How much do I need for a downpayment?
You’re required to have a minimum of 5% of the purchase price for a downpayment but many first time homebuyers aren’t aware that they are also required to have an additional 1.5% of the purchase price for closing costs.
What are closing costs?
Closing costs are a requirement by all lenders to ensure that the buyer can pay the legal fees that always come with a real estate transaction, as well as incidentals for the cost of the move (for example, movers, utility connection fees, unforeseen small repairs, etc.).
What if I don’t have enough money for the downpayment and closing costs but I found my dream home and want to buy it now?
An immediate family member – mother, father, brother, sister or grandparent – could provide you with a gift of the remaining amount of money required for the downpayment and closing costs.
There’s another option worth discussing with your broker (but be aware that it can be quite difficult to negotiate): if you’re able to provide the remaining funds over 90 days you may be able to push the possession date back.
What do I need to do if I am using gifted funds for a downpayment?
You’re required to have a gift letter filled out by both you and the family member gifting the funds, stating that you’re not required to pay them back. You’ll also be required to provide a bank statement to prove that you have received the funds.
What documents do I need to provide to buy a house?
Income documents – a letter of employment and pay stubs. If you earn bonuses, commission or other income that is not fixed but still taxable, you’ll be required to provide T4s and Notice of Assessments in order to use a two-year average for qualifying purposes. If you’re self-employed you’ll also be required to provide your full T1 generals.
Downpayment and closing costs – a complete 90-day history of any bank accounts or investments from which you’ll remove funds for the downpayment or closing costs. If you’re receiving gifted funds, you’ll also need to provide a gift letter and proof of receipt of the gifted funds.
Real estate – a fully executed Offer to Purchase, any counter offers that have taken place and the MLS listing (typically the realtor will provide this directly to the mortgage broker).
Proof of representation – proof that you have retained a lawyer for the legal proceedings.
Other documents – a void cheque and amendments to the purchase agreement. If it is a private sale, you’ll be required to have a full appraisal of the home. And, as mentioned above, a gift letter if you’re using gifted funds.
Why do they need all this information from me? What about my privacy?
They require this information in order to protect you and the Canadian economy. It’s absolutely critical that the information provided in the application is accurate. This protects you from purchasing a home for which you’re unable to make long-term payments. We take your information very seriously, and we’re legally bound not to disclose your private information with anyone who isn’t directly involved in the financing of your home.
How much can I afford?
Based on the information you give us in the online application, we’ll be able to tell you what you can afford based on your income, assets and liabilities. We’ll also talk to you about what kind of lifestyle you desire – sometimes buyers choose to purchase for less than what they qualify for in order to maintain certain lifestyle expenses.
How can I save for a downpayment?
The best way to save for a downpayment is to save your money in a TFSA or an RRSP. As a first-time homebuyer, you’re able to withdraw the funds from your RRSP up to $25,000 without paying income tax. With a TFSA, you’re always able to withdraw the funds without penalty.
Sit down and look at bank statements from the last 3-6 months, and categorize where the money has gone. Find ways that you can cut costs to increase what you can put away each month for a downpayment.
Some people choose to get a second job and put the entirety of that income into savings for a downpayment.
Commission, overtime or bonuses can be stashed away solely for the purpose of a downpayment and closing costs.
What is a pre-approval?
While it does not guarantee a mortgage approval, assuming all provided information is accurate at the time of pre-approval, is supported by documents and has not changed up to the offer to purchase, mortgage financing will be a confident approval.
There are always fluctuating variables that can affect the amount you qualify for, such as changes to income, liabilities, mortgage rules and regulations, credit rating, etc. It’s very important that you check back in with your mortgage broker when you’re ready to put in an offer, just to be sure that everything is still accurate.
Is my credit good enough to qualify, and what can I do if it’s not?
Your broker will pull your credit report and, if need be, advise you of any changes that need to be made prior to purchasing. In some cases, you’ll able to improve your credit rating quickly by paying down debts that are close to or over the credit limit.
How can I improve my credit rating?
Pay your bills on time and in full by the due date, every month. If you can’t pay them in full, you must at least make the minimum payment.
Don’t go over or come too close to your limit on your revolving credit.
Don’t apply for new credit cards, loans or other forms of credit.
Be sure that you do, in fact, have a credit rating. No history does not equal good history. To build history, get a low-limit credit card and pay it off in full each month.
(This information was taken from the Government of Canada Office of Consumer Affairs (OCA))
I’m new to Canada. Can I get a mortgage?
Absolutely! We work with lenders that have programs specifically for new and non-permanent residents of Canada.
Can I get a ‘$0 down’ mortgage?
Unfortunately this type of mortgage is not currently offered by any lenders.
I am looking at a home that is approved for downpayment assistance grants. Can you do a mortgage for that?
Yes, we have lenders willing to approve mortgages with grant programs in place.
The home that I’m looking at is in need of renovations and I won’t have money to do them after the downpayment and closing. Do I have options?
Many of our lenders are willing to add the cost of the renovations into your mortgage, assuming that the amount of the purchase price plus the renovations works with your qualifying ratios.
What are qualifying ratios?
Simply put, qualifying ratios are a calculation of your debts, assets and income that determine how much you can borrow for your mortgage.