a borrower qualifies for declines. This reduction may either cause you to lose your dream home or result in a larger down payment being required from you. The length of time a mortgage broker will guarantee an interest rate varies from lender to lender. Usually the period is from 60 to 120 days.
A mortgage broker can pre-qualify clients by completing a mortgage application and gathering the necessary documentation. A mortgage pre-approval is issued once the lender has reviewed and verified the financial information you have submitted on your mortgage application. The lender assesses your income, expenses, and credit history, and it verifies the down payment amount. From that information, it is able to determine the amount for which you would qualify. The benefit of having a pre-approval is that you can shop confidently for a home in your price range and avoid last-minute complications or problems.
When buying property, it is in your best interest to know about all of the financing options available to you. A mortgage specialist’s focus is on the lending options available, but the decision is yours. Mortgage specialists work with Canada’s leading financial institutions, and it is usually the lender who pays the fees, not the client. But always check first.
Lenders have varying loan policies within their institution, and they offer a myriad of products in addition to mortgages. A mortgage specialist’s sole focus, however, is on getting your loan approved, and it will therefore find the financial program that best suits your individual needs.
After seeing a mortgage specialist or banker, you should be able to determine what kind of home you can afford. This will allow the realtor to know which homes you will be pre-qualified for. Most often, realtors will ask to see a letter of commitment from the bank.
Letter of commitment
A letter of commitment is a letter from the lending institution stating how much it is willing to give you, and at what rate and terms. This letter shows the realtor that you are ready, willing, and able to start searching.
Down Payment
How much of a down payment do I need to buy a home?
For most people, the hardest part of buying a home is saving enough for a down payment, especially those who are first-time home buyers. If you have less than 25 percent of the purchase price to put down, you will be required to purchase mortgage insurance through your lender. Mortgage insurance protects your lender against payment default.
CMHC mortgage loan insurance has made home ownership possible for millions of Canadians. By providing mortgage loan insurance, CMHC enables you to finance up to 95 percent of the purchase price of a home. This means that you can buy a property with as little as 5 percent down payment. So, if the home you are purchasing is $125 000, you would need a down payment of $6 250. (Note: Lending policy may vary from time to time.)
If you are buying a single-family dwelling, you can take advantage of CMHC’s 5 percent down payment. When buying with 5 percent down, the following rules apply:
• The home will be your principal residence.
• The down payment of 5 percent is from your own resources or a gift from your family.
• You are able to cover the closing costs of approximately 1.5 percent of the purchase price.
• You have a good credit and a minimum of one year’s employment with your current employer.
• All your housing payments, including mortgage payment, property taxes, heat allowance, and 50 percent of condo maintenance fees cannot exceed 32 percent of your gross taxable income.
• All your consumer debt, loans, and housing-related payments cannot exceed 40 percent of your gross taxable income.
For more information on home buying with a 5 percent down payment or the price ceiling in your area, log on to www.cmhc-schl.gc.ca.
Can I use the money in my RRSP to make a down payment?
The Home Buyer’s Plan (HBP) is a program that allows you to withdraw up to $20 000 from your registered retirement savings plans (RRSP) to buy or build a qualifying home. Withdrawals that meet all applicable HBP conditions do not have to be included in your income, and your RRSP issuer will not withhold tax on these amounts. If you buy the qualifying home together with your spouse or common-law partner, or other individuals, each of you can withdraw up to $20 000.
Under the HBP, you must repay all withdrawals from your RRSP within 15 years. Generally, you will have to repay a fixed amount to your RRSP each year until you have repaid the entire amount you withdrew. If you do not repay the amount that is due in a certain year, it will be included in your income for that year. For more information on this topic, call toll-free 1-800-959-8281, or visit www.ccra.gc.ca.
Can I take out a loan to cover the down payment?
A down payment must come from the buyer’s own resources in order to satisfy CMHC guidelines. The lender needs to ensure that the down payment comes from a non-borrowed source, such as savings, an RRSP, or a “gift” or inheritance from your family. Some lenders require a letter from your family confirming that “gift” monies are intended to be used as a down payment.
Purchasing property with only a small down payment
If you are purchasing on your own and are finding it difficult to save enough money for a down payment, you might want to explore other alternatives, such as co-ownership — having more than one person on title. For example, you might purchase a home with a partner, spouse, or family member. If you choose to purchase in this way, you must seek the advice of a lawyer, who will be able to advise you about the advantages and disadvantages of the various types of co-ownership. As mentioned earlier, you may be able to assume a mortgage or VTB mortgage when purchasing.
What Do I Need to Know about the Housing Market?
Before purchasing your first home, it is important to look at larger market conditions, such as local and national housing prices, mortgage rate movements, and new home construction. The CMHC Market Analysis Centre assists home buyers in understanding how the housing market is evolving. The Market Analysis Centre is a great source for finding out about the current housing market. Local market analysis reports are published regularly and provide information on recent trends in housing market conditions.
Understanding if it is a buyer’s, seller’s, or balanced market can give you the advantage of knowing when to buy a new home.
Your local CMHC market analyst can tell you if it’s a buyer’s, seller’s, or balanced housing market. In a buyer’s market, the number of homes available for sale exceeds the demand, so prices will either stabilize or drop. With fewer buyers and more homes, you not only have more options to choose from, you also have greater negotiating leverage. You have more time to look for the right home, and you can evaluate the choices without feeling pressure to act too quickly.
In a seller’s market, the seller dictates the price. The number of buyers exceeds the number of sellers, so relatively few homes are on the market. In this situation of low inventory, the seller often gets its price (sometimes more than its asking price) because of a bidding war, in which there are competing or multiple offers.
In a balanced market, there
