As your Mortgage Broker Kelowna, I want to help you understand the mortgage application process as much as possible. Below I have listed and answered some of the most frequently asked questions (FAQs) which I hope you will find useful:
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What is a conventional mortgage?
A conventional mortgage is where your initial down payment is 20% or more of the property purchase price. It’s a loan that is 80% or less and doesn’t usually require Mortgage Loan Insurance.
What is Mortgage Loan Insurance?
Mortgage Loan Insurance is required by law and requested by the lender if your down payment is less than 20% of the price of the property you wish to purchase.
The cost of this insurance, which is based on a percentage of the purchase price of the home, is passed on to you as the home buyer and can either be paid as a lump sum or can be added to your mortgage payments.
The insurance protects the lender from mortgage default and also means that you can make a purchase that requires down payments starting at only 5%, with interest rates that are comparable to if you were putting down 20%.
Do not confuse Mortgage Loan Insurance with Mortgage Life Insurance. Mortgage Life Insurance is different and guarantees that, at the time of your death, your outstanding mortgage is settled.
How will bankruptcy affect my mortgage application?
This all depends on the surrounding circumstances with regard to your bankruptcy. Some lenders may consider still providing financing for a mortgage.
Will I qualify for a mortgage if I am paying or receiving child support?
If you are paying Child Support to another person, this amount is usually deducted from your total income before seeing how big a mortgage you can qualify for.
If you receive Child Support the amount you receive is usually added to your income. This amount is then used to determine your total income and what you can qualify to borrow. You will need to provide proof of this payment, however, and show how long and often these payments will be made for.
Can I get a mortgage to cover the purchase and renovations of my home?
If you qualify you can get a mortgage to purchase and renovate a home, but it’s important to understand your options prior to starting any purchase and renovations. A mortgage pre-approval will help you realistically plan.
There are a number of different ways to finance your renovation. Read on to obtain information for a number of financing options, along with practical advice to consider before starting your renovation project.
Setting aside a percentage of your renovation money is a good idea. It helps to cover things that are not included in your renovation contracts, such as furniture or appliances.
There are also renovation and energy saving grants and rebates available across Canada. These are generally available from the federal and provincial governments and local utility companies. They can help pay for some of your costs if you qualify.
Can I use gifted funds as a down payment?
Most lenders will accept a monetary gift from family as an acceptable down payment. You will usually have to provide a signed letter from the donor confirming that it is a true gift and not a loan.
What is a pre-approved mortgage?
A pre-approved mortgage means that you’re starting the application process for your mortgage before looking at homes. This allows you to know what you can afford upfront.
To get pre-approved a lender usually looks at your credit report, your income, the amount and source of your down payment, and any assets and liabilities that you may have.
If you’re looking to buy a home in the next three to six months and have your down payment already, it’s a good idea to get pre-approved so you don’t get distracted looking at homes that you can’t afford. It also means that, if you find your perfect home, you can act quickly and place an offer.
What is a down payment?
A down payment is a portion of the total purchase price of a home. The more you can afford to put down upfront, the less your home will cost in the long run. Higher down payments mean that your mortgage is lower and you will be paying less interest.
How can you pay off your mortgage sooner?
You can make big savings by paying off your mortgage earlier. Ways in which you can do this are as follows:
- You can choose non-monthly or accelerated payments
- You can increase your payment frequency
- You can make principal pre-payments
- You can double-up on your payments
- You can choose a shorter amortization when you renew
Can I use my RRSP to help buy my first home?
Today, about 50% of first-time homebuyers use their RRSP savings to help finance a down payment.
If you are a first-time home buyer, the Home Buyers’ Plan (HBP) allows you to withdraw money from your Registered Retirement Savings Plan (RRSP)
The Federal Government introduced the Home Buyers’ Plan (HBP). With this plan, you can withdraw and use up to $25,000 of your RRSP ($50,000 for a couple) tax-free to make your down payment.
The Canada Revenue Agency (CRA) administers the HBP and there are certain conditions you must meet to be eligible. For more information, you can contact the CRA directly.
What are the costs associated with buying a home?
You will be required to pay a deposit when you make an offer to purchase a home. The deposit is part of your down payment and is usually around 1% of the total purchase price – but can be as high as 5%.
