Getting a mortgage and purchasing a home are possibly some of the biggest decisions you'll make in your life. I've compiled a list of 10 commonly asked mortgage questions for you below! Have a question that's not included on my list? Let's connect to discuss it!
Rate, rate, rate! Did you know there are a variety of different factors that determine what rate is available for you? A few factors that determine the rate you will receive include your credit score and history, the type of property, who will be living in the property, and your down payment amount. I caution that while rate is important it is definitely not the most important aspect of a mortgage and you should also consider such things as prepayment and porting privileges when opting for a mortgage product.
When we are determining the amount for which you will qualify, there are two calculations we are working with. The first is your Gross Debt Service (GDS) ratio. GDS looks at your proposed new housing costs (mortgage payments, taxes, heating costs and strata/condo fees, if applicable). Generally speaking, this amount should be no more than 39% of your gross monthly income. For example, if your gross monthly income is $4,000, you should not be spending more than $1,560 in monthly housing expenses. Second, you will need to calculate your Total Debt Service (TDS) ratio. The TDS ratio measures your total debt obligations (including housing costs, loans, car payments, lines of credit, phone bills and credit card bills). Generally speaking, your TDS ratio should be no more than 44% of your gross monthly income. It is importnat to keep in mind that the GDS of 39% and the TDS ratio of 44% are maximums and you should strive for a lower ratio.
I also recommend you obtain a mortgage pre-approval to ensure you know your maximum spending ceiling and to be able to narrow down your price range when you being your home search.
The minimum down payment required is 5% of the purchase price of the home. And in order to avoid paying mortgage default insurance, you need to have at least a 20% down payment.
There are programs available that enable you to use other forms of down payment, such as from your RRSPs or gifted funds from an immediate family member.
Most lenders look at five factors when determining whether you qualify for a mortgage:
One of the first things a lender will review is your total guaranteed income. Next a lender will review your debts which include monthly liabilities such as all loans, credit cards, lines of credit, child support, etc.
Good credit is also very important in qualifying for a mortgage. Keep paying your bills on time, keep your credit utilization below 30%, and ensure you have 2 trade lines reporting for a minimum of two years to help build your credit.
The answer to this question depends on your personal risk tolerance. If, for instance, you’re a first-time homebuyer and/or you have a set budget that you can comfortably spend on your mortgage, it’s a good idea to consider a fixed mortgage with predictable payments over the term of your mortgage. If, however, your financial situation can handle the fluctuations of a variable-rate mortgage, this may save you some money over the long run. Another option is to opt for a variable rate, but make payments based on what you would have paid if you selected a fixed rate.
You should also consider whether you will be breaking your mortgage before the term of your mortgage has finished. Variable rates only ever carry a 3-month interest pre-payment penalty while fixed rates have the higher of 3-months interest or the Interest Rate Differential which can get costly fast!
Generally speaking, you’re a prime candidate for a mortgage if your credit score is 680 and above. The higher you can get above 700 the better, as you will qualify for the lowest rates. These days almost anyone can obtain a mortgage, but the key for those with lower credit scores is the size of the down payment and potentially a higher interest rate.
There are several things you can do to boost your credit fairly quickly. Following are five steps you can use to help attain a speedy credit score boost:
As a general rule of thumb, it’s recommended that you have a minimum of 1.5% of the purchase price (in addition to the down payment) strictly to cover closing costs. There are several items you should budget for when it comes to closing costs. Property Transfer Tax is charged whenever a property is purchased. The tax will vary from jurisdiction to jurisdiction, but I can help with the calculation. GST is charged on new builds. Your lawyer/notary will charge you a fee for drawing up the mortgage and conveyance of title. The amount of the fee will depend on the individual that you use. The typical cost is around $1500 but it can be more. Other costs include such things as an appraisal fee (approximately $400+), title insurance (approximately $300) and a home inspection (approximately $550).
Monthly mortgage payments vary based on several factors, including: the size of your mortgage; whether you’re paying mortgage default insurance; your mortgage amortization; your interest rate; and your frequency of making mortgage payments. You can view some useful calculators to find out your specific mortgage payments by downloading my app directly on your phone, My Mortgage Toolbox here.