- Purchase Mortgage
- Mortgage Pre Approval
- Refinance Early
- Take Equity Out of Your Home
- Renewing your Mortgage
- Renovations Mortgage
- Cash Back Mortgages
- Home Equity Line of Credit Mortgage (HELOC)
- Land Mortgage
- Banks VS Mortgage Brokers
- Alternative Lending (B Lenders and Private Lenders)
- 1st Time Home Buyers
- Co Signing on a Mortgage
- Credit Score
- Previous Bankruptcies or Consumer Proposals
- Interest Rates
- Down Payment
- Mortgage Terminology (Mortgage Lingo 101)
How much do mortgage brokers charge for getting me a mortgage?
In most cases mortgage brokers are paid directly from the lender they place the mortgage with, so it actually doesn’t cost the client anything. The only time you may run into having to pay a fee is if the mortgage broker is getting a mortgage through a private lender, as they do not pay brokers.
What is the difference between going to my bank or a mortgage broker?
How long does the process take to get approved?
How much money do I need to put as a down payment?
Why is important to get pre approved?
Getting pre approved allows you to know what the max purchase price you qualify for, so you don’t make an offer on a home that you cannot afford. It also avoids any last minute surprises due to credit bureau blips! In a market with rates on the rise people will also get a rate hold for a certain period of time, so they know their payments and what they qualify for won’t change if rates go up.
How can I find out how much I qualify for?
There are mortgage calculators online that you can use to determine how much you might qualify for based on income, but these are only a rough estimate and are typically very conservative. Sitting down with a mortgage broker is the best way to find out how much you truly qualify for and what fits your budget.
What are the costs involved with getting a mortgage/building a home?
Basic costs involved with getting a mortgage include the following:
- Down payment
- Property Transfer Tax (which may be exempt if you are a 1st time home buyer) – This tax is based on the purchase price and is calculated by 1% on the first 200,000 and 2% on the remainder of the purchase price
- Home Inspection – Approx $400-$500
- Appraisal (may or may not be required depending on the property and how much you put as a down payment) – Approx $300 – $400
- Legal Fees – Approx $900 – $1500
- Property Taxes – Varies depending on property and eligibility for home owners grants
- Property Tax Adjustment – Depends on when in the year the house is purchased and whether or not property taxes have been paid yet by the seller
- Home insurance
- GST 5% – Typically applies to new properties and a possible rebate may be available depending on the purchase price and occupancy status of the home
- Possible lenders fees if you are dealing with an alternative lender
- Mortgage Insurance
Can taxes be included in my mortgage?
- GST can be included, and if there is a rebate sometimes the lender will only finance the net GST
- Property transfer tax cannot be included in the mortgage
- Property taxes can be taken from the lender and come out along with your mortgage payment
- Property tax adjustment cannot be included in the mortgage
What are the steps from beginning to end for buying a home?
Typically the process goes like this:
- Speak to a mortgage broker to book a meeting and get a list of what documentation they need to do a pre approval
- During the meeting you will find out what you qualify for based on your supporting paperwork and a credit check
- If credit needs improvement, follow suggestions from a mortgage broker who has experience in credit counseling
- Once you know how much you qualify for, you can talk to a Real Estate Agent to get an idea for what is available in your price range
- Once you have a few listings for properties you are interested in, have your Realtor take you for a viewing
- If you like a property, make an offer on it and give your mortgage broker a heads up so they can prep you if they need any updated paperwork
- If the offer gets accepted, your Realtor will submit offer details to your mortgage broker and your mortgage broker can then submit for your mortgage
- During the time your mortgage broker is getting your mortgage approved, you will be possibly getting a home inspection and appraisal done on the home. You will also be looking into getting home insurance.
- When your mortgage broker gets your mortgage approved, you will meet in person to review/sign paperwork. Shortly after you will get confirmation from your mortgage broker to remove your financing condition and pass along a good faith deposit to the Realtor. This deposit goes towards your down payment.
- About a week or so before the deal funds, your lawyer will call you book an appointment to sign your paperwork. After that, you wait for the deal to close and get your keys from your Realtor!
Mortgage Pre Approval
What is a pre approval?
A pre approval is when a mortgage broker determines how much of a mortgage you can qualify for. It also may include holding an interest rate for 90 – 120 days to allow time for you to shop without worrying rates may increase.
How long does it last for?
The rate hold can last for 90 – 120 days depending on the lender
Does getting a pre approval guarantee I will be approved once I find a house?
