Frequently
Asked Questions
- How much can I afford to pay for a home?
- What is a home inspection and should
I have one done?
- What is the minimum down payment needed
to buy a home?
- What is mortgage loan insurance?
- What is a high-ratio mortgage?
- What is a conventional mortgage?
- Why should I use an INVIS mortgage consultant?
- How much will it cost to use a mortgage
consultant?
- Apply online — How secure is it?
- Does paying my mortgage bi-weekly really
cut years off my mortgage?
- How does bankruptcy affect my ability
to qualify for a mortgage?
- How will child support and alimony affect
my qualification?
- Can I get a mortgage to purchase a home
and make improvements?
- Can I use gift funds as a down payment?
- What is a pre-approval and how do I
get one?
- Should I wait for my mortgage to mature?
How much can I afford to pay for a home?
To determine 'affordability' I will first need to know your
Taxable Income along with the amount of any debt outstanding
and the monthly payments. Assuming it is your principal
residence you are purchasing, I will then calculate 32%
of your income for use toward a mortgage payment, property
taxes and heating costs. If applicable, half of the estimated
monthly condominium maintenance fees will also be included
in this calculation.
Second, I will calculate 40% of your Taxable Income and
deduct all of your monthly debt payments, including car
loans, credit cards, lines of credit payments. The lesser
of the first or second calculation will be used to help
determine how much of your income may be used towards housing
related payments, including your mortgage payment. These
calculations are based on Lenders' usual guidelines.
In addition to considering what the ratios say you can afford,
make sure you calculate how much you think you can afford.
If the payment amount you are comfortable with is less than
32% of your income you may want to settle for the lower
amount rather than stretch yourself financially. Make sure
you don't leave yourself house poor. Structure your payments
so that you can still afford simple luxuries.
To calculate how much of a mortgage you qualify for please
contact me today.
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What is a home inspection and should I have one done?
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.
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What is the minimum down payment needed to buy a home?
A minimum down payment of 5% is required to purchase a home,
subject to certain maximum price restrictions. For instance,
in the Greater Vancouver Area the maximum purchase price
with 5% down is $250,000. Any purchase price in excess of
$250,000 requires a minimum of 10% as a down payment. 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 a survey
certificate, where applicable).
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, is signed by the donor. Where
the Mortgage Loan Insurance is provided by Canada Mortgage
and Housing Corporation (CMHC),
the gift money must be in the your possession before the
application is sent in to CMHC for approval. Where the Mortgage
Loan Insurance is provided by GE
Capital (GE), the gift money is not required to be in
your possession until the closing date.
Mortgages with less than 25% down must have Mortgage Loan
Insurance provided by either CMHC or GE.
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What is mortgage loan insurance?
Mortgage Loan Insurance is insurance provided by Canada
Mortgage and Housing Corporation (CMHC),
a crown corporation, and GE
Capital Mortgage Insurance Company, an approved private
corporation. This insurance is required by law to insure
lenders against default
on mortgages with a loan to value ratio greater than 75%.
The insurance premiums, ranging from .50% to 3.75%, are
paid by the borrower and can be added directly onto the
mortgage amount. This is not the same as Mortgage Life Insurance.
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What is a high-ratio mortgage?
A High-Ratio mortgage is one where the amount to be borrowed
by way of a mortgage is greater than 75% of the purchase
price, or the appraised value, whichever is less. High-Ratio
mortgages generally require Mortgage Loan Insurance provided
by either Canada Mortgage and Housing Corporation (CMHC)
or GE Capital (GE), a private Insurer.
The Mortgage Loan Insurance premium is paid to CMHC or GE
and protects the Lender in the event the mortgage is not
repaid and the bank has to take back the property. The benefit
to the borrower is that it allows them to purchase a home
with less than 25% down payment. The insurance premium is
paid by the borrower and can be added directly onto the
mortgage.
Mortgage Loan Insurance premiums range from .50% to 3.75%
of the mortgage amount and are calculated based on the overall
loan to value. For instance, borrowers with a 5% down payment,
a loan to value of 95%, would pay a premium of 3.75% while
those with a 20% down payment, a loan to value of 80%, would
pay an insurance premium of 1.25%.
Mortgage Loan Insurance is not the same as Mortgage Life
Insurance.
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What is a conventional mortgage?
A conventional mortgage is usually one where the down payment
is equal to 25% or more of the purchase price, a loan to
value of or less than 75%, and does not normally require
Mortgage Loan Insurance.
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Why should I use an INVIS mortgage consultant?
Financial Institutions sell only their own products to the
public through their own sales force. As a result, they
are not able to provide unbiased advice or selection since
by doing so they risk losing your mortgage to a company
whose product may provide more value to you. I on the other
hand, sell a variety of mortgage products and services as
I deal with many lenders, not just one. Because of this
I am able to search for product from a variety of lenders,
including banks, trust companies, insurance companies and
credit unions, for the one that offers the best product,
rate and terms for your particular needs. Thus, I can be
totally objective in my recommendations to you.
I am also able to negotiate on your behalf, structuring
deals to meet the criteria of the lenders, and therefore
getting you a mortgage solution that works for you. Remember,
I work for you!
To gain market share from Mortgage Broker companies and
individual brokers, the majority pay a finder's fee for
referred business. Due to the volume of business done by
INVIS and its Mortgage Consultants, fees are paid by the
lender and INVIS Mortgage Consultants receive fast approvals
in order to gain their business. This gives me the ability
to shop among the various financial institutions for the
mortgage rate and product that best suits the needs of the
client and, in almost all cases, at no cost to you the client.
