|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
As a first time buyer, I was lucky to be referred to Bill Jones. He was very professional and accommodating. I never hesitate to refer friends and family to Bill.
Pre-Approval Obtaining mortgage financing is one of the most important steps on the road to home ownership, but it can also be the most confusing. To ease this confusion, it is helpful to get pre-approved for financing before looking for a house. Here are three top reasons to obtain pre-approval: 1. Pre-approval helps determine what you can afford. This is invaluable as it lets you look for houses within your price range confidently. Then when you find a house you like, you can make a solid offer right away. 2. Pre-approval can reserve your mortgage rate for up to 120 days. This lets you look at houses without fear of an increase in interest rates - your rate will be held. If mortgage rates increase, you will be protected. Conversely, if interest rates drop, you will benefit from any decrease. 3. The pre-approval process outlines the documentation required to obtain approval once your deal goes "live". It is smart to gather these documents as soon as possible because it will clarify how much you qualify for and fulfill the subject-to-financing requirement on your offer. It will also give you a quick turnaround in arranging the financing on your purchase. This could give you an advantage over other offers in a competing situation. There are three main factors considered when qualifying for a pre-approval - down payment, credit, and income. I describe these factors in greater detail below. [ Back to Top ] 1. Down Payment To determine how much you qualify for, the amount and origin of your down payment should be stated upfront in the application. This is because lending criteria can change depending on how much you have available and where it comes from. When the amount of your down payment is less than 25% of the purchase price, your mortgage is considered high-ratio. All high-ratio mortgages need to be insured and are done so by either the Canadian Mortgage and Housing Corporation (CMHC) or GE Capital. This insurance allows you to buy with as little as 5% down and is used to protect the lender in cases of default. The maximum purchase price that allows a 5% down payment varies depending on the area. For example, Victoria has a price limit of $300,000 for a down payment of 5%. The insurance premiums are determined at 5% intervals and are added to the mortgage, so they are not an out-of-pocket expense. To qualify for this insurance, your qualifications and the property you are buying must meet the insurer's guidelines. When the amount of your down payment is equal to or more than 25% of the purchase price, your mortgage is considered conventional. No insurance is required for a conventional mortgage. With conventional financing, lending guidelines tend to be more relaxed because you don't need to worry about insurer stipulations. Lenders and insurers require that your down payment be derived from non-borrowed resources. This can be demonstrated in many ways, including: Cash: A lender will usually like to see a 3-month history (in the form of bank statements) of your bank account to verify the savings you have available for a down payment. The reason for the history is to show that the money was indeed saved. Gift: It is acceptable to have a down payment given to you. The gift must be from a direct relative and accompanied by a letter stating that the money does not have to be paid back. A statement showing the deposit of the gift is also required.
Investments (non-registered): Stocks, bonds, GICs, and other investments can also be used for your down payment. A recent statement will satisfy for verification. RRSP: If you haven't owned a house in the past five years you may also use your RRSPs for your down payment - tax-free. The limit is $20,000 in RRSP assets per person. You have 15 years to pay it back. Check with your financial advisor about further stipulations and to see whether this works with your financial plan. [ Back to Top ] 2. Credit Credit history is extremely important when applying for a mortgage. The amount of debt is important, but more so is your repayment history. When qualifying you for a mortgage, I will need to check with a credit bureau to verify your credit history. The bureau will determine your experience with lines of credit, credit cards, loans, etc. This will provide the lender (and insurer, if required) with an outline of the risk involved in granting you a mortgage. If you have had credit problems in the past (including bankruptcy), there still might be options available to you. It is never too late to rebuild your credit rating. Making your monthly payments and minimizing the number of creditors you have are a couple of ways to help turn your situation around. [ Back to Top ] 3. Income Your monthly income will help determine how much you qualify for. Lenders (and insurers) look mainly at cash flow. By cash flow, I mean that your maximum house payment (principle & interest, property taxes, and utilities) will be determined by a certain percentage of your gross monthly household income - this is your Gross Debt Service Ratio (GDSR). You are also allowed a certain percentage for all debts (mortgage, credit cards, loans, etc.) - this is called your