1. What’s the best rate I can get?
- Your
credit score plays a big part in the interest rate for which you will
qualify, as the riskier you appear as a borrower, the higher your rate
will be. Rate is definitely not the most important aspect of a mortgage,
however, as many rock-bottom rates often come from no frills mortgage
products. In other words, even if you qualify for the lowest rate, you
often have to give up other things such as prepayments and porting privileges
when opting for the lowest-rate product.
2.
What’s the maximum mortgage amount for which I can
qualify?
- To
determine the amount for which you will qualify, there are two
calculations you’ll need to complete. The first is your Gross Debt Service
(GDS) ratio. GDS looks at your proposed new housing costs (mortgage
payments, taxes, heating costs and 50% of strata/condo fees, if
applicable). Generally speaking, this amount should be no more than 32% of
your gross monthly income. For example, if your gross monthly income is
$4,000, you should not be spending more than $1,280 in monthly housing
expenses. Second, you will need to calculate your Total Debt Service (TDS)
ratio. The TDS ratio measures your total debt obligations (including
housing costs, loans, car payments and credit card bills). Generally
speaking, your TDS ratio should be no more than 40% of your gross monthly
income. Keep in mind that these numbers are prescribed maximums and that
you should strive for lower ratios for a more affordable lifestyle. Before
falling in love with a potential new home, you may want to obtain a
pre-approved mortgage. This will help you stay within your price range and
spend your time looking at homes you can reasonably afford.
3. How much money do I need for a down payment?
- The
minimum down payment required is 5% of the purchase price of the home. And
in order to avoid paying mortgage default insurance, you need to have at
least a 20% down payment.
4. What happens if I don’t have the full down
payment amount?
- There
are programs available that enable you to use other forms of down payment,
such as from your RRSPs, a cash-back product, or a gift.
5. What will a lender look at when qualifying me
for a mortgage?
- Most
lenders look at five factors when determining whether you qualify for a
mortgage: 1. Income; 2. Debts; 3. Employment History; 4. Credit history;
and 5. Value of the Property you wish to purchase. One of the first things
a lender will consider is how much of your total income you’ll be spending
on housing. This helps the lender decide whether you can comfortably
afford a house. A lender will then look at your debts, which generally
include monthly house payments as well as payments on all loans, credit
cards, child support, etc. A history of steady employment, usually within
the same job for several years, helps you qualify. But a short history in
your current job shouldn’t prevent you from getting a mortgage, as long as
there have been no gaps in income over the past two years. Good credit is also
very important in qualifying for a mortgage. The lender will also want to
know that the house is worth the price you plan to pay.
6. Should I go with a fixed- or variable-rate
mortgage?
- The
answer to this question depends on your personal risk tolerance. If, for
instance, you’re a first-time homebuyer and/or you have a set budget that
you can comfortably spend on your mortgage, it’s smart to lock into a
fixed mortgage with predictable payments over a specific period of time.
If, however, your financial situation can handle the fluctuations of a
variable-rate mortgage, this may save you some money over the long run.
Another option is to opt for a variable rate, but make payments based on
what you would have paid if you selected a fixed rate. Finally, there are
also 50/50 mortgage options that enable you to split your mortgage into
both fixed and variable portions.
7. What credit score do I need to qualify?
- Generally speaking, you’re a prime candidate
for a mortgage if your credit score is 680 and above. The higher you can
get above 700 the better, as you will qualify for the lowest rates. These days almost anyone can obtain a mortgage,
but the key for those with lower credit scores is the
size of the down payment. If you
have a sufficient down payment, you
can reduce the risk to the lender providing you with the mortgage.
Statistics show that default rates on mortgages decline as the down
payment increases.
8. What happens if my credit score isn’t great?
- There
are several things you can do to boost your credit fairly quickly.
Following are five steps you can use
to help attain a speedy credit score boost: 1) Pay down credit cards.
The number one way to increase your credit score is to pay
down your credit cards so they’re below 70% of your limits. Revolving
credit like credit cards seems to have a more significant impact on credit
scores than car loans, lines of credit, and so on. 2) Limit the use of credit
cards. Racking up a
large amount and then paying it off in monthly instalments can hurt your
credit score. If there is a balance at the end of the month, this affects
your score – credit formulas don’t take into account the fact that you may
have paid the balance off the next month. 3) Check credit limits. If your lender is slower at
reporting monthly transactions, this can have a significant impact on how
other lenders view your file. Ensure everything’s up to date as old bills
that have been paid can come back to haunt you. Some financial
institutions don’t even report your maximum limits. As such, the credit
bureau is left to only use the balance that’s on hand. The problem is, if
you consistently charge the same amount each month – say $1,000 to $1,500
– it may appear to the credit-scoring agencies that you’re regularly
maxing out your cards. The best bet is to pay your balances down or off
before your statement periods close. 4) Keep old cards.
Older credit is better credit. If you stop using older
credit cards, the issuers may stop updating your accounts. As such, the
cards can lose their weight in the credit formula and, therefore, may not
be as valuable – even though you have had the cards for a long time. Use
these cards periodically and then pay them off. 5) Don’t let mistakes build
up. Always dispute
any mistakes or situations that may harm your score. If, for instance, a
cell phone bill is incorrect and the company will not amend it, you can
dispute this by making the credit bureau aware of the situation.
9. How much will I have to pay for closing costs?
·
As a general rule of thumb, it’s recommended that you put aside at least 1.5%
of the purchase price (in addition to the down payment) strictly to cover
closing costs. There are several items you should budget for when it comes to
closing costs. Property Transfer Tax is
charged whenever a property is purchased. The tax will vary from jurisdiction
to jurisdiction, but I can help with the calculation. GST/HST is only charged on new homes, and does not affect homes priced at less than $400,000. Even homes that
exceed the price threshold are only taxed on the portion that exceeds $400,000.
Certain conditions may apply. Please
contact you lawyer/notary for more detailed information. Your lawyer/notary
will charge you a fee for drawing up the mortgage and conveyance of title. The
amount of the fee will depend on the individual that you use. The typical cost
is $900. 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 $300-$350, but the lender
will often accept a copy of an existing survey. Other costs include such things
as an appraisal fee (approximately $200), title insurance and a home inspection
(approximately $350).
10. How much will my mortgage payments be?
- Monthly
mortgage payments vary based on several factors, including: the size of
your mortgage; whether you’re paying mortgage default insurance; your
mortgage amortization; your interest rate; and your frequency of making
mortgage payments. You can view some useful calculators to find out your
specific mortgage payments: www.dominionlending.ca/mortgage-calculators
As a mortgage broker I would love to
help you make the right decision in purchasing a new home, refinancing, or a
home equity line of credit.
Please check out my website
mortgagewithcarie.ca
Follow
me on facebook like my fanpage!!!
Carie
Pool at Producers West financial, dominion Lending Centers
