgage industry, we have seen it all. And we have the tools and guidance to handle any credit building (or rebuilding) needs you may. With this in mind, navigating today’s marketplace and credit takes expertise. Call us today.
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Top 4 Tips for Being Prepared to Buy

1. Here is 1 of the Top 4 Tips for Being Prepared to Buy. Strengthen your credit rating. It’s pretty simple: the higher your credit score, the lower your mortgage rate will be. Spend the time now to improve your credit. Check your credit report. Many credit reports have errors, so you need to ensure that your credit bureau is current and correct. Always pay every single one of your bills on time. Set up automatic payments if you have had any late payments over the last couple of years. Spend only 30% of credit limits on credit cards.

2. Find a Mortgage Broker and figure out how much you can afford to spend. The home buyer’s mantra: Get a home that’s financially comfortable. Get Pre-Approved sooner than later!

3. How much home do you need? Buying a cheaper, smaller home might sound like a good place to start, but could end up costing you more if you need to move due to changes in your lifestyle, including a growing family. Then again, buying more house than you currently need will cost you more with higher mortgage payments, higher maintenance, energy and tax costs. Prioritize your housing wish list. The 3 most important things to think about when buying are home are location, location, location.

4. Closing costs #4 of Top 4 Tips for Being Prepared to Buy. While you’re saving your down payment, you need to save for closing costs too. They’re typically 1.5% of the purchase price and due on the completion date. Transfer Tax, Legal Fees, Insurance and Home Inspection are all considered part of Closing Costs.

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First Time Home Buyers’ Guide

So, you’ve finally decided to fulfill a lifelong dream and buy your own home… how exciting! You are ready to fulfill your dream of having a place to call your own as First Time Home Buyers.

Buying a home is one of the biggest emotional and financial decisions you’ll ever make. Prepare by learning about the process of homebuying and the responsibilities of homeownership. The differences between renting and buying a home are vast, and there’s a long list of pros and cons for both options. And, remember — there is no one best decision for everyone. Before moving forward, though, here are some questions to consider.

Do you have the necessary financial management skills?
How financially stable are you?
Are you ready to take on the responsibility of all the costs involved in homeownership, including mortgage payments, repairs, and maintenance?
Are you able to devote the time required for home maintenance?

 

Home Renting vs. First Time Home Buyers

There are pros and cons for both renting and buying a home. Everyone must make his or her own best decision. Buying a home is not for everyone. Take a moment to think through the advantages and disadvantages of both owning and renting, and make a list. Use our home renting vs. buying calculator to help you.

Read over your completed worksheet and then think carefully. Are the advantages of owning your home really bigger than the advantages of renting? Are the disadvantages of owning your own home really smaller than the disadvantages of renting?

If homeownership is for you, you must be both financially and emotionally ready. Buying a home isn’t only about money. You should listen to your heart… and take an honest look at your lifestyle.

Are You Financially Ready To Own A Home?
How can you know if you are financially ready to become a homeowner?

Start figuring out your financial readiness by evaluating your present household budget. How much are you spending each month? Knowing exactly how much, will give you a better idea about whether you can afford to become a homeowner.

Do you know how much debt you are carrying? You need this information to figure out whether you are financially ready for homeownership. If you decide to buy a home, mortgage lenders will ask for this information.

 

How Much Can You Afford?

Before you begin shopping for a home, it’s important to know how much you can afford to spend on homeownership. You will want to plan ahead for the various expenses related to homeownership. In addition to purchasing the home, other significant expenses will include heating, property taxes, home maintenance and renovation as required.

Two simple rules can help you figure out how much you can realistically pay for a home. You must understand these rules to understand if you will be able to get a mortgage.

Home Affordability Rule #1
Your monthly housing costs shouldn’t be more than 32% of your gross monthly income. Housing costs include your monthly mortgage payments (principal and interest), property taxes and heating expenses. This is known as PITH for short — Principal, Interest, Taxes, and Heating.

