For our first installment of "Frequently Asked Questions", we are going to go over and examine the basic mortgage questions. We will discuss affordability, how to get a mortgage, down payments and pre-approvals. Please continue reading to find out the answers to your questions.
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.
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.
Can I get a mortgage to purchase a home?
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, both Canada Mortgage and Housing Corporation and GE Capital, 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.
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, both Canada Mortgage and Housing Corporation and GE Capital, 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.
What is a down payment?
Very few home buyers have the cash available to buy a home outright. Most of us will turn to a financial institution for a mortgage the first step in a potentially long-standing relationship. But even with a mortgage, you will need to raise the money for a down payment.
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.
Very few home buyers have the cash available to buy a home outright. Most of us will turn to a financial institution for a mortgage the first step in a potentially long-standing relationship. But even with a mortgage, you will need to raise the money for a down payment.
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.
With all low down payment insured mortgages, you are responsible for:
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.
With all low down payment insured mortgages, you are responsible for:
- appraisal and legal fees
- an application fee for the insurance
- the payment of the mortgage default insurance premium (although the amount of the premium may be added to the mortgage amount).
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 60 to 90 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.
A pre-approved mortgage provides an interest rate guarantee from a lender for a specified period of time (usually 60 to 90 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.
If you have any more questions, want more information or are interested in a Mortgage Broker, please do not hesitate to contact me!
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