Total Debt Service Ratio (TDSR). For high-ratio mortgages, the GDSR is 32%. For example, if your gross monthly income were $3,000, then the amount allotted for your house payment (principle & interest, property taxes, and utilities) would be $960. The TDSR for high ratio mortgages is 40%. So in this same example $1,200 would be the limit designated for your total monthly debt (including your house payment). As I mentioned earlier, the guidelines for conventional mortgages are more relaxed. Unlike high-ratio mortgages, there are no hard and fast rules when you have a down payment of 25% or more - the amount allowed for GDSR and TDSR vary from lender to lender. Check with me for more details. [ Back to Top ] Types of Income Types of income vary, so the required income verification will depend on your type of employment. Here are some general guidelines for verification requirements (some, or all, will be required):
It is helpful to verify your declared income as soon as possible in the mortgage application process because this will ensure accurate calculations and help avoid any surprises. You can check with me to determine which verification is appropriate for your employment/ income. This verification can be mailed, dropped off, or faxed to me at (250) 592-9405. Other conditions and expenses to be aware of when purchasing a property: [ Back to Top ] Property Purchase Tax (and exemption criteria) A provincial tax is charged on the purchase of property and is payable on closing. The amount charged is 1% on the first $200,000 and 2% on the remainder. If you are a first-time homebuyer you may qualify for a one-time exemption. Please review the form below, or speak with your lawyer/ notary for further clarification as to whether you and your property qualify for the exemption.
[ Back to Top ] Survey/ Title Insurance A survey is usually required by the lender to verify the foundation of the building(s) within the lot. To save yourself some expense, check to see if the seller has an existing survey. They are usually valid for 15 years. If the seller does not have a valid survey, a new survey will need to be produced at a cost of around $300. In lieu of a survey, most lenders will accept title insurance. Title insurance costs a little less than a survey - around $200. Check with your lawyer/ notary to see which option is most suitable for your situation. [ Back to Top ] Conveyancing You will need a lawyer or notary public to complete the paperwork for your purchase. The cost will vary depending on the complexity of your deal. The conveyance for a typical purchase costs $600 to $800. [ Back to Top ] Building Inspection Though a building inspection is not required for financing, it is a very worthwhile investment. The cost is usually $200 to $300. A building inspection will let you know the overall condition of the property and alert you to any problems before you buy. [ Back to Top ] Appraisals For high-ratio purchases, a formal appraisal is not required. Property values are determined through a computer database made up of property assessments, previous sales, and other relevant information. This database allows for quick turn-around times (as fast as 15 seconds) and is much more convenient than an on-site appraisal. The cost of a database appraisal is included in the CMHC and GE Capital application fee, which is typically $165 and usually collected from the lawyer/ notary at closing. Conventional mortgages generally require an appraisal conducted by a person instead of a computer. These on-site appraisals cost $180 to $225, and can take a few days to complete. If the percentage of your down payment increases to 35% or more, a drive-by appraisal or current property assessment may be sufficient. [ Back to Top ] Property (Municipal) Taxes In many areas (including Victoria) property taxes are collected in the middle of the calendar year (July 1st). On this date, taxes are collected for the preceding six months (i.e. back to the previous January) and for the upcoming six months (i.e. until the next January). The collection of these taxes generally depends upon the type of mortgage you have.
[ Back to Top ] Mortgage/Life Insurance Mortgage/life insurance is not a requirement for financing. It is a personal choice. It is in your best interest to research and determine if it is right for you. All lenders offer their own mortgage insurance policies. Depending on your situation, this might be an appropriate option. However, I recommend contacting an insurance broker. An insurance broker can offer a wider variety of insurance options, including policies that often have lower premiums and better coverage. We recommend using Dave Pettenuzzo for your own Mortgage Life Insurance Coverage which will protect the owners versus the lender. Find out more from his web site at www.mortgageinsurance.bc.ca [ Back to Top ] House/Fire Insurance Fire insurance in the name of the lender is required on all mortgages. This ensures that the lender's security (i.e. the property) is protected in the event of fire damage. House (content) insurance is not a requirement for financing. This, too, is a personal decision depending on your specific situation. [ Back to Top ] |
|
|
||||||||||||||
 For Mortgage Loans, Call Bill Jones Phone: +1 (250) 592-9400 | Fax: +1 (250) 592-9405 ©2002 Bill Jones INVIS Financial - Privacy Policy |
|
 |