If you are thinking of buying a condominium or leasehold tenure:

For a condominium, PITH also includes half of the monthly condominium fees.

For leasehold tenure, PITH also includes the entire annual site lease.

Lenders add up your housing costs and figure out what percentage they are of your gross monthly income. This figure is called your Gross Debt Service (GDS) ratio. To be considered for a mortgage, your GDS must be 32% or less of your gross household monthly income.

Affordability Rule #2
Additionally, your entire monthly debt load should not be more than 40% of your gross monthly income. Your entire monthly debt load includes your housing costs (PITH) plus all your other debt payments (car loans or leases, credit card payments, lines of credit payments, etc.). You have calculated these on the Monthly Debt Payments form. This figure is called your Total Debt Service (TDS) ratio.

 

Your Maximum House Price

The maximum home price that you can realistically afford depends on a number of factors. The most important factors are your household gross monthly income, your down payment and the mortgage interest rate. For many people, the hardest part of buying a home — especially their first one — is saving the necessary down payment.

Note: For CMHC-insured mortgage loans, the maximum purchase price or as-improved property value must be below $1,000,000, when the loan-to-value ratio is greater than 80%.

 

Calculate Your Maximum House Price

Use the Mortgage Affordability Calculator in the Mortgage Tools section to figure out the maximum home price you can afford, the maximum mortgage amount you can borrow, and your monthly mortgage payments (including principal and interest).

 

Mortgage Loan Insurance

Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment of 5% — with interest rates comparable to those with a 20% down payment.

The CMHC Mortgage Loan Insurance premium is calculated as a percentage of the loan and is based on the size of your down payment. The higher the percentage of the total house price/value that you borrow, the higher percentage you will pay in insurance premiums. The cost for Mortgage Loan Insurance premiums is usually offset by the savings you get from lower interest rates.

Note: The amortization cannot exceed 25 years for mortgage loan-to-value ratios higher than 80%.

Do Your Calculations Look Encouraging?
What is your current financial situation?

You may need to step back and re-evaluate your house goals and dreams. Consider the following which may improve your housing outlook for the long run:

Pay off some loans first.
Save for a larger down payment.
Take another look at your current household budget to see where you can spend less. The money you save can go towards a larger down payment.
Lower your home price — remember that your first home is not necessarily your dream home.
Before approving a mortgage, lenders will want to see how well you have paid your debts and bills in the past. To do this, they consider your credit history (credit report) from a credit bureau. This tells them about your financial past and how you have used credit.

Before looking for a mortgage lender, get a copy of your own credit history. There are two main credit-reporting agencies: Equifax Canada and TransUnion Canada. You can contact either one of them to get a copy of your credit report. There is often a fee for this service.

Once you receive your credit report, examine it to make sure the information is complete and accurate.

 

If You Have No Credit History

If you have no credit history, it is important to start building one by, for example, applying for a standard credit card with good interest rates and terms, making small purchases, and paying them as soon as the bill comes in.

Poor credit? lenders might not be able to give you a mortgage loan. You will need to re-establish a good credit history by making debt payments regularly and on time. Most unfavourable credit information (including bankruptcy) drops off your credit file after seven years.

 

Mortgage Pre-Approval

It’s a very good idea to get a pre-approved mortgage before you start shopping. Many REALTORs® will ask if you’ve been approved. A lender will look at your finances and figure the amount of mortgage you can afford. Then the lender will give you a written confirmation, or certificate, for a fixed interest rate. This confirmation will be good for a specific period of time. A pre-approved mortgage is not a guarantee of being approved for the mortgage loan.

Even if you haven’t found the home you want to buy, having a pre-approved mortgage amount will help keep a good price range in mind.

Bring these with you the first time you meet with your mortgage broker:

Your personal information, including identification such as your driver’s license.
Details on your job, including confirmation of salary in the form of a letter from your employer.
All your sources of income.
Information and details on all bank accounts, loans and other debts.
Proof of financial assets.
Source and amount of down payment and deposit.
Proof of source of funds to cover the closing costs (these are usually between 1.5% of the purchase price).