No, as the lender would still need to approve the property that is being financed
What is required to get a pre approval?
An application with details about your income, assets, liabilities and a credit report search is required. Your mortgage broker should also receive supporting documents to support identification and income.
Does getting a pre approval mean I am stuck with that lender?
No, a pre approval that includes a rate hold with a lender is really a back up measure to ensure you have a rate somewhere in case rates go up. If it comes time to purchase and there is a better rate somewhere else, we can go with that other lender.
What are the costs for getting a pre approval?
A pre approval does not cost you anything
My rate is higher than current rates, can I refinance early?
Yes, you can refinance early however paying out your mortgage before it matures may incur a penalty. In order to make sure it is worth while, you would want your mortgage broker to determine does the savings from the lower rate make up for paying the penalty.
What costs are involved with refinancing early?
If you have a penalty, that is one cost. Then paying out your mortgage in BC cost $75 for discharge, and there may be a cost for an appraisal and legal fees, however some lenders cover these costs.
My mortgage is coming due in a couple years and I think rates will be higher then, should I refinance early?
It may be a good idea to pay the penalty and refinance early so you can lock in a new term. Renewing when rates are higher means a higher mortgage payment, so you might save in the long run if you lock into a new term while rates are lower.
What happens if I want to refinance with a different lender because the rates are better there?
If you want to move to a new lender, a portion or the entire penalty may be allowed to be added into the new mortgage. You will have to re qualify with that lender.
Can I keep my amortization if I refinance early?
If you payout your mortgage early, the maximum amortization you can have is a 25 year for an insured mortgage with less than 20% equity, and a 30 year for a mortgage with 20% or more equity.
Can I talk to someone else other than my bank for getting my refinance options?
Yes, best thing to do is talk to a mortgage broker, because they have access to more lenders and therefore more options for you.
Take Equity Out of Your Home
I want to renovate my home and need to access some equity for paying for the renovation; can I do this before my term is up?
Yes, depending on the lender you may be able to request additional funds (as long as you qualify) and no penalty is charged. They simply blend your mortgage rate in proportion to the new funds requested at their current rates.
What are the costs involved with taking equity from your home?
Your lender may request an appraisal to determine the value of the home, and you most likely will have to pay for a lawyer to register the new mortgage amount on title.
How much equity can I access?
Mortgage rules in Canada state you are only allowed to access equity up to 80% of the value of your home.
Does my rate go up if I take out equity?
If current rates based on your remaining term are higher than your mortgage rate, then yes your blended rate will go up on your overall mortgage. However, if current rates based on your remaining term are lower than your mortgage rate, then your blended rate will go down on your overall mortgage.
Renewing your Mortgage
My bank sent me a renewal in the mail, should I sign it or can I shop around?
Do not ever sign the mortgage renewal your bank gives you. Most of the time the renewal letter you receive in the mail does not offer the best rate your bank can offer. They do this just to see if you will sign without asking. Best thing is to bring your renewal letter to a mortgage broker and have them shop around with all lenders for the best deal.
Am I allowed to move to a new lender at renewal?
Yes, but you may have to qualify with the new lender. If you stay with your current lender, no re qualifying is typically required.
Are there costs for moving with a new lender at renewal?
If you are not requesting any new mortgage funds at renewal, most of the time the switch is free!
My credit/income has changed; will my bank even renew me?
Yes, typically your current lender will not make you re qualify at renewal.
Should I go fixed at renewal or variable?
Talk to your mortgage broker to find out what might be the best option for you. It would depend on the spread between the fixed and variable, and how much you can afford to pay monthly.
Can I add/delete someone from my mortgage at renewal?
Yes you can, however this will trigger a re qualification on the mortgage and some legal fees for changing title.
What happens if I forget to contact my lender at renewal?
Your lender has the right to renew you into what ever product they see fit. Typically it is a 1 year fixed term.
My house is selling a month after I renew what should I renew into?
If you are planning to pay out your mortgage sometime after renewal, you will want to make sure you renew into a mortgage that avoids a penalty. Ask for an open mortgage (no penalty) or a variable rate mortgage (only 3 months interest only penalty).
I want to discuss my renewal options with my lender, but don’t know the right questions to ask, can someone else help me with this?
Yes, if you speak to a mortgage broker they can have you sign a broker consent form allowing them to deal with your lender on your behalf.
