A home inspection is a visual examination of the property to determine the overall condition of the home. In the process, the inspector should be checking all major components (roofs, ceilings, walls, floors, foundations, crawl spaces, attics, retaining walls, etc.) and systems (electrical, heating, plumbing, drainage, exterior weather proofing, etc.). The results of the inspection should be provided to the purchaser in written form, in detail, generally within 24 hours of the inspection.
A pre-purchase home inspection can add peace of mind and make a difficult decision much easier. It may indicate that the home needs major structural repairs which can be factored into your buying decision. A home inspection helps remove a number of unknowns and increases the likelihood of a successful purchase.
A minimum down payment of 5% is required to purchase a home, subject to certain maximum price restrictions which your mortgage broker can educate you on. In addition to the down payment, you must also be able to show that you can cover the applicable closing costs (i.e. legal fees and disbursements, appraisal fees and land transfer costs).
Regardless of the amount of your down payment, at least 5% of it must be from your own cash resources or a gift from a family member. It cannot be borrowed.
Lenders will generally accept a gift from a family member as an acceptable down payment provided a letter stating it is a true gift, not a loan, and is signed by the donor.
Mortgages with less than 20% down must have mortgage loan insurance provided by CMHC, Genworth, or Canada Guaranty.
Mortgage loan insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, Genworth Mortgage Insurance Company and Canada Guaranty, approved private corporations. This insurance is required by law to insure lenders against default on mortgages with a loan to value ratio greater than 80%. The insurance premiums are paid by the borrower and can be added directly onto the mortgage amount. This is not the same as mortgage life insurance.
A conventional mortgage is usually one where the down payment is equal to 20% or more of the purchase price, a loan to value of less than 80%, and does not normally require mortgage loan insurance.
Depending on the circumstances surrounding your bankruptcy, generally some lenders/insurers would consider providing mortgage financing.
Where child support and alimony are paid by you to another person, generally the amount paid out is deducted from your total income before determining the size of mortgage you will qualify for.
Where child support and alimony are received by you from another person, generally the amount paid may be added to your total income before determining the size of mortgage you will qualify for, provided proof of regular receipt is available for a period of time determined by the lender.
Subject to qualification, yes. In fact, even purchasers with 5% down may qualify to buy a home and make improvements to it. For high-ratio financing, Canada Mortgage and Housing Corporation, Genworth, and Canada Guaranty insured mortgages are available to cover the purchase price of a home as well as an amount to pay for immediate major renovations or improvements that the purchaser may wish to make to the property. This option eliminates the need to finance the renovations or improvements separately. Some conditions apply. If you are in the market for a home in Toronto and need a mortgage broker, give us a call and we would love to assist you.
Most lenders will accept down payment funds that are a gift from family as an acceptable down payment. A gift letter signed by the donor is usually required to confirm that the funds are a true gift and not a loan. Many first time home buyers receive gifts like these, so be sure to speak to your mortgage broker to understand how this will work.
A pre-approved mortgage provides an interest rate guarantee from a lender for a specified period of time (usually up to 120 days) and for a set amount of money. The pre-approval is calculated by your mortgage broker based on information provided by you and is generally subject to certain conditions being met before the mortgage is finalized.
Most successful mortgage brokers will want to ensure you have a pre-approved mortgage in place before they take you out looking for a home. This is to ensure that they are showing you properties within your affordable price range.
In summary, a pre-approved mortgage is one of the first steps a home buyer should take before beginning the buying process.
Lenders will often guarantee an interest rate to you as much as 120 days before your mortgage matures. And, as long as you are not increasing your mortgage, they may cover the costs of transferring your mortgage too. This means a rate promised well in advance of your maturity date, thus eliminating any worries of higher rates. And if rates drop before the actual maturity rate, the new lender will usually adjust your interest rate lower as well.
Most lenders send out their mortgage renewal notices offering existing clients their posted interest rates. The rate you are being offered is usually not the best one. Always investigate the possibility of a lower interest rate with Your Money Matters. If you don’t you may end up paying a much higher interest rate on your renewing mortgage than you need to.
Very few home buyers have the cash available to buy a home outright. Most of us will turn to a financial institution for a mortgage the first step in a potentially long-standing relationship. But even with a mortgage, you will need to raise the money for a down payment.
The down payment is that portion of the purchase price you furnish yourself. The amount of the down payment (which represents your financial stake, or the equity in your new home) should be determined well before you start house hunting.
The larger the down payment, the less your home costs in the long run, which every mortgage broker will tell you, is better for your long term finances. With a smaller mortgage, interest costs will be lower and over time this will add up to significant savings.
Most lenders now offer insured mortgages for both new and resale homes with lower down payment requirements than conventional mortgages – as low as 5%. Low down payment mortgages must be insured to cover potential default of payment, and their carrying costs are therefore higher than a conventional mortgage because they include the insurance premium.
With all low down payment insured mortgages, you are responsible for:
- appraisal and legal fees
- an application fee for the insurance
- the payment of the mortgage default insurance premium (although the amount of the premium is added to the mortgage amount).