When you deal directly with a Financial Institution and
your mortgage is declined, for whatever reason, you must
begin the application process all over again with another
Lender. When you deal with an INVIS Mortgage Consultant
the application can quickly be redirected to another Lender,
or several other lenders, for consideration.
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How much does it cost to use an INVIS mortgage consultant?
The vast majority of mortgage clients do not pay a fee for
the services of a Mortgage Consultant. To gain a larger
market share, the majority of financial institutions pay
a finder's fee to Mortgage Consultants and at the same time
offer them their best discounted rates and fast approvals
in order to gain their business. This allows the Mortgage
Consultant to shop among the various financial institutions
for the mortgage rate and product that best suits the needs
of the client and, in almost all cases, at no cost to the
client.
In situations where traditional lenders will not approve
a mortgage because of poor credit, and where the application
must be placed with a private or non-traditional lender,
a brokerage fee may be charged to the client. This cost
must always be disclosed to the client up front and must
be authorized in writing by the client before it can be
charged.
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Apply online — How secure is it?
Very. Your private personal and financial information
is not sent anywhere without your express permission. And
all information you provide on line is encrypted for the
greatest possible security.
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Does paying my mortgage bi-weekly really cut years off
my mortgage?
Payment frequency is not the major factor in reducing the
amortization
period of your mortgage. Principal
reduction is! But what about all the talk of bi-weekly payments
taking five years off your amortization period. Although
you will save some interest making your payment bi-weekly,
ultimately it is the fact that your total payments each
year are higher that results in the significant reduction
in amortization. For instance, when a client chooses a bi-weekly
payment of $500 over a monthly payment of $1000, in fact
they are choosing to pay an extra $1000 annually. In most
cases a bi-weekly payment is simply a monthly payment divided
by two. That means that instead of paying $12,000 in monthly
payments, you are now paying $13,000 in bi-weekly payments.
That extra $1000 is what ultimately cuts the years off your
mortgage. But you can do close to the same thing by increasing
your monthly payment, if a monthly payment frequency would
be more convenient for you, or by taking an accelerated
semi-monthly payment. See the numbers below:
Example is based on a $200,000 mortgage at an interest rate
of 6.15%.
| |
Monthly
Regular |
Monthly
Accelerated |
Semi-monthly
Accelerated |
Bi-weekly
Accelerated |
 |
| Payment |
$1297.50 |
$1405.62 |
$702.81 |
$648.75 |
| Yearly
Payments |
$15,570.00 |
$16,867.44 |
$16,867.44 |
$16,867.50 |
| Extra
funds paid each year compared to monthly regular |
N/A |
$1,297.44 |
$1,297.44 |
$1,297.50 |
| Actual
Amortization Period |
25
Years |
21
Years |
20.964
Years |
20.960
Years |
| Total
Interest Paid |
$189,249.57 |
$154,518.38 |
$153,615.95 |
$153,544.91 |
| Interest
savings over life of mortgage as a result of increasing
mortgage payments |
N/A |
$34,731.19 |
$35,633.62 |
$35,704.66 |
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Most people find that a payment frequency tied to how often
they earn their income makes the most sense. And where possible,
increase your regular payment amount or make periodic lump
sum payments as both will help reduce the length of time
it will take to repay your mortgage fully.
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How does bankruptcy affect my ability to qualify for a
mortgage?
Depending on the circumstances surrounding your bankruptcy,
generally some lenders would consider providing mortgage
financing. If you are a previously discharged bankrupt the
best way to determine whether or not you qualify at this
time is to discuss your situation with an INVIS Mortgage
Consultant. INVIS has many lenders to approach based on
your circumstances. For more information on how I I can
help you contact me today.
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How will child support and alimony affect my mortgage
qualification?
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.
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Can I get a mortgage to purchase a home and make improvements?
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, both Canada Mortgage and
Housing Corporation and GE
Capital, 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.
Where the improvements are cosmetic, the Mortgage Loan Insurance
Premium is unchanged from the standard schedule. Where the
improvements are deemed to be structural, the Mortgage Loan
Insurance Premium is increased by .50% over the standard
schedule. For information on Mortgage Loan Insurance Premiums
see High-Ratio Home Mortgage Financing.
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Can I use gift funds as a down payment?
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. Where the mortgage
requires Mortgage Loan Insurance, Canada Mortgage and Housing
Corporation requires the gift money to be in the purchaser's
possession before the application is sent in to them for
approval. Where Mortgage Loan Insurance is provided by GE
Capital this is not a requirement. See 'What
is Mortgage Loan Insurance?' for further information.
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What is a pre-approval and how do I get one?
A Pre-approved Mortgage provides an interest rate guarantee
from a lender for a specified period of time (usually 60
to 90 days) and for a set amount of money. The pre-approval
is calculated based on information provided by you and is
generally subject to certain conditions being met before
the mortgage is finalized. Conditions would usually be things
like 'written employment and income confirmation' and 'down
payment from your own resources', for example.
The easiest way to get a Mortgage Pre-approval is by calling
me. You will be asked some questions to determine your financial
situation and then I will calculate the size of mortgage
you qualify for, using this information. With your authorization,
I will then proceed with arranging a Pre-approved Mortgage
for you if you are planning to buy property in the near
future. Most successful Real Estate Professionals 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 property 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. Contact me today.
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Should I wait for my mortgage to mature?
No, have me begin shopping around for an interest rate
at least 90 days before your mortgage matures. Lenders
will often guarantee an interest rate to you as much as
90 days before your mortgage matures. And, as long as
you are not increasing your mortgage, they will 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
ask me to investigate the possibility of a lower interest
rate with the lender or another lender. If you don't you
may end up paying a much higher interest rate on your
renewing mortgage than you need to.
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