I want to buy a home that needs a renovation; can I include that in my mortgage?
There is a program with CMHC that allows you to include money into the mortgage for renovating the home. You need to submit quotes for the work at the time of submitting the mortgage, and your down payment is based on the as improved value. You are required to pay for the work upfront and the lender reimburses you upon completion.
I own my home and want to include money for renovations, is this possible?
If you have more than 20% equity in your home, you may be able to access some to renovate.
Are there costs for including renovation money into the mortgage?
There may be a cost for an appraisal, legal fees, and possible inspection.
Can I do the renovations my self, or do I need to hire someone to do it?
If you are doing the improvements mortgage under the CMHC program, the lender may not allow certain items to be done by the homeowner. It depends on their experience level in that field of work.
How much money can I include in my mortgage for a renovation?
Under the CMHC program around 10% of the value of the home up to a max of 40k. If you are able to access equity without the CMHC program, then it would be up to 80% of the value of your home.
Cash Back Mortgages
What is a cash back mortgage?
A cash back mortgage is when the bank advances your mortgage as well as additional money in the form of cash back
Are there restrictions on what I can use the money for?
Yes, lenders do not allow cash back to be used for the down payment of a purchase, but some allow you to use it towards your closing costs.
How much cash back is possible to get?
On average the most cash back you can get is 5% of the mortgage as cash back
It seems too good to be true, what’s the catch?
The cash back comes at a cost. Essentially the lenders will charge you a higher mortgage rate on the overall mortgage, so they can recoup the cash back over the term of the mortgage.
Are the penalties higher with a cash back mortgage?
Some lenders will claw back a portion of the cash back, if you pay off your mortgage before the term is up.
Home Equity Line of Credit Mortgage (HELOC)
What is a HELOC?
This is a line of credit which is secured to your home. Due to the home being security, the rates are typically better than what you can get as an unsecured line of credit
Why do people like HELOCs over fixed or variable mortgages?
There are several reasons why people like these mortgages such as:
- The minimum payment is smaller as it is an interest only payment
- The mortgage is typically open, so you can pay it out at anytime without a penalty
- As you pay down the balance, you can access the available funds again in the future without having to re qualify
What are the risks with a line of credit mortgage?
Because the minimum payment is an interest only payment, sometimes people get comfortable paying just that, and they never end up paying down their mortgage balance.
How much do lenders allow as a line of credit?
Some lenders have maximum limits they allow based on either a dollar amount or a percentage of the value of the home, which ever is less.
Are there restrictions?
Yes, typically you are only allowed these on your primary residence.
How much down payment is required when buying just land?
Most lenders require 50% down payment on bare land, however some local credit unions may allow 25% down payment as long as there are services to the property ( IE water and electrical)
What taxes are involved for buying land?
Property transfer tax will be applicable on a land purchase.
Banks VS Mortgage Brokers
What is the difference between a bank and a mortgage broker?
There are several differences, but some of the major ones are:
- Mortgage brokers have several lenders and products to shop to vs a bank only has their own
- Mortgage brokers deal with lenders who do not have posted rates (posted rates can cost you money down the road if you make changes to your mortgage)
- Mortgage brokers most of the time have access to better rates than the banks do
- Mortgage brokers are paid from the lender they place the business with and are not able to dictate rates, so their interest is very much aligned with the clients. Banks make more money for charging you higher interest, so their interest is more aligned with the bank than the clients
- Mortgage brokers are independent contractors vs bank specialists are employees
I’ve heard banks have posted rates which are bad, how come?
Posted rates are a higher tier of rates that banks offer. Some banks use these rates when calculating mortgage penalties or blended interest rates, which cost the client more money than lenders who only have 1 tier being their best rates only.
If I do all my banking with my bank, doesn’t that give me a better chance for getting approved?
No, the banks are required by a regulatory body to qualify based on a certain set of guidelines. The fact you have been a long time customer does not matter.
Can I use my mortgage broker to deal with my bank?
It depends on the Bank you have, as some deal with mortgage brokers and some only have in house agents. It is best to call your mortgage broker and ask.
Whose rates are better?
It many cases mortgage brokers have access to better rates than the banks do.
Alternative Lending (B Lenders and Private Lenders)
What are B lenders?
B Lenders are lenders who approve applicants who do not fit inside the A lending guidelines. Their rates are slightly higher and they sometimes charges fees. They are typically a short term solution to obtain financing and allow the applicant time to qualify with an A lender. B Lenders do not insure mortgages with CMHC, so typically 20% down payment is a minimum requirement.
