14 Home Purchase FAQs
To get an idea of how much you can afford, you’ll need to know your taxable income, along with any outstanding debts and monthly payments.
- First (for purchasing a principal residence) calculate 39% of your income for use toward a mortgage payment, property taxes and heating costs. If applicable, include half of estimated monthly condominium maintenance fees.
- Next, make a second calculation, this time 44% of your taxable income. Then deduct all of your monthly debt payments, including car loans, credit cards, and line 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.
- A quick calculation can also be as follows: for every $20,000 of income earned, you can borrow $100,000. For every $400/month payment you have or $15,000 debt you carry, this will decrease your borrowing power by $100,000.
In addition to considering what the ratios say you can afford; we’ll help you determine exactly how much debt you’re comfortable servicing. If that amount is less than 39% 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,’ with not enough funds to spend on other things, like vacations. Structure your payments so that you can still afford simple luxuries. You’ll also need to qualify for your mortgage amount, with new stress-test regulations released by the federal government.
Yes! There are Stated Income programs, curated for Self Employed individuals that report lower income to Revenue Canada to take advantage of tax strategies. It allows their Gross Business Revenues to be used for qualification. This program requires a minimum 10% down payment, strong savings and healthy credit history.
A home inspection is where an inspector will come in and inspect the home for any damages in its foundations, walls, ceilings, attics, crawl spaces, etc.
A home inspection does come with a fee, but we recommend it because it can give you more information about the home and help you avoid potential problems that could be costly in the future.
5% on the first $500,000 and 10% on the remainder up to $1,000,000. Any purchase over $1,000,000 requires a 20% down payment.
Mortgage default insurance is legally required on mortgages with a Loan-to-Value (LTV) ratio greater than 80% (often called an insured mortgage). It protects lenders against the risk of mortgage default and foreclosure by the borrower.
Usually paid by the borrower, the premiums for default insurance range from 0.50% to 7.0%. They can be added directly onto the mortgage amount or paid as a lump sum before the mortgage is advanced. This type of insurance is not the same as mortgage life insurance.
In Canada, mortgage default insurance is provided by three companies: Canada Mortgage and Housing Corporation (CMHC), Sagen and Canada Guaranty. CMHC is a Crown corporation, while the other two are approved private corporations.
It can be a challenge to secure a mortgage with a prime lender with past bankruptcy, especially if the bankruptcy involved a mortgage. That being said, 2 years after bankruptcy discharge and a perfect credit history from that point onward, there are solutions!
Yes, if child support is paid by you to another person, this amount would typically be deducted from your total income before determining the size of a mortgage you can qualify for.
If you are receiving child support from another person, that amount is typically added to your total income before determining the size of mortgage you can qualify for – provided proof of regular receipt is available for a period of time determined by the lender.
Yes, you can, but you will need to have them in your possession and possibly a signed letter confirming that those funds are a true gift and not a loan.
A pre-approved mortgage is a solid idea of the maximum amount of mortgage that you qualify for, along with an interest rate guarantee from a lender for a specified period (usually 60 to 120 days). It’s usually one of the first steps a home buyer should take when looking for a home or property.
A pre-approval does not absolutely guarantee that you’ll receive the funds (as the final amount may be subject to conditions), but it’s a very good indicator of the maximum amount you should consider when looking to purchase.
Your pre-approval process requires that you provide financial and credit score information to determine what size of loan you’re eligible for, based on lender and government requirements and regulations. And your down payment will be factored into the amount.
Most realtors prefer that you have a pre-approved mortgage in place before they take you out looking for a home or property. That way, they know they’re showing you the right properties within your affordable price range.
You can start the renewal process as early as 120 days before the end of your current term, even if you have not received your renewal offer. Lenders are legally required to send you your renewal statement at least 21 days before the deadline. Starting early would give you more time to negotiate for a better rate or mortgage fit.
Yes! Each lender has specific pre-payment privileges. Some allow you to pay up to 20% of the price of your principal every year or increase your payment frequency or payment amount by an allotted amount.
- Down payment
- Home inspection fee
- Possible appraisal fee
- Mortgage default insurance
- Land Transfer Tax
- Legal fees, disbursements, and title insurance
- Other costs may be involved in closing your mortgage
- Moving costs
All of these fees vary, but it is important to recognize them.
- Your mortgage payment
- Property taxes
- Home insurance
- Maintenance and Upkeep
A mortgage term can be anywhere from six months to ten years. A longer-term mortgage is worth considering if you have a busy life and don’t have time to watch mortgage rates. On the other hand if you like flexibility, a shorter-term mortgage will often allow you to take advantage of lower rates to save money, while being less of a term commitment.
We understand it can be a tough decision to make which is why it’s best to speak with a Mortgage Group with GLM Mortgage Group and discuss the different options and which strategy is best for you.