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Get
Pre-Qualified
This
is an important first step to buying your new home. Once you
are pre-qualified, the bank or mortgage broker will lock in your
interest rate for 60-90 days. If the rate goes up, you have
the grace period; if it goes down, you are automatically re-approved
at the lower rate.
Being
pre-qualified will help to create a stronger offer when you find the
home you want. Homeowners like to see that the person trying
to buy their home has the financial means to do so.
Mortgage
Qualifications
Each
person wishing to take out a mortgage is only allowed to put 32% of
their gross income toward their payment. This is referred to
as your gross debt service ratio. It includes:
A
second qualification called, total debt service, must be met.
This is a maximum of 40% for first time buyers, 42% for conventional
mortgages, and includes all your outstanding debt (mortgage, car,
boat, loans, etc.).
Purchasing
with an RRSP
First-time
homebuyers are able to use RRSP's toward their purchase; up to
$20,000 per person, $40,000 per couple. This money must be
repaid within 15 years to avoid tax penalties. A three year
grace period without repayment is granted after the mortgage is set
up. It is not required that a buyer put this money toward the
down payment. This money can also be used for renovations, but
it must be applied for at the time of the purchase.
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5%
Down Payment Program
Originally
only offered to qualified first-time homebuyers, the "5%
down" program has expanded to also include anyone who has owned
a home before. This program is designed to help get new
purchasers into the real estate market and bring previous owners
back. The Canadian Housing and Mortgage Corporation (CMHC)
offers an option that allows purchases to finance up to 95% of the
purchase price. CMHC insures the mortgage and guarantees that
if an owner defaults, the bank will be covered for the amount of the
mortgage. For this service, you will be charged a premium of
between 1.25% and 2.75%. Premium is slightly higher for
mortgages amortized over 35 years. This fee can be paid as a lump sum at
the beginning of the mortgage. However, it is more common for
the fee to be built into the mortgage and spread over the
amortization period. To take advantage of this program:
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You
must be working at the same job, or at the same type of work for
at least one year
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You
must qualify based on the bank's posted 5 year interest rate.
CMHC
must verify that a sum totaling 6.5% of the purchase price is in the
purchaser's account for the closing costs.
Gift
Money
Money
given to a purchaser for the down payment must be in their bank
account at the time an offer is accepted along with a letter from
the contributor, that the money is not to be repaid. This is
required to have a final approval of financing and remove the
subject clause pertaining to financing in the contract.
Click
here to view a list of the costs involved in buying a home.
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