What are private lenders?
Private lenders are individuals or sometimes groups of investors who pool their money and lend it out to people who cannot qualify with A or B lenders. Qualification really has to do with the marketability of the property they are lending on. Clients are typically required to put more than 20% down and are generally only offered terms based 1 – 2 years. The rates are even higher than B lender rates and they also charge fees.
What do I need to qualify with one of these lenders?
The lender would require an application, credit report, and possibly some supporting paperwork. An appraisal on the property would be mandatory.
Do they offer 5 year terms?
No, typically terms are 1 – 2 years with options to renew if payments are made on time. Most people want a shorter term, as the plan is to refinance at better rates after a year or two when they are able to qualify.
What are the costs to use an alternative lender?
The costs would include potential fees on the mortgage plus appraisal and legal fees.
1st Time Home Buyers
Is it only 1st time home buyers that get to put 5% down?
No, anyone is allowed to put 5% down as long as they plan to occupy the home as their primary/secondary residence.
What programs offer savings for 1st time home buyers?
- In BC, 1st time home buyers are exempt from property transfer tax up to a purchase price of $475,000. From $475,000 – $500,000 rebates work on a sliding scale.
- 1st time home buyers are allowed to use up to $25,000 of RRSPs tax free for the purchase of their primary residence. They do however have to pay the RRSPs back over 15 years.
- 1st time home buyers receive a credit towards their taxable income for year they purchase their 1st home
How do I know if I am eligible to be a first time home buyer?
- To check your eligibility for 1st time buyers for property transfer tax refer to http://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand/first-time-home-buyers
- To check your eligibility for 1st time buyers under the RRSP program go to http://www.cra-arc.gc.ca/hbp/
What if my partner is a 1st time home buyer and I am not?
There are ways to take advantage of the full exemption of property transfer tax, but talk to your mortgage broker to advice on this.
What if my parents are on the mortgage and they are not 1st time home buyers?
There are ways to take advantage of most of the exemption of property transfer tax, but talk to your mortgage broker to advice on this.
Co Signing on a Mortgage
What is a co signer?
A co signor is someone who goes on the mortgage and on title with the applicant in order to help them qualify, if they cannot on their own.
What is a guarantor?
A guarantor is someone who goes on the mortgage with an applicant in order to help them qualify, if they cannot on their own, however the guarantor does not go on title to the home.
My kid needs me to co sign, how does this affect my credit?
Co signing on a mortgage means you are now fully liable for the debt of the mortgage should your child not make payments. If you were to try and apply for credit, this would be a debt going against your income.
How can I get a co signor off a mortgage?
If during the term of the mortgage the primary applicant is able to show they can qualify on their own, the co signor can be removed from mortgage and title to the home. A legal fee would apply to remove the co signor from title.
What is a beacon score/credit score?
Your credit score with Equifax is a number in a range from 300 – 900 that depicts whether your overall credit history is poor, average, good, or excellent
What is considered a good credit score?
A good credit score would be a score over 680
How can I improve my credit score?
There are several ways to improve your score, but a few quick tips would be:
- Always keep your balances under 50% of your available credit limits
- Always pay your bills on time
- Try to have 1 – 3 different types of credit reporting on the bureau (ie. Credit card, loan, line of credit)
How can I look at my credit score?
You can view your own credit score by purchasing your credit score report on Equifax website http://www.consumer.equifax.ca/home/en_ca
Is getting your credit pulled by someone else bad?
Not if it is once in a while, however if you get your credit report pulled several times a month for multiple reasons, it will start to reduce your credit score.
What does my credit need to look like to get a mortgage?
In order to qualify for a mortgage we like to see credit scores over 600, however preferably at a 650 and over.
What is the highest credit score you can get?
With Equifax a 900 is the highest score you can get.
Something is not showing accurately on my bureau, how do I get it fixed?
Equifax has a form you can complete and a procedure on their website https://help-en.equifax.ca/app/answers/detail/a_id/297/related/1
Previous Bankruptcies or Consumer Proposals
I have had a bankruptcy, can I get a mortgage?
Yes, but lenders typically want to see you are 2 years discharged from your bankruptcy, and you have 2 re established trades for 2 years since date of discharge. If you use a B /private lender you may be able to get a mortgage without the 2 years re established credit requirement.
I have had a consumer proposal, can I get a mortgage?
