Finance

Guide to Purchasing and Financing

What Can I Afford?

Mortgage pre-qualification can save a great deal of time and effort for potential purchasers. By taking the guess work out of what you can afford, you can spend more time looking at properties that suit your lifestyle as well as your budget.

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The financing process differs depending on you and what you are buying. Below you will find listings of your responsibilities. Not all of the costs may apply to you.

Closing Costs:

• Legal Fees
• Land Survey Costs (if applicable)
• Property Taxes (depending on the time of year)
• Property Transfer Tax- This is based on purchase price and is 1% of the first $200,000 and 2% of the balance.
  
• You may be exempt from paying property purchase tax if you are a first time buyer. Contact one of our brokers for details.
• Appraisal Costs
• Home Insurance
• Strata Costs (if applicable)
• GST (if applicable)
• Adjustment Costs (any other costs that have to be worked out between a seller and buyer, i.e.: tenants deposits)

Mortgage Pre-Approval

When you get pre-approved for your mortgage, you actually apply for the mortgage even if you don't know which home you will purchase. After checking your credit, and perhaps verifying your income, the lender will commit, in writing, to funding your mortgage, pending a successful appraisal of the home and a few other conditions. You will be issued what is called a Commitment Letter by the lender.

Getting pre-approved can put you in the driver's seat when it comes time to make an offer. Being pre-approved shows the seller you're a serious buyer, who's ready and able to make a deal.

A mortgage pre-approval booked through a lender will guarantee an interest rate for a period of time, typically 60 to 120 days. If interest rates increase the rate is protected and if interest rates come down most lenders will give the benefit of the drop to the client.

To submit your application for pre-approval you will be asked to supply:

• Income verification (ie. job letter, last T4, pay stub)
• Self employed individuals will require 3 years financial statements and personal tax returns
• Confirmation of down payment
• Authorization for a credit report
• Full application including a personal net worth statement

I Found My Dream Home, Now What?

When you make an offer to purchase a property a clause in the contract will allow you the time needed to fulfill any of the lenders conditions that are outstanding. When you are pre-approved you know that the lender likes you, but they have no details on the property you want to buy. In most situations an appraisal will be ordered to determine market value or CMHC / GE will have to approve your purchase. Once all the conditions to your pre-approval have been met you are ready to remove your "subject to financing clause."

1st Time Buyers

There are special incentives that 1st time buyers can take advantage of, go to 1st time buyers for more information.

Self Employed Buyers

In Canada more people are now self-employed than ever before. Home-based businesses comprise a substantial part of the overall work force. Self-employed individuals have the ability to write off their expenses, such as "office in the home" and depreciation. This means that a net income figure will often be low and will make qualifying for a mortgage and other credit much more difficult. In fact while the face of the working population has changed, lenders, for the most part, have remained steadfast in their approach to underwriting credit risks.

There are a few lenders however, who have made the move to understanding that income should not be the single most important qualifying factor when determining credit risk. As Mortgage Brokers we have access to lenders who will lend up to 75% of the value of a home without being concerned about income. Interest rates will typically be at Bank Posted rates. At 65% of the value of a property discounted bank rates can apply. Now you can be an Entrepreneur and a Good Credit Risk at the same time. Contact one of our brokers for details…

Revenue Property Buyers

Lenders differ greatly on how they view revenue property. The underlying logic is that if times get rough, the mortgage on a revenue property will be the first thing that will be allowed to slide. CMHC uses a very restrictive formula when assessing a revenue property purchase. There are lenders who will use this same formula which is an indication of how much revenue property mortgages they want in their lending portfolio. Fortunately there are other lenders who will take a more favorable look at qualifying this type of purchase by using what is called "the offset method." This method takes a portion of the potential revenue from the property and deducts it directly from the new mortgage payment, leaving the borrower to qualify to supplement any shortfall. Again, lenders vary on how much of the property revenue they will use. Talk to your Mortgage Broker, we know which lender wants your business.

Vacation Property Buyers

This type of purchase will leave a potential borrower feeling lonely. Most lenders are leery because if the financial going gets tough a borrower may not make their payments on this secondary property. Typically a lender will require 35% down payment on this type of purchase.

In some circumstances lender/broker fees may apply.
Rates and discounts subject to change.

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