MORTGAGE RESOURCES

Different lenders have different credit requirements. Your credit score will fall into one of the Beacon Score categories established by Equifax Canada. Scores from 400 to 600 translate to a C or B grade, while scores from 650 and above are closer to the A or A+ grade. The higher your score, the more likely you are to secure the best mortgage products and rates. Lower scores may involve higher interest rates or alternative forms of lending.

You can read more about building your credit score for a mortgage here.

Debt service ratios are made up of your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios. GDS is the percentage of your monthly income required to cover your housing costs such as property taxes, heat, and mortgage payments. This amount should not be more than 39 per cent. TDS is the percentage of your monthly income required to cover not only your housing costs, but your other debt obligations as well. These might include loans, credit cards, and student debt. This amount shouldn’t cross more than 44 per cent.

Your monthly payment is calculated based on a variety of factors, including:

• Your mortgage principal amount (purchase price minus down payment)
• Interest rate
• Amortization period
• Payment frequency

Online mortgage calculators are helpful tools for determining your monthly payment.

Your first mortgage payment may depend on your home’s closing date. For example, if you close on May 1, your first payment is due on the first of the next month, which is June 1. If you close mid-month, you will owe an interest adjustment payment on the first of the next month for that two week period. The first full payment will occur one month later.

A lot of factors will go into your home buying budget. Although it might be tempting to go over budget, buying a home that’s more than you can afford can result in major financial issues down the line. It’s important to know how much you can spend before you enter the process.

Budgeting for a home is about more than mortgage payments. You also need to think about closing costs, insurance, repairs, taxes, and whether or not you need to purchase mortgage default insurance. You can read more about these types of costs here.

The down payment for a mortgage must be at least five per cent of the property’s purchase price if the home is less than $500,000. Homes between $500,00 and $1 million require a down payment of five per cent for the first $500,000, and 10 per cent for the remaining amount. Homes over $1 million need a 20 per cent down payment.

If the down payment is below 20 per cent, the buyer is required to purchase mortgage default insurance. This insurance is a fee buyers pay on top of their mortgage and down payment. Since lenders are financing a bigger mortgage with a smaller down payment, they consider this borrower higher risk. This fee is to protect them in case of a mortgage default. Mortgage default insurance applies to all mortgages with a down payment below 20 per cent, regardless of age, income, or credit.

The Canadian Mortgage and Housing Corporation (CMHC) is the largest provider of this insurance. Sagen and Canada Guaranty are the two other providers in Canada.

A pre-qualification is a simple process that tells you how much you might be able to afford in a mortgage. Lenders take your current employment, income, debt, and other financial information to determine your ability to support a mortgage. It’s important to note that a pre-qualification doesn’t guarantee you a mortgage, but it does allow you to understand your financial situation and the budget you will likely be working with.

After you have been pre-qualified, your broker will talk to you about your next steps. Some of the things you will need to do include:

• Finding a real estate agent
• Beginning your house search
• Making an offer and securing mortgage financing 

You should also make a point of keeping your financial situation the same, including your employment. Any changes to your finances could result in a lender deciding not to grant you a mortgage.

The required down payment amount varies on the purchase price of the home. Homes up to $500,000 require at least a five per cent down payment. Homes over $500,000 require at least five per cent up to the $500,000 mark, then ten per cent for the remaining amount. Homes over $1,000,000 MUST have a down payment of 20 per cent.

Gifted down payments occur when someone grants money to a borrower to make their down payment on a home. These gifts are not loans, meaning there can be no expectations of repayment. A down payment must be gifted by an immediate relative, such as a sibling, parent, or grandparent. A gift letter and confirmation of deposit are required.

A mortgage refinance involves readjusting your mortgage terms in some way. It’s common for your mortgage needs to change over time, and there are several reasons why a person might choose to refinance. Some borrowers refinance to shorten the amortization period on their mortgage, or to secure a lower interest rate. Others may want to access home equity to take on renovation projects, or consolidate debt. However your mortgage needs are evolving, we can help you find the right solution.

Many homeowners carry debt, so debt doesn’t automatically mean you can’t secure a mortgage. Lenders will focus on how much of your income goes towards paying off debt when they decide whether or not to finance a mortgage. The lower the percentage of income needed to pay off debts, the better. You can work to lower your debt levels by focusing on high-interest payments, or through debt consolidation.