There are ways to reduce the number of years to pay down your mortgage which a mortgage broker can help you accomplish. You’ll enjoy significant savings by:
- Selecting a non-monthly or accelerated payment schedule
- Increasing your payment frequency schedule
- Making principal prepayments
- Making Double-Up Payments
- Selecting a shorter amortization at renewal
Today, about 50% of first-time home buyers use their RRSP savings to help finance a down payment. With the federal government’s Home Buyers’ Plan, you can use up to $25,000 in RRSP savings ($50,000 for a couple) to help pay for your down payment on your first home. You then have 15 years to repay your RRSP.
To qualify, the RRSP funds you’re using must be on deposit for at least 90 days. You’ll also need a signed agreement to buy a qualifying home.
Even if you have already saved for your down payment, it may make good financial sense to access your savings through the Home Buyers’ Plan. For example, if you had already saved $25,000 for a down payment – and assuming you still had enough “contribution room” in your RRSP for a contribution of that amount you could move your savings into a registered investment at least 90 days before your closing date. Then, simply withdraw the money through the Home Buyers’ Plan.
The advantage? Your $25,000 RRSP contribution will count as a tax deduction this year. Use any tax refund you receive to repay the RRSP or other expenses related to buying your home.
While using your RRSP for a down payment may help you buy a home sooner, it can also mean missing out on some tax-sheltered growth. So be sure to ask your financial planner whether this strategy makes sense for you, given your personal financial situation.
First and foremost, you have to make sure you have enough money for a down payment – the portion of the purchase price that you furnish yourself. Ask the premier mortgage brokers in Toronto, Your Money Matter Inc., what some of these expenses may be.
To qualify for a conventional mortgage you will need a down payment of 20% or more. However, you can qualify for a low down payment insured mortgage with a down payment as low as 5%.
Secondly, you will require money for closing costs (up to 1.5% of the basic purchase price).
If you want to have the home inspected by a professional building inspector – which we highly recommend – you will need to pay an inspection fee. The inspection will outline light areas for repair or maintenance that may be required and will assure you that the house is structurally sound. Usually the inspector will provide you with a written report. If they don’t, then ask for one.
You will be responsible for paying the fees and disbursements for the lawyer acting for you in the purchase of your home. We suggest you shop around before making a decision on whom you are going to use, because fees for these services may vary significantly.
There are closing and adjustment costs, interest adjustment costs between buyer and seller and land transfer tax – a one-time tax based on a percentage of the purchase price of the property.
Finally, you will be required to have property insurance in place by the closing date. And you will be responsible for the cost of moving.
Remember, there will be all kinds of things you’ll have to purchase early on – appliances, garden tools, cleaning materials etc. So factor these expenses into your initial costs.
The length of mortgage terms varies widely – from six months right up to 5 years. In the Toronto mortgage market, you will find varying rates and lengths to choose from.
While four or five year mortgages are what most home buyers typically choose, you may consider a short-term mortgage if you have a higher tolerance for risk.
Before selecting your mortgage term, we suggest you answer the following questions:
1. Do you plan to sell your house in the short-term without buying another? If so, a short mortgage term may be the best option.
2. Do you believe that interest rates have bottomed out and are not likely to drop more? If that’s the case, a long mortgage term may be the right choice for you. Similarly, if you think rates are currently high, you may want to opt for a short to medium length mortgage term hoping that rates drop by the time your term expires.
3. Are you looking for security as a first-time home buyer? Then you may prefer a longer mortgage term, so that you can budget for and manage your monthly expenses.
4. Are you willing to follow interest rates closely and risk their being increased mortgage payments following a renewal? If that’s the case, a short mortgage term may best suit your needs.
Needless to say, you’ll have financial responsibilities as a home owner.
Some of them, like property taxes, may not be billed monthly, so do the calculations to peak them down into monthly costs. Below you will find a list of these expenses.
The Mortgage Payment
For most home buyers, this is the largest monthly expense. The actual amount of the mortgage payment can vary widely since it is based on a number of variables, such as mortgage term and amortization.
Property tax can be paid in two ways – remitted directly to the municipality by you, in which case you may be required to periodically show proof of payment to your financial institution; or paid as part of your monthly mortgage payment. Property taxes vary in the Toronto area so talk to your mortgage broker about what this taxed may look like.
As a home owner, you’ll be responsible for all utility bills including heating, gas, electricity, water, telephone and cable.
Maintenance and Upkeep
You will also have to cover the cost of painting, roof repairs, electrical and plumbing, walks and driveway, lawn care and snow removal. A well-maintained property helps to preserve your home’s market value, enhances the neighbourhood and, depending on the kind of renovations you make could add to the worth of your property.
The interest rate on a fixed-rate mortgage is set for a pre-determined term – usually between 6 months to 5 years. This offers the security of knowing what you will be paying for the term selected.
There are 2 kinds of variable rate mortgages, one of which is most commonly offered and is one in which the payment is determined by the banks prime lending rate. If the prime rate goes up then your interest rate and payment goes up as well. If the prime lending rate goes down, then the rate and payment on your mortgage goes down as well. The other kind is a mortgage in which payments are fixed for a period of one to two years although interest rates may fluctuate from month to month depending on market conditions. If interest rates go down, more of the fixed payment goes towards reducing the principal; if rates go up, a larger portion of the fixed monthly payment goes towards covering the interest.