24 Oct

10 Most Commonly Asked Mortgage Questions

General

Posted by: Antonietta Gaudet

1. What’s the best rate I can get?

  • Your credit score plays a big part in the interest rate for which you will qualify, as the riskier you appear as a borrower, the higher your rate will be. Rate is definitely not the most important aspect of a mortgage, however, as many rock-bottom rates often come from no frills mortgage products. In other words, even if you qualify for the lowest rate, you often have to give up other things such as prepayments and porting privileges when opting for the lowest-rate product.  Check to make sure you are getting great the best mortgage products with your low rate.

2. What’s the maximum mortgage amount for which I can qualify?

  • To determine the amount for which you will qualify, there are two calculations you’ll need to complete. The first is your Gross Debt Service (GDS) ratio. GDS looks at your proposed new housing costs (mortgage payments, taxes, heating costs and 50% of strata/condo fees, if applicable). Generally speaking, this amount should be no more than 32% of your gross monthly income. For example, if your gross monthly income is $4,000, you should not be spending more than $1,280 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 and credit card bills). Generally speaking, your TDS ratio should be no more than 40% of your gross monthly income. Keep in mind that these numbers are prescribed maximums and that you should strive for lower ratios for a more affordable lifestyle. Before falling in love with a potential new home, you may want to obtain a pre-approved mortgage. This will help you stay within your price range and spend your time looking at homes you can reasonably afford.

3. How much money do I need for a down payment?

  • 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.

4. What happens if I don’t have the full down payment amount?

  • There are programs available that enable you to use other forms of down payment, such as from your RRSPs, a cash-back product, or a gift. 

5. What will a lender look at when qualifying me for a mortgage?

  • Most lenders look at five factors when determining whether you qualify for a mortgage: 1. Income; 2. Debts; 3. Employment History; 4. Credit history; and 5. Value of the Property you wish to purchase. One of the first things a lender will consider is how much of your total income you’ll be spending on housing. This helps the lender decide whether you can comfortably afford a house. A lender will then look at your debts, which generally include monthly house payments as well as payments on all loans, credit cards, child support, etc. A history of steady employment, usually within the same job for several years, helps you qualify. But a short history in your current job shouldn’t prevent you from getting a mortgage, as long as there have been no gaps in income over the past two years. Good credit is also very important in qualifying for a mortgage. The lender will also want to know that the house is worth the price you plan to pay. 

6. Should I go with a fixed- or variable-rate mortgage?

  • 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 smart to lock into a fixed mortgage with predictable payments over a specific period of time. 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.  

7. What credit score do I need to qualify?

  • 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. If you have a sufficient down payment, you can reduce the risk to the lender providing you with the mortgage. Statistics show that default rates on mortgages decline as the down payment increases.

8. What happens if my credit score isn’t great?

  • 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: 1) Pay down credit cards. The number one way to increase your credit score is to pay down your credit cards so they’re below 70% of your limits. Revolving credit like credit cards seems to have a more significant impact on credit scores than car loans, lines of credit, and so on. 2) Limit the use of credit cards. Racking up a large amount and then paying it off in monthly instalments can hurt your credit score. If there is a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you may have paid the balance off the next month. 3) Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other lenders view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you. Some financial institutions don’t even report your maximum limits. As such, the credit bureau is left to only use the balance that’s on hand. The problem is, if you consistently charge the same amount each month – say $1,000 to $1,500 – it may appear to the credit-scoring agencies that you’re regularly maxing out your cards. The best bet is to pay your balances down or off before your statement periods close. 4) Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the cards for a long time. Use these cards periodically and then pay them off. 5) Don’t let mistakes build up. Always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation. 

9. How much will I have to pay for closing costs?

  • As a general rule of thumb, it’s recommended that you put aside at least 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/HST is only charged on new homes, and does not affect homes priced at less than $400,000. Even homes that exceed the price threshold are only taxed on the portion that exceeds $400,000. Certain conditions may apply. Please contact you lawyer/notary for more detailed information. 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 $900. If you’re purchasing a single-family home, you’ll need to give your lender a survey certificate showing where the property sits within the property lines. Some exceptions are made, however, on low loan-to-value deals and acreage properties. A survey will cost approximately $300-$350, but the lender will often accept a copy of an existing survey. Other costs include such things as an appraisal fee (approximately $200), title insurance and a home inspection (approximately $350).

10. How much will my mortgage payments be?

  • 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: http://lowest-rates.ca/mortgage-calculators
24 Oct

How does Separation or Divorce affect your Mortgage?

General

Posted by: Antonietta Gaudet

How does a Separation or a Divorce affect your Mortgage?

It is a very difficult time going through a separation or divorce especially if you have children.   Your home is your most valuable asset and stability for your children.  Decisions regarding possession, division of equity and liability for repayment of the mortgage loan are all tied together. Once your relationship has come to an end there are two basic options:  one, is to sell your property, split the proceeds and go your separate ways; or two, is for one of you to keep the home. 

Do you buyout your spouse and keep the house?

In a buyout the person who remains in the home refinances the mortgage and pays the other spouse his share of the equity.  A Separation Agreement may specify that one spouse make the mortgage payments, but if both spouses’ names are on the mortgage, both are liable even if the paying spouse defaults on the loan.  Also do not assume that because you transferred title to the property to the other that you have been released from your mortgage obligations.  Make sure to get a release or letter from the bank releasing you of your obligation.

The person who chooses to remain in the home can either assume the mortgage or refinance the home in their sole name.    As your mortgage professional I will find out your options on your existing mortgage as not all mortgages are assumable or if you decide to refinance I will work with you to meet the credit and income requirements to qualify you for that new mortgage.  Let me do the homework for you to find out what works best for your situation.

 Reapplying for that Mortgage

After a separation or divorce, you must provide the lender with your Separation Agreement or Order if you have one.  You may also be required to have an appraisal or valuation of your property done. You will have to prove to the lender that you are capable of covering the mortgage payments on your own, without the help of your spouse because the lender is under no obligation to remove the other from the mortgage unless you can demonstrate you can afford the payments on your own.  Even if you do qualify for a mortgage on your own you may want to consider borrowing more in order to buyout your spouse.  Spousal and child support will also impact your mortgage qualifications so you will have to consult with me, your mortgage professional, to determine your specific situation.

Get Pre-Approved

If you plan on keeping your home or purchasing a new home, get a mortgage pre-approval to see how much you can afford to spend.  It is likely you will have a good down payment for your next home if you have enough equity in your previous home and you receive funds from either the sale or a buyout.  As a mortgage professional I will analyze your situation in detail to get you the best financing that suites your needs. 

Credit Rating

A separation or divorce can get very messy.  Try to keep your credit rating as clean as possible during this difficult time.  Joint debts during your relationship are considered to be the responsibility of both parties.  Even if the other person is responsible for that debt during your separation and they miss a payment your credit rating could be affected.  Make sure any joint debts are handled in a timely fashion.  Try to close all joint accounts and credit cards.  Put a freeze on any accounts you cannot close and try to make the minimum payment in the meantime until you can transfer the joint debt to the other or pay it out.

If you do not have a credit history, it is important that you start to establish one independently of your spouse.  Begin by applying for your own credit card, even if it’s for a small amount of credit and make sure you make your minimum payment on time. I can help you with getting a credit card through our Dominion Lending Centres.  We have a variety of different cards that suites your needs.

Bad credit?  Let me work with you to help you improve your credit score before applying for a mortgage. 

Connect with me, my service is absolutely free (250) 218-2184 cell or agaudet@dominionlending.ca.