This is the ultimate, most complete list of frequently asked questions about mortgages with detailed answers.
Jump to an answer:
- How Much Can I Afford to Pay for My Home?
- Should I Have a House Inspection Done?
- What is the Minimum Down Payment that I Need for a Home Payment?
- What is Insurance for a Mortgage Loan?
- What is a Conventional Mortgage?
- How Does Bankruptcy Impact Your Qualification for a Mortgage?
- If I Have Child Support Houses, Do They Impact My Ability to Get A Mortgage?
- Can I Get A Mortgage for A Home Purchase?
- Am I Able to Use Gift Funds for My Down Payment?
- Explain the Pre-Approved Mortgage?
- Do I Need to Wait for a Mortgage To Mature?
- What Is My Down Payment?
- Is It Possible to Obtain A Home with Just 5% Down?
- How Can I Pay Off My Mortgage in Less Time?
- Is it possible to use an RRSP to buy your first home?
- Can You Explain the Costs of Buying a Home?
- What About the Length Of Time Of My Mortgage?
- What Are the Monthly Expenses of Owning Your Own Property?
- Is A Long-Term or Short-Term Mortgage Best?
- What About a Fixed Rate Mortgage?
- What About a Variable Rate Mortgage?
- Summary of Mortgage FAQs
How Much Can I Afford to Pay for My Home?
Your affordability will depend upon your taxable income along with your monthly payments and your outstanding debts. If this is the main residence that you’re buying you should calculate 32% of the income you make know towards your heating costs, property taxes, other costs, and the mortgage payment.
You need to calculate 40% of your taxable income and then deduct all of the monthly debt payments such as credit cards, car loans, and other payments. This will help you determine how much income you should use towards your mortgage payment and other related housing payments. Another thing you need to know is the exact debt that you have and how comfortable you are servicing that debt. If you can’t afford at least 32% of your income, then don’t try and stretch yourself financially. You should only get a mortgage for the amount that you can afford because you still have to have money for other things in your life.
Should I Have a House Inspection Done?
When you have a house inspection done, this is a visual look at the property to determine the condition of the property. An inspector looks at things such as the ceiling, roof, floors, walls, crawl space, foundation, wiring, drainage, plumbing, heating, attic, and other areas of the property. The home inspector will provide the result in writing to the purchaser in written form and this is usually done within 24 hours after the inspection is complete. When you have a home inspection done, it can make it easier for you to purchase a home because you will know exactly what you’re going to be getting. The inspection may indicate that the home needs major work and this can be a factor in your buying decision. The inspection basically removes most of the unknowns, so you can make an informed buying decision about the property.
What is the Minimum Down Payment that I Need for a Home Payment?
In most cases, you need 5% as a down payment to make a home purchase which is subject to maximum restrictions in price. You also must show that you can cover costs such as disbursements, appraisal fees, survey certificates, and legal fees. The 5% down needs to be from your own personal cash flow or it must be given to you as a gift. If you’re not a resident or new to Canada, you will need a 10% down payment and this cannot be borrowed from anyone. If your money is a gift, then you need to obtain a letter to show that it is a gift and not a loan which has to be signed by the gift donor. When the mortgage is less than 20% down, then you need to get mortgage loan insurance.
What is Insurance for a Mortgage Loan?
CMHC or the Canada Mortgage and Housing Corporation provide mortgage loan insurance as well as Genworth. You need this insurance as it’s law and it protects lenders against any defaults on a loan for mortgages that have a loan to value ratio which is greater than 80%. Insurance premiums will be paid by the borrower and these range from 0.50-7.0% which can be applied to the mortgage amount, but this isn’t the same as regular mortgage life insurance.
What is a Conventional Mortgage?
When there is a down payment that is equal to 20% or more of the home price or a loan to value which is 80% or less and a mortgage which doesn’t require mortgage loan insurance, this is classified as a conventional mortgage.
How Does Bankruptcy Impact Your Qualification for a Mortgage?
If you’re bankrupt, the circumstances of your bankruptcy or going to play a role in your qualification for a mortgage. Some lenders will still provide you with a mortgage if you have been bankrupt but some of them won’t.
If I Have Child Support Houses, Do They Impact My Ability to Get A Mortgage?
When you have alimony or child support this is usually paid to you by another party. The amount will usually be deducted from your total income and this will be used to determine the actual size of the mortgage you can qualify for. When you have child support or alimony that is received to you by another party this amount paid will be added to your total income and this will be used to determine the size of the mortgage that you can qualify for. You’ll need to provide proof of regular receipt for a certain amount of time which will be determined by the lender
Can I Get A Mortgage for A Home Purchase?
Most people can get a home mortgage if they meet the qualifications. You may even be able to qualify for a home purchase even if you can only put 5% down for the mortgage. For high-ratio financing, Genworth Capital and the Canada Mortgage and Housing Corporation ensure that mortgages cover the cost of the purchase price of a home or can cover immediate renovations or home improvements that the purchaser of that home might want to make to the property. This can eliminate the need to finance the improvements or the renovations separately but there are conditions that apply.