Depending on your mortgage terms, you may have options for paying off your mortgage faster through prepayments. These allow you to make larger or more frequent payments without facing any penalties. This means that over time, you can repay your mortgage sooner and save money in interest. Both fixed and variable-rate mortgages may have prepayment privileges. Your specific mortgage contract will have all the information you need to understand your prepayment options.

Getting a mortgage requires you to provide various documents. When you work with a broker, they will ask you for:

• Government-issued ID
• Proof of employment, such as pay stubs, bank statements, salary information, and your employer’s name and address
• Proof of income, including T4s and Notices of Assessment if self-employed
• Information on your current debts. These can include car loans, lines of credit, credit cards, etc.
• Confirmation of your down payment.

Circumstances around fixed and variable rates are always evolving, and each person’s situation is unique. With that in mind, there is no one-size-fits-all solution for the type of mortgage that is best for everyone. Fixed rates provide predictability, while variable rates offer more flexibility. We will review your situation to help find the best mortgage plan for you.

A deposit is money you include with your purchase contract as a “good faith” gesture. You include this deposit along with your offer, which a real estate brokerage holds during the process. If your offer is accepted, the deposit becomes part of your down payment. The down payment is the amount you contribute upfront to the home. The minimum down payment is five per cent of the purchase price, but it can also be 20 per cent or even higher. Whatever amount your deposit was, this will make up a portion of your down payment.

Fire insurance: Fire insurance covers repairs to your home if it is damaged by a fire. Depending on your policy’s limit, fire insurance will also cover the loss of personal belongings. Most lenders need to see proof of fire insurance before they will grant a mortgage. 

Default insurance: Mortgage default insurance protects the lender in case the borrower cannot make their mortgage payments. Borrowers with a down payment below 20 per cent must pay for mortgage default insurance, as these are considered higher risk loans for the lender.

Life insurance: Life insurance protects your loved ones by providing them with one tax-free payment upon your death. This insurance can help pay for funeral arrangements, debt, and estate planning.

Down payment verification means you have to prove where your down payment money has come from, whether that be your own savings, a gifted down payment, or from your RRSP. This is to ensure the money is not a result of laundering. All mortgages and purchases require down payment verification.

If the funds come from savings: These savings have to come from your bank account or investment account, so they can be traced. You will have to show your lender 90 days of bank statements showing how the money made its way into your account.

If the funds are a gift: Gifted down payments must come from an immediate family member. The donor must provide a letter stating their understanding that the gift has no expectations of being paid back. The borrower needs to show the lender a bank statement that shows the transaction taking place.

If the funds come from an RRSP: The Home Buyers’ Plan (HBP) lets home buyers borrow as much as $35,000 from their RRSP, to be repaid within 15 years. You will need to show your lender your completed HBP withdrawal form, a bank statement showing the funds in your account, and 90 days of statements from your RRSP to show the amount of funds you’re borrowing is available.

A financing condition states that a buyer’s offer is dependent on them securing the mortgage financing they need to afford the home. If a buyer doesn’t include this condition, and a home appraisal comes up with a value lower than the buyer’s offer, the buyer is obligated to complete the purchase and must find a way to cover the remaining costs. As housing prices can change quickly, including this condition protects the buyer in case their offer does not match the appraised value of the property.

A home inspection condition is a condition a buyer can include in their offer to purchase a home that states their offer is dependent on the property passing a home inspection. This means if an inspection uncovers serious problems with the home that require major repairs, the buyers are free to walk away from the deal. Not including this condition means that should the inspection turn up issues with the property, as the buyer you are responsible for completing the purchase and, therefore, all the repair costs fall on you.

An appraisal focuses on the real estate value of the property, while a home inspection focuses on the condition and state of the house itself. During an appraisal, the appraiser will consider things like size, location, and prices of similar homes in the area. A home inspector, meanwhile, will thoroughly search the home for issues with the foundation, roofing, and any other functionalities of the home. At the end of each examination, the appraiser will give an estimate on the property’s value, while the inspector will report on the home’s safety and livability.

Closing costs are extra costs associated with buying a home, such as legal fees, land transfer taxes, property taxes, and provincial sales taxes on default insurance (if applicable). Buyers are encouraged to have 1.5 per cent of their home’s purchase price reserved for closing costs. You can read more about closing costs here.