If you plan on buying a home in the near future and want to lock in a low rate to ensure you are set to go when you find that dream home, then a pre-approval is important. You should see your Rock Capital mortgage professional before you begin house hunting to ensure you know exactly how much you can afford and make the process more enjoyable. For a quick snapshot of what you can afford download our mobile app and use the handy pre-qualification tool.
What do I need to get my first mortgage?
You will be required to provide proof of income as per our list on step 3 of the APPLY page, as well as good credit and a down payment. The down payment can be from your own savings or investments, or it can be gifted from an immediate family member or borrowed. If the down payment is borrowed from a credit card, line of credit, or other source, then the payment on that debt must be included in your qualifying ratios which may reduce the amount you qualify for.
How much can I qualify for?
To determine how much you qualify for the lenders will take into account a number of things including type and amount of income, credit, and monthly debts. If your credit is good, then the main factor will be the amount of your taxable income.
The calculation used involves 2 ratios, the first is your GDS (Gross Debt Service), the second is your TDS (Total Debt Service). Under the GDS ratio, the mortgage payment plus property taxes and a utility payment cannot exceed 39% of your taxable income. Under the TDS ratio, the mortgage payment plus property taxes, utilities and all of your other monthly debt obligations such as credit cards, lines of credit or car payments cannot exceed 44% of your taxable income.
In addition to what the ratios say you can afford, think about what you feel you can afford. If the payment you are comfortable with is less than 39% of your income, then you may want to settle for the lesser amount rather than stretching yourself so you can still afford some of the simple luxuries and not be house poor.
Check out our handy calculators to assist in determining what you can afford.
What can be used for a down payment?
The down payment can be from your own savings or investments, or it can be gifted from an immediate family member or borrowed. If the down payment is borrowed from a credit card, line of credit, or other source, then the payment on that debt must be included in your qualifying ratios which may reduce the amount you qualify for. If the money is coming from an RSP account then it must have been in the RSP for more than 90 days before it can be withdrawn. First time buyers can make a withdrawal under the Home Buyer’s Plan tax free, otherwise you will be paying tax on your withdrawal. For more information on that click here: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html
What is the minimum down payment required?
If you qualify for high ratio financing, the minimum down payment required is 5% of the purchase price of the home, subject to certain maximum price restrictions. If you have credit or income issues, such as bruised credit or self employed income, the required down payment may be more. In addition to the down payment, you must also be able to show that you can cover the applicable closing costs (i.e. legal fees and disbursements, appraisal fees and a survey certificate, where applicable).
Can I qualify for a mortgage if I have declared bankruptcy?
Depending on the circumstances surrounding your bankruptcy, and how long it has been since your discharge, banks may still be willing to offer you mortgage financing. Contact us for more details.
How long does the mortgage process usually take?
We have streamlined the mortgage process to make it a faster and smoother process for you.
Generally a pre-approval will take 48-72 hours from time of application to time of approval.
For a full approval, we can move you from application, to approval, to closed in as little as 2 weeks. In some circumstances, if required, we can close much faster, restrictions apply.
Is a short term mortgage better than a long term mortgage?
Mortgage terms in Canada can vary widely from six months right up to 10 years. As a rule of thumb, the shorter the term, the lower the interest rate the longer the term, the higher the rate, although this is not always the case.
While four or five year mortgages are what most home buyers typically choose, you may consider a short-term mortgage if you have a higher tolerance for risk, if you have time to watch rates or are not prepared to make a long-term commitment right now.
Before selecting your mortgage term, we suggest you answer the following questions:
1. Are you planning to sell your house in the short-term without buying another? If so, a shorter mortgage term may be the best option.
2. Do you believe that interest rates are at their lowest and are not likely to drop more? If that's the case, a long mortgage term may be the right choice for you. Similarly, if you think rates are currently high, you may want to opt for a short to medium length mortgage term anticipating that rates will drop by the time your term expires.
3. Are you looking for security as a first-time home buyer? Then you may prefer a longer mortgage term, so that you can budget for and manage your monthly expenses.
This is something that your Rock Capital mortgage professional will assist you in determining based on your individual circumstances. Every situation is unique, and we will ensure the mortgage you gets is the one that fits you best.
What is mortgage loan insurance?
Mortgage loan insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, Sagen Canada and Canada Guaranty, approved private corporations. This insurance is required by law to insure lenders against default on mortgages with a loan to value ratio greater than 80%. The insurance premiums, ranging from 0.6% to 4.5%, are paid by the borrower and are typically added directly onto the mortgage amount.
What is a conventional mortgage?
A conventional mortgage is usually one where the down payment is equal to 20% or more of the purchase price, a loan to value of or less than 80%, and does not normally require mortgage loan insurance.
Should I wait for my mortgage to mature before checking out my options?
Lenders will often guarantee an interest rate to you as much as 120 days before your mortgage matures. As long as you are not increasing your mortgage, they will cover the costs of transferring your mortgage as well. This means you get a rate locked in well in advance of your maturity date, thus eliminating any worries that rates will increase, and if rates drop before the actual maturity date, the new lender will usually adjust your interest rate lower as well.
Most lenders send out their mortgage renewal notices offering existing clients their posted interest rates. The rate you are being offered is not always the best one. Always investigate the possibility of a lower interest rate with your Rock Capital mortgage professional. If you don't you may end up paying a much higher interest rate on your renewing mortgage than you need to.
How can I pay off my mortgage faster?
There are many ways to reduce the number of years to pay down your mortgage. You will enjoy significant savings if you: increase your payment frequency schedule to bi-weekly or weekly accelerated, making principal prepayments using your pre-payment privileges, making double-up payments or selecting a shorter amortization at renewal.
What are the costs associated with buying a home?
First and most importantly, you have to make sure you have enough money for a down payment.
To qualify for a conventional mortgage you will need a down payment of 20% or more. However, you may qualify for a low down payment insured mortgage with as little as 5% down.
Secondly, you will require money for closing costs (up to 1.5% of the purchase price).
If you want to have the home inspected by a professional home inspector - which we highly recommend - you will need to pay an inspection fee. The inspection may shed light on areas where repairs or maintenance are required and will assure you that the house is structurally sound. The inspector should provide you with a written report, If they don't, then ask for one.
You will be responsible for paying the fees and disbursements for the lawyer or notary acting for you in the purchase of your home. We suggest you shop around before making your decision on who you are going to use because fees for these services may vary significantly.
There are closing and adjustment costs, interest adjustment costs between buyer and seller and (depending on where you live) land transfer tax - a one-time tax based on a percentage of the purchase price of the property and/or mortgage amount.
Finally, you will be required to have property insurance in place by the closing date.
Also remember all of the things you'll have to purchase early on - appliances, garden tools, cleaning materials etc. and factor these expenses into your initial costs as well.
Things to avoid doing before buying a home
Don’t miss loan payments or credit card payments
Avoid changing jobs
Don’t shift your finances around between too many accounts before getting the mortgage
Don’t start banking at a new institution
Avoid financing a new car with a loan or lease.
Don’t buy new furniture on credit
Avoid making large deposits into your bank accounts or making cash deposits without being able to back them up with a proper paper trail.
Don’t let too many people make inquiries into your credit.
Don’t spend the money you have saved and will need for your closing costs.
Avoid co-signing for any other loans and don’t apply for any new loans or credit cards yourself.