Am I Able to Use Gift Funds for My Down Payment?
Many lenders will take down payment funds that are given to you as a gift from friends or family as your down payment. You will need a letter from the donor that is signed which indicates that the money is a gift. This money can only be a gift and not an actual loan. This is the case when the mortgage needs mortgage loan insurance. Canada mortgage and housing Corporation indicates that the gift money should be in the purchasers’ position before they send an application in for approval. when you want mortgage loan insurance that is provided by Genworth you don’t have to do this.
Explain the Pre-Approved Mortgage?
When you have a pre-approved mortgage, this gives you an interest rate guarantee from the lender which is for a specific time. Which is usually around 60 to 120 days and this is for a set amount of money. This pre-approval be calculated based upon information that is provided by you but there are usually some certain conditions that must be met before a mortgage can be finalized. Some of these conditions may include income confirmation by you or written employment.
A real estate professional is going to want to ensure that you are pre-approved for a mortgage before they take you out to look at properties. This will ensure that they show you properties which are within your price range.
Do I Need to Wait for a Mortgage To Mature?
Most lenders will guarantee an interest rate to you for around a hundred twenty days before the mortgage matures. If you don’t increase your mortgage they will also cover the cost of transferring a mortgage. This will give you a rate that is promised in advance of the mortgage maturity date and you won’t have to worry about higher fees. if you have a rate that drops before the maturity your new lender can adjust the interest rate lower.
A lender will usually send out a mortgage renewal notice and offer their existing clients the posted interest rate that they have now. Rates that are offered to you will usually not be there best rate available you should investigate other lenders to see if you can get a better rate when this happens to you as you don’t necessarily have to stay with your current lender through the entire mortgage.
What Is My Down Payment?
Most individuals don’t have enough money to outright purchase a home. You will usually need to turn into some sort of financial institution to obtain a home mortgage. While you can get a home mortgage you still need to put down what is called a down payment. This down payment is a portion of the home purchase price which you are paying for right away. Your financial situation is usually going to determine the amount of down payment you pay on your mortgage. you should figure out the amount that you can afford for a down payment before you start looking for a home. If you can put down a larger down payment this is recommended because it reduces the cost of the home over the long run. You will have lower interest costs and a smaller mortgage when you put down a larger down payment
Is It Possible to Obtain A Home with Just 5% Down?
Many lenders will offer an insured mortgage for a resale home or new home with a lower down payment then a regular conventional mortgage and this can be as low as 5%. When you have a low down payment mortgage it has to be insured so the cost of potential default payments are covered. This means that this type of mortgage can have a higher carrying cost than a conventional mortgage since there is an insurance premium. When you have a low payment insured mortgage you are responsible for things such as legal fees and appraisal fees, an application fee to pay for the insurance, and mortgage default insurance premium payments
How Can I Pay Off My Mortgage in Less Time?
There are several ways that you can reduce the amount of time it takes you to pay down your mortgage. You can get savings by doing the following:
- You can increase the frequency of your payments
- you can pick a non-monthly or an accelerated payment schedule
- you can make principal payments
- you can make double up payments
- When you renew you can choose a shorter amortization period.
Is it possible to use an RRSP to buy your first home?
It’s estimated today that around 50% of people that are buying a first-time home will use RRSP savings to help them Finance their down payment. If you use the Home Buyers’ plan provided by the federal government, it’s possible to use up to $25,000 from an RRSP as your down payment or up to $50,000 if you are a couple. You will then have 15 years to repay the RRSP. To receive qualification for this the RRSP funds half to be on deposit 4 90 days or more. To qualify for a home, you also have to sign an agreement.
If you have saved for your down payment already it can make sense financially to access savings through the Home Buyers’ Plan. If you have saved around $20,000 as a down payment for example, and still have enough room in your RRSP to contribute this amount you could move this savings into your registered investment around 90 days before the closing date. This money could then be withdrawn through the Home Buyers’ Plan.
The advantage to this is that the $25,000 RRSP can be used as a tax deduction for the current year. You can use a tax refund that you received to repay the RRSP and other expenses that are related to buying your home. When you do use your RRSP, it can help you buy your home sooner but you might miss out on tax-sheltered growth. You should talk to a financial planner about used RRSP to help you pay for a home because it might make sense for you or it might be a bad financial decision.
Can You Explain the Costs of Buying a Home?
The first thing you need to have before you buy your home is enough money for your down payment. This is the portion of the purchase price that has to be furnished by yourself and this is usually straight cash out of your bank account. to get a conventional mortgage, you will have to have a down payment of 20% or higher. If you can qualify for a high-ratio insured mortgage the down payment may be as low as 5%. You also need to have money that will be used to cover closing costs and this is usually 2.5% of the purchase price.
