What is the minimum down payment?
Minimum Down payment for purchase of a primary residence is 5% (up to 500K purchase price) and 10% for the amount above 500K. For example, for a purchase of 600K, minimum down payment would be $35,000 (5% of 500K + 10% of 100K). This amount could be more (20-50%) if qualifying under specific programs such as the New to Canada program or when buying an investment property depending on lender and borrower status (ie. resident vs. non-resident of Canada).
What is Mortgage Default Insurance?
Default insurance is insurance that lenders require borrowers to purchase through Canada Mortgage & Housing Corporation (CMHC), Genworth, or Canada Guaranty to ensure that they get paid back the mortgage loan in the event the borrower, for whatever reason, stop meeting their payment obligations (default on their payments). This insurance is mandatory if you have less than 20% down payment. It may also be required in specific situations such as when the property is smaller than the lender’s property guidelines (ie. condos under 500 square feet). The premium is usually between 2.4% to 4.0% of the mortgage amount for most borrowers depending on the loan-to-value (percentage of the mortgage amount relative to the price). This insurance can be added to the mortgage loan and paid back over the life of the mortgage.
Should I get pre-approved?
A mortgage pre-approval is an initial assessment of how much you could borrow and what price range you should shop for based on your income, credit history, and assets/liabilities. However, understand that a pre-approval is NOT a firm approval for a mortgage. Most lenders do not verify employment or review and sign off on income documents, down payment sources, etc at the pre-approval stage. For most lenders, a pre-approval is just a rate hold based on unverified info that a borrower has provided on their application. The property that you ultimately buy must also be approved by the lender once you have an accepted offer (usually with a physical appraisal unless the mortgage is insured). Getting pre-approved is highly recommended so that you know your budget, deal with any credit issues in advance before shopping, and to also secure an interest rate that is valid up to 4 months (in case rates go up!). With a pre-approval in hand, it is still pertinent to include a subject to financing clause in your purchase offers unless you have a back-up plan like the ability to buy the property outright with 100% cash. Even then, you should still do your due diligence to make sure the price and condition of the property is satisfactory (ie can you get home insurance if the electrical is knob and tube, is there an oil tank still buried, have you verified the property lines, etc).
Who should I talk to for a mortgage? Bank Mortgage Specialists vs. Mortgage Brokers
While consumers often think the two are the same, they are not. Bank Mortgage Specialists are employees of one bank and are only able to immediately offer their own bank’s mortgage products. Mortgage Brokers are licensed and independent consultants who can explore a range of different lenders and secure approval for the most suitable mortgage product for their clients (such as the most competitive interest rate and assessing all the different features of a mortgage including how each lender calculates potential penalties which could vary a lot from lender to lender amongst other things).
What’s the best interest rate I can get?
Getting the best interest rate these days is vastly different from even 3 years ago. It now depends on how much equity you have in the property (or the loan-to-value of the mortgage being seeked). It also depends on if your mortgage is default insured or not (or at least meets the guidelines to be insured). Furthermore, the intended use of the property (rental vs. owner occupied), your credit score, time until completion, and type of property all dictate what the best interest rate possible would be. It’s important to point out though that the overall cost of borrowing (especially if potential penalties may come into play) must be considered when choosing a suitable lender for a particular borrower rather than just the upfront interest rate. This is because the way lenders calculate a penalty could be very different even if they call it the same (specifically the Interest-rate Differential “IRD” formula used by big banks compared to non-bank lenders).
What information and documents do I need to prepare to get a mortgage
If you are a salaried employee of a company (or even paid hourly), a letter of employment from your company stating your occupation, length of employment, and employment status with the company is expected along with a recent pay stub. If you are self-employed (or a salaried employee with addition income from bonuses, significant over-time, commissions) then you will need to provide your tax returns from Canada Revenue Agency for the past 2 years. If you are an incorporated self-employed person then the Articles of Incorporation and company financials prepared by a qualified Accountant will also be required. For all other forms of income such as pension, disability income, child support payments, alimony, rental income, etc. you will generally need to provide tax returns and/or bank statements confirming that it has been received over the past 3-6 months.
What are some incentives for First-time Home Buyers?
Home Buyers Plan (HBP): those eligible to withdraw up to 35K to use as their down payment on a qualified home (tax free with stipulations around re-contribution).
BC First Time Home Buyers Program: you may be eligible for either a full or partial exemption from BC’s Property Transfer Tax. Generally speaking, you must not have owned any property ever around the world. You could qualify for full exemption of the tax when buying a re-sale property up to 500K max price. Partial exemption could be granted for properties priced between 500-525K. If the property is a newly built home then the max price is 750K for full exemption, with partial exemption if the price is between 750-800K.
The First-Time Home Buyer Incentive (also known as the Shared Equity Program) makes it easier for you to buy a home and lower your monthly mortgage payments. This program is a shared equity mortgage. This means that the government shares in the upside and downside of the property value. It allows you to borrow 5 or 10% of the purchase price of a home. You pay back the same percentage of the value of your home when you sell it or within a 25-year window.
What are other costs to prepare for which cannot be borrowed as part of the mortgage?
· Legal fees for conveyancing
· Title Insurance
· Home Insurance
· Property Tax adjustments
· Home Inspection fee
· Appraisal fee
· Property Transfer Tax (if applicable)
· Foreign Buyers’ Tax (if applicable)
What team of professionals do I need to assemble to facilitate my home?
A knowledgeable, caring, and high integrity Real Estate Agent, Mortgage Broker (or Bank Mortgage Specialist), Lawyer or Notary Public, Home Inspector, Movers, and perhaps a contact person for a Property Management Company if you intend to rent out the property and do not want to manage it yourself.