 

Make Your Mortgage Work for You

We will offer you several choices to help find you the mortgage that best matches your needs. Here are some of the most common:

 

Mortgage Amortization Period

Amortization refers to the length of time you choose to pay off your mortgage. Mortgages typically come in 25 amortization periods, but can be as short as 15 years. Usually, the longer the amortization, the smaller the monthly payments. However, the longer the amortization, the higher the interest costs. Total interest costs can be reduced by making additional (lump sum) payments when possible.

 

Payment Schedule

You have the option of repaying your mortgage every month, twice a month, every two weeks or every week. You can also choose to accelerate your payments. This usually means one extra monthly payment per year.

 

Mortgage Interest Rate Type

 

You will have to choose between “fixed”, “variable” and “protected (or capped) variable”. A fixed rate will not change for the term of the mortgage. This type carries a slightly higher rate but provides the peace of mind associated with knowing that interest costs will remain the same.

With a variable rate, the interest rate you pay will fluctuate with the rate of the market. Usually, this will not modify the overall amount of your mortgage payment, but rather change the portion of your monthly payment that goes towards interest costs or paying your mortgage (principal repayment). If interest rates go down, you end up repaying your mortgage faster. If they go up, more of the payment will go towards the interest and less towards repaying the mortgage. This option means you may have to be prepared to accept some risk and uncertainty.

A protected (or capped) variable rate is a mortgage with a variable interest rate that has a maximum rate determined in advance. Even if the market rate goes above the determined maximum rate, you will only have to pay up to that maximum.

Use the Mortgage Payment Calculator to find how much and how often your payment will be. Compare options and find one that’s right for you.

 

Mortgage Term

The term of a mortgage is the length of time for which options are chosen and agreed upon, such as the interest rate. It can be as little as six months or as long as five years or more. When the term is up, you have the ability to renegotiate your mortgage at the interest rate of that time and choose the same or different options.

An open mortgage allows you to pay off your mortgage in part or in full at any time without any penalties. You may also choose, at any time, to renegotiate the mortgage. This option provides more flexibility but comes with a higher interest rate. An open mortgage can be a good choice if you plan to sell your home in the near future or to make large additional payments.

A closed mortgage usually carries a lower interest rate but doesn’t offer the flexibility of an open mortgage. However, most lenders allow homeowners to make additional payments of a determined maximum amount without penalty. Typically, most people will select a closed mortgage.

 

Property Down Payment

 

A down payment is the part of the home price that does not come from the mortgage loan. The down payment comes from your own money. You can buy your home with a minimum down payment of 5%, if you have mortgage loan insurance from CMHC. You need a down payment of at least 20% for a conventional mortgage.

 

Property Deposit

The deposit is paid when you make an Offer to Purchase to show that you are a serious buyer. The deposit will form part of your down payment with the remainder owing at time of closing. If for some reason you back out of the deal without having covered yourself with purchase conditions, such as financing, home inspection, etc., your deposit may not be refundable and you may be sued for damages. The size of the deposit varies. Your realtor or lawyer / notary can help you decide on the amount.

 

Home Inspection Fee

We recommend that you make a home inspection a condition of your Offer to Purchase. A home inspection is done by a qualified home inspector to provide you with information on the condition of the home. It generally costs between $350-$500, depending on the age, size and complexity of the house and the condition that it is in. For example, it may be more costly to inspect a large, older, home, or one in relatively poor condition, or that has many pre-existing problems or concerns.

 

Title Insurance

Your lender, lawyer, or notary may suggest that you get title insurance. This will cover loss caused by defects of title to the property.

 

Land Registration Fees

Land registration fees are sometimes called Land Transfer Tax, Deed Registration Fee, Tariff or Property Purchases Tax. In some provinces and territories, you may have to pay this provincial or municipal charge when you close the sale. The cost is a percentage of the property’s purchase price. Check on the internet or with your lawyer (or notary) or other team member to find out about the current rates. These fees can cost a few thousand dollars.