Yes, but lenders typically want to see that you are done paying your consumer proposal and you have 2 re established trades for 2 years since proposal end date. If you use a B /private lender you may be able to get a mortgage without the 2 years re established credit requirement.
How can I re establish my credit after?
It can be difficult, but some people start with getting a Capital One credit card or a prepaid credit card to get their score reporting. Then after a few months of good re payment on those they apply for unsecured cards, as that is truly what the mortgage lenders want to see. Another option is to get a secured loan such as an RRSP loan or a car loan.
How long does this stay on my credit report?
Accounts stay on your credit bureau for 7 years before falling off. If you are on your second bankruptcy they stay for 15 years.
What is a fixed rate?
Fixed rates are locked in and remain the same for the duration of the mortgage term, meaning your payment does not change for the duration of the term.
What is a variable rate?
Variable rates are rates that can change, because they are based on the lenders prime rate. If the lender decided to change their prime rate, so you would your mortgage rate and your mortgage payment.
What is the benchmark rate?
The benchmark rate is a rate some lenders use to qualify applicants who are applying for variable rate mortgage or a fixed mortgage for a term of 1- 4 years.
What is a rate hold?
A rate hold is when a client requests a specific term and rate to be held for 90-120 days (depending on the lender), so they can shop for a home knowing if rates go up, they are able to get that rate being held for them.
What are posted rates?
Posted rates are a second tier of rates some banks have which are higher than their lowest offered rates.
What is the minimum down payment for being a 1st time buyer?
Same as everyone else, typically 5% down for a home you plan to occupy.
What is the minimum down payment requirement?
Typically 5% down, as long as you plan to occupy the home
Where can my down payment come from?
- cash savings
- Sold off investments
- Line of credit
- Gift from family
Can I use cash for my down payment?
No, lenders require a 90 day history of money being used for a down payment which we would not be able to verify with cash
Can I use a credit card for my down payment?
No, but some lenders allow you to use your line of credit for a down payment
Can I use my line of credit for my down payment?
Yes, some lenders allow this, however we have to incorporate a payment based on the amount of funds advance on the line of credit
Can my friend lend me money for the down payment?
Lenders typically only allow gifted funds from family. If it comes from friends and is not considered a gift, it would be on an exception basis to get it approved
Can I use cash back for the down payment?
No, lenders no longer allow cash back to be used towards the down payment.
What is required to prove your down payment?
- Personal savings we require 90 days history by way of statements
- Gifted funds require a signed gift letter and confirmation of gifted funds deposited into an account
- Secondary financing requires a statement to show the limit is available to be used for down payment
What kind of paperwork do I need to provide to get a mortgage?
It really depends on the applicants situation, but to give you a general idea:
- pay stubs
- job letter
- tax returns
- tax notice of assessments
- corporate financial statements
- bank statements
- photo ID
- mortgage statements, property tax bills and rental agreements for other owned properties
Does paperwork need to be originals or can they be a copy?
The do not have to be original documents, scanned or faxed is just fine.
What should my job letter say from my employer?
Your job letter should be on letter head paper and state your start date, position, and guaranteed wage. It should also have contact info for the personal who wrote it and their signature.
Mortgage Terminology (Mortgage Lingo 101)
the total amount of years your mortgage payments are broken up over
Canadian Mortgage Housing Corporation (Government mortgage insurer typically required if you purchase with less than 20% down payment)
Mortgage rate that is lock in and stays the same for the term
Mortgage rate that can change as it is based on a lenders prime rate
Home Equity Line of Credit (Line of credit that is secured to your home)
If you pay off your mortgage before the term is up you will incur a penalty
You can pay off your mortgage at anytime without a penalty
The number of years you contractually obligated to pay at the agreed mortgage rate, after which you renew at market rates
Moving your mortgage from one property to another in order to avoid or minimize paying penalties
Pre Payment Privilege
The extra amount you are allowed to pay on your mortgage without incurring a penalty
A charge for breaking terms of the mortgage early. Typically based on a 3 months interest only or an interest rate differential calculation
Debt Service Ratio
Income to debt ratio that determines your qualification for a mortgage
Equifax score that shows your credit worthiness based on credit history
When a professional inspects the home for defects
When a professional values what the property is worth
Property Transfer Tax
BC tax applicable when transferring property from one persons name to another
Don’t see the answer to your questions here?
Get in touch with Michelle to sit down and learn everything you need to know!