Make sure you have enough funds for a down payment. For conventional mortgages, the down payment is normally 20%, but high ratio mortgages, which means you don’t need to pay as much as 20% upfront, usually require you to put down at least 5% of the purchase price.
Mortgage Loan Insurance
If you do opt for a high ratio mortgage you might need to obtain Mortgage Loan Insurance, which can range from 0.65% and 2.75% of the home’s value. Your lender may be able to add the insurance costs to your mortgage, or you can choose to pay it in full when you close.
Mortgage Loan Insurance protects the lender against mortgage default but means that you can still purchase a home if you don’t have 20% as a down payment.
Your lender might ask for the home you wish to purchase to be appraised. If this is requested it is usually at your expense. The appraisal just confirms that the home is valued correctly, and the cost of the appraisal is usually between $300-$450. This fee is sometimes waived depending on the lender.
A home inspection is important and highly recommended when you make an offer to purchase a home. An inspector will check the home thoroughly including the walls, roof, foundations, heating, plumbing, etc, and report back on its condition and any defects or structural issues that you need to be aware of.
The cost for this inspection is normally around $500 but bigger older homes may cost more. The results should be provided as a written report within 24-hours of the inspection.
Land Transfer Tax
When you close on a home purchase you will have to pay the provincial Land Transfer Tax, which is a percentage of the purchase price of the property.
Prepaid Property Taxes
If applicable, you will be responsible for reimbursing the vendor for any of these costs.
You will need to get your property insured so that your lender knows that the structure of the home and its contents are covered. This insurance needs to be in place on the closing date.
Survey or Certificate of Location
You might be asked for an up to date survey or certificate for the home you want to buy. If it is requested and the sellers do not have this information, you will have to pay to get the information required.
Water Quality Inspection
If the home you want to buy has a well, you will want to have the quality of the water tested to make sure that the supply is good enough. This should be made a condition of your purchase offer.
Legal Fees and Disbursements
These fees can vary but are usually around $500 plus GST and need to be paid when you close. Any disbursements incurred such as land titles, etc, will be billed by your lawyer or notary.
Your lawyer or notary may recommend you get this insurance, as it will cover you for any losses caused by defects of title to the property.
Finally, you will be responsible for the cost of moving and any other expenses such as appliances, tools, etc, so allow for these.
What is a fixed rate mortgage?
This is when the interest rate on a mortgage is fixed and set for a pre-determined term – usually between 6 months to 25 years.
Having a fixed rate mortgage means that you will know exactly what you will be paying each month, as the payments will not go up and down with interest rates.
What is a variable rate mortgage?
This is when mortgage payments are fixed for a period of one to two years but the interest rates may go up and down from month to month which means your payback amount will alter. If the rates go down, for instance, more money goes toward reducing the principal; if the rates go up, however, then a bigger part of your monthly payment will go toward covering the interest costs.
Open variable rate mortgages will allow you to pre-pay any amount on any payment date, although there may be certain minimum amounts set.
What should the length/term of my mortgage be?
Usually, the shorter the length/term of your mortgage is the lower the interest rate. Longer-term mortgages are set at a higher rate.
If you are planning to sell your house in the short term without buying another one then a short-term mortgage may be your best option.
If interest rates are very low then a long-term mortgage might be the better option. However, if interest rates are high or on the rise, then you might want to choose a short to medium term mortgage because the interest rates may drop by the time your mortgage expires.
If you are a first-time homebuyer and just want security then a long-term mortgage might be preferable as you are able to budget and manage your monthly expenses.
What are the monthly costs of owning a home?
This is usually the largest expense and is the amount of the mortgage payment(s).
You can either pay property taxes directly to the municipality or include them as part of your monthly mortgage payment.
In some areas, school taxes are included in the property taxes, but in other areas they may be collected separately. If the later is the case they are usually paid at the end of each school year as a lump sum.
You will be responsible for any utility bills required such heating, gas, electricity, water, telephone and cable.
It’s a good idea to maintain your property and deal with repairs such as the roof, plumbing, lawn care, etc, as it will help keep the market value of your home up and add further value to your property.
What to Expect of Your Mortgage Broker Kelowna?
I am The Guy! As an experienced Kelowna Mortgage Broker and Independent Insurance and Investment Advisor, I can help you with all of your financial planning needs.