New Mortgages
Making the right choice when it comes to
purchasing a home is a matter of good planning. There is so
much to learn, especially on your first purchase, that it is
essential to surround yourself with qualified professionals
throughout the process. Even with the help of qualified
professionals, you’ll need to understand, in a general sense,
how the process works. Our hope is that this article will be a
very helpful introduction to the process of buying a home and
qualifying for a mortgage.
 Affordability and Financing
The question of ‘How much can we
afford?’ is largely answered by comparing your income to a)
your future mortgage payments, heating costs and property
taxes, commonly called the Gross Debt Service Ratio (GDS
Ratio), and b) the three previous expenses plus all other debt
servicing costs that you regularly pay on a monthly basis,
commonly called the Total Debt Service Ratio (TDS). The TDS
Ratio often includes the payments you make on credit card
debt, automobile loans, existing lines of credit and student
loans as well as other similar loans.
The current maximum ratios for
individuals and couples with a 5% to 25% down payment are 32%
for GDS and 40% for TDS. In English, this means that lenders
will allow you to use a maximum of 32% of your total pre-tax
or gross income to pay for your mortgage payments, property
taxes and heating costs. And a maximum of 40% of your total
pre-tax or gross income for these payments plus all other debt
servicing cost you may have –see previous paragraph for
examples.
By using these ratios a Mortgage Best
Inc. Specialist can help you select a price range for your new
home that you are going to be comfortable with and let you
know what the maximum price that you will qualify for is,
helping to limit any disappointments down the road.
Our
Online Mortgage Calculator can help you find your budget
price range
 A Mortgage Best Inc. Specialist can also present
you to a lender for a mortgage pre-approval. Before you're
automatically pre-qualified, your mortgage agent will need to
run a credit bureau report and discuss how much you plan to
put towards your down payment.
Once you're pre-qualified, the interest
rate at which you pre-qualify is frozen for up to 180 days
from the time of your application. If rates drop below what
you pre-qualified for, you'll get the lower rate and if they
rise, you’ll be safe knowing you’ll receive the rate you
qualified at.
With the following necessary documents in hand, your Mortgage
Best Inc. Specialist can move quickly to secure an
unconditional mortgage approval once you’ve found the perfect
home.
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A copy of the accepted Offer to
Purchase
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A salary letter from your employer.
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Self-employed individuals need
financial statements for the past three years as well as
personal income tax returns.
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Confirmation that your down payment
came from your own resources (i.e. bank statements or a gift
letter).
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A list of all your assets and
liabilities.
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A copy of the Real Estate Listing if
buying an existing home.
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Condominium financial statements, if
applicable.
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If you are buying a home that is to
be constructed, a picture of the property, a copy of the
building plans and specifications, the land survey, plus
your agreement with the builder.
Mortgage Life Insurance
You should look at mortgage life
insurance, especially where two incomes are involved. The cost
is low and can be incorporated with your mortgage payments.
Your balance will be paid in full (the maximum varies with
different financial institutions) in the event of death,
terminal illness, or permanent disability. These quotes will
be available with each mortgage approved on the system.
Prepayment Privileges
We could go on at length about the
various features of each mortgage type but in the interest of
time, our best advice is to contact us with the questions you
are most concerned about. We know the pre-payment privileges
of the various financial institutions on the system. These let
you pay down your mortgage faster. Also be aware that the
longer the amortization period (the time it takes to pay off a
mortgage), the more interest you will end up paying.
Amortization periods range from five to twenty-five years.
Weekly or bi-weekly payments, instead of
monthly, will shave as much as eight years and $38,000 off a
$100,000 mortgage.
Another option to consider is
portability. If later, you decide to sell your home and buy
another, you should be able to take your mortgage with you or
transfer it to the buyer of your home without penalty. This
can turn out to be a major advantage if your mortgage rate is
below current market rates.
Selecting the Right Mortgage
The basic choices to look at in
selecting a mortgage include:
- Conventional or high ratio mortgages
- Term length
- Closed or open mortgages
- Fixed rate vs. variable rate
A conventional mortgage is a loan for no
more than 75% of the appraised value or purchase price of the
property, whichever is less. A high ratio mortgage is usually
for more than 75% of the appraised value or purchase price.
This type of mortgage is often referred to as an NHA mortgage
because it is granted under the provisions of the National
Housing Act and must, by law, be insured through CMHC for
which the borrower pays the insurance premium, application,
legal and property appraisal fees.
The term you select is important. Short
term mortgages can be appropriate if you believe interest
rates will drop come renewal time, but in many of these
circumstances, they are inferior to a variable rate mortgage.
Long term mortgages are suitable if you feel current rates are
reasonable and you want the security of budgeting for the
future. This can be especially important for first time
homebuyers. The key is to feel comfortable with your mortgage
payments. A closed mortgage usually offers a lower
interest rate than an open one of the same term, but the open
mortgage lets you pay off as much as you want, any time,
without penalty.
You can choose a fixed or variable
interest rate. A fixed rate mortgage allows you to budget
precisely for whatever term you select anywhere from six
months to occasionally 25 years. A variable rate fluctuates
with the market and gives you the lowest possible mortgage
rate at all times.
 This section offers the basics of buying
a home and qualifying for a mortgage. If it has left you with
a few questions, we would love to hear from you! Please call
and talk to a Mortgage Best Agent now at 1-877-771-2378 or
e-mail us at
info@mortgagebest.ca
Apply on line now OR Call our office today at 877-771-2378
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