When buying a home, it’s also a good idea to have the home inspected by a building inspector. to have the inspection done you’ll have to pay a fee for this. A home inspection can indicate areas of the home that might need to be repaired or could break down soon. This can help you save money on the purchase of a home because you don’t want to buy a home that is going to require a lot of maintenance unless you have the money and the time required to do this maintenance. Once the home inspection is completed you will get a written report from the home inspector which will give you a clear outline of what you’re going to buy. If the home inspector doesn’t offer you a written report you should ask for one and they must provide one for you.
Other fees that you will be required to pay will be to a notary or a lawyer that is acting on your behalf for the purchase of your property. You should shop around and find the best lawyer or notary that’s going to work for you because their services and fees can vary a great deal.
You will also have adjustment costs and closing costs that need to be paid. There will be interested just went cost between the seller and the buyer, land transfer taxes and usually a one-time tax that is based upon the percentage of the home purchase price or the mortgage. Before the closing date, you’re going to have to have in place proper property insurance and you also must factor in the cost it will take to move to the property.
Since this is going to be your first home you’re probably going to have a lot of other expenses such as buying tools, appliances, furniture, and other things you will need to decorate the home so you’re going to have to factor in all these costs in addition to the mortgage cost and all the other costs which will be required to finalize the purchase of the home
What About the Length Of Time Of My Mortgage?
The term of the mortgage is going to vary wildly. This is usually going to be for several years and the shorter the term the lower the interest rate is going to be. If you have a higher term, you’re going to have a higher interest rate. Most people will choose either a 4 or 5-year mortgage as this is the most common. If you’re able to tolerate more risk you can go with a shorter-term mortgage. If you don’t want to make a long-term commitment and can watch interest rates then a longer-term mortgage might be for you. Before you go for the mortgage term, here are some questions to keep in mind.
- Do you have any plans to sell the home in the short-term and have no plans to buy another? If this is the case then the short term mortgage might be your best option.
- Do you have a feeling that the interest rates are not going to drop anymore? If you think this is the case then a longer-term mortgage might be right for you. If you think that the current rates are too high that you might want a medium or shorter length mortgage and then hope that the rates drop by the time your term has expired.
- If you’re buying the home for the first time are you looking for security? If you want security you may want a longer-term mortgage so you can apply the appropriate budget and manage all of your monthly expenses in addition to paying for the mortgage.
- Do you plan to follow interest rates very closely and worry that the mortgage payment may be increased following your mortgage renewal? If you are worried about mortgage rates you might want to apply for a short-term mortgage.
What Are the Monthly Expenses of Owning Your Own Property?
You will have financial responsibilities when you decide to become a homeowner. Some of the expenses like taxes are not billed to you monthly but there are other expenses that must be paid monthly.
Mortgage Payment
If you were used to paying rent you need to understand that the mortgage payment works the same way that rent does. Each month you will have a monthly mortgage payment that has to be paid. This payment is going to be the largest monthly expense you have when you’re working to own your own home. The amount that you pay is going to do all depend on your mortgage and your interest rate as well as the term of the mortgage.
Property Taxes
In some cases, property taxes are paid as a part of the monthly mortgage payment but they will usually be sent to you by the municipality once per year. Property taxes are another payment that absolutely must be paid.
School Taxes
In several municipalities, school taxes are integrated into your property taxes. These taxes are usually collected at the end of the school year.
Utilities
Whenever you own a home you are responsible for all of your utilities such as heating, electricity, gas, telephone, water, and cable or other utilities that you have.
Upkeep and Maintenance
You rented a property the maintenance and upkeep is done by the landlord. When you own your own home, all the maintenance and upkeep is required to be done by you. you will be responsible for all the repairs which can include snow removal, lawn care, Plumbing, electrical, roof repairs, painting, and any other repairs that the property needs to have done. You should ensure that you have money set aside in case you must do any of these repairs and you should also have a regular maintenance budget set aside for your home. If you make any major renovations or changes to the property, this will usually add value to the property and can get you more money if you decide to sell the property
Is A Long-Term or Short-Term Mortgage Best?
if you have a busy lifestyle and don’t want to watch mortgage rates, then a longer-term mortgage is right for you. You can have mortgages that cover between 4 to 10 years in most cases and you can take advantage of the rates today while having longer-term security. If you want a more flexible mortgage than a shorter-term mortgage is usually the best option as you can take advantage of lower rates and save some money.
What About a Fixed Rate Mortgage?
The fixed rate mortgage has an interest rate which is set for a predetermined two-term. This is usually between 6 months to 10 years. this gives you security because you know what you’re going to be paying for the term that you select
What About a Variable Rate Mortgage?
This is a type of mortgage where the payments are going to fluctuate month to month depending upon the prime interest rate. If the prime interest rate goes up then your payments are going to go up.
Summary of Mortgage FAQs
These are some of the common questions that people ask about mortgages. The entire mortgage process can be a complex one and it’s a good idea to talk to a financial advisor, lawyer, real estate agent and other experts so you understand your rights and what is going to be required of you when you obtain a mortgage and buy your first home.
