» How much of a down payment do you have?
» Using RRSPs for your down payment
» How much can you afford?
» What type of mortgage do you need?
» Pre-approval
» Finalizing your mortgage

How much of a down payment do you have?

The larger your down payment is, the smaller your mortgage will be and the less interest you'll pay over the life of your mortgage. The size of your down payment will also determine the CMHC/GE Capital underwriting premium that you will need to pay.
A typical down payment is 20% of the purchase price (or appraised value) of the home. Save up this amount and you'll be eligible for a conventional mortgage.  Using RRSPs for your down payment is also an option.

Under the Home Buyers' Plan, first-time homebuyers can withdraw up to $25,000 tax free from their RRSPs (or $50,000 per couple) to finance a home purchase. These funds can be used for the down payment, closing costs or other expenses.  Some conditions apply:

*  You must have entered into a written agreement to buy or build a qualifying home.

*  You must purchase your home by October 1 in the year following your RRSP withdrawal.

*  All RRSP withdrawals must be in the same calendar year.

*  To remain tax free, all funds must be repaid within 15 years. Repayments start in the second calendar year following the withdrawal and are not tax deductible.

*  You must live in the home for at least one year after the date of purchase. There can be no more than two first-time buyers in the purchase of a new home.

Your payments for principal, interest, property taxes, heating and, if applicable, condominium fees, should amount to no more than 30% of your gross monthly household income.

Your total debt ratio should be no more than 40% of your gross monthly household income (includes housing costs and debt such as car loans, credit card payments, personal loans and line-of-credit payments).

 You must provide at least a 5% down payment. If you don't have this amount saved, you may use a personal loan, a loan from family or friends, or a line of credit to borrow funds. The source of the funds must not be tied or linked to the purchase or sale of the property. Note that if you decide to borrow for your down payment, you'll pay a higher insurance premium.  Also, Mimoney.ca will include the borrowed down payment to calculate the size of the mortgage you can afford.

 If you don't have 20% saved, there are other options:

·         High ratio mortgages
·         CMHC or GE Capital O% down

If you don't have 20% as a down payment, you may apply for a high ratio mortgage. This type of financing requires you to obtain mortgage-underwriting insurance from Canada Mortgage and Housing Corporation (CMHC) or GE Capital.

You pay an application fee upon disbursal of the mortgage to CMHC or GE Capital.

When it comes to buying a home, the last thing you want to do is get in over your      head. At Mimoney.ca, we can help you think through the real costs of home ownership-everything from redecorating, repairs and insurance, to suddenly needing a lawnmower.

When approving your mortgage, we'll consider your income as it relates to not only your home, but your other debts as well. Generally, we'll use two calculations to determine the maximum amount of financing you can afford.

Gross Debt Service (GDS) ratio

Your monthly housing costs should not exceed 30% of your gross monthly income. Included in housing costs are: monthly mortgage principal and interest payments, property taxes, hydro and heating, condominium or strata fees, or your annual site lease for leasehold property.

Total Debt Service (TDS) ratio

Your overall debt load (including housing costs and payments on car loans, credit cards, personal loans and lines of credit) shouldn't be more than 40% of your gross monthly income. 

There are several factors to consider when deciding on a mortgage.

Amortization period

The amortization period is the actual number of years it will take for you to repay the mortgage loan in full. The more time it takes to pay off a mortgage, the more interest you will end up paying.  There are most common amortization periods for a first time homebuyer are 25 yrs, 30 yrs, and 35 yrs.  Keep in mind for an amortization period longer then 25 years there is an increased CMHC premium. (Please refer to CMHC chart below)

Short term or long term

A term is the length of time your interest rate and other details in your mortgage agreement will be in effect. A term can range from a 6 months to 10 years, and you'll probably have several terms over the life of your mortgage. How long a term should you choose? That depends.

Are you planning on moving again soon? If so, a shorter term may be appropriate.
Are interest rates increasing or decreasing? If they're going down, you may want the option of renewing sooner.

Open or Closed

A closed mortgage has limited pre-payment options. If you decide to refinance, renegotiate or pay out the mortgage before your term ends, a penalty applies. However, what you sacrifice in flexibility, you usually make up for on the interest rate.

An open mortgage can be repaid at any time during the term of the mortgage, but usually has a slightly higher interest rate than a closed term. If you're expecting to have a large influx of cash (in excess of the pre-payment allowance), or are thinking you may be moving again soon, an open mortgage may be a good choice.

Fixed rate or Variable rate

With a fixed-rate mortgage, your payments are set in advance. You'll know exactly how much you'll owe at the end of the term, making budgeting easier.

A variable-rate mortgage fluctuates with the market and gives you the lower possible interest rate at all times. If interest rates go down, more of your payment is applied to reduce the principal. If rates go up, more of your payment goes toward paying the interest.

Once your offer on a house is accepted, you will need to contact Samantha Dann to complete the detailed mortgage application.

You'll need to provide:

• A T-4 slip/proof of salaried income
• Your social insurance number
• Photo Identification
• Your offer to purchase
• A copy of the real estate listing sheet (including a picture)
• A confirmation of your down payment
• Verifying your credit rating
• Arranging for an appraisal of your property to determine its current market value
• Arranging for mortgage insurance

Once your mortgage is approved, you'll need to contact a lawyer or notary to prepare the necessary documentation, and once the documents have been signed, the lawyer or notary will arrange registration of the mortgage and transfer the title to you.