There are many factors to consider when choosing your mortgage type for the first time. Rates, features, options, market trends, and long term goals should all be taken into account when choosing your mortgage. Below we have outlined some of these important considerations.
Step 1: Determine what you can afford and qualify to purchase: Your mortgage advisor will be looking at your income and down payment to determine this and get you a pre-approval.
Step 2: Connect with a realtor: Using a realtor can making finding the right home easier. Realtors have access to information and insight into the housing market that can aid your search.
Step 3: Make an offer to purchase: Once you have found a property, you will make an offer on the property with your realtor. Be prepared to negotiate back and forth a few times. You will need do give a deposit with the accepted offer. This deposit will count towards your down payment and closing costs.
Step 4: Convert your pre-approval to a full approval: Once your offer is accepted, make sure your mortgage advisor has a clear copy of the purchase agreement and MLS listing. They will use this information to get you a full approval from a lender. An appraisal might be required by the lender.
Step 5: Signing mortgage documents: Once your mortgage advisor has collected the required documents to meet the lender's approval conditions they will meet with you to sign the mortgage commitment documents. The required documents will be sent back to the lender who will then send mortgage instructions to your lawyer.
Step 6: Signing with your lawyer: The lawyer will prepare the mortgage and registration documents once they have received the instructions from the lender. You will then meet with the lawyer and sign the documents with them.
Step 7: Get your keys & move in: Once the lawyer has received the funds from the lender and completed the registration on the title and mortgage they will contact you to let you know that you can pick up your keys.
First Time Buyer Benefits As a first time buyer have 2 major benefits. The Home Buyer's Withdrawal Plan allows you to withdraw money that you have contributed to your RRSP up to a maximum of $35,000 to use towards the purchase of a qualifying home. The funds have to be repaid to your RRSP over a 15 year period starting 2 years after the withdrawal. For more information on the Home Buyer's Withdrawal Plan visit the Government of Canada's website by clicking here.
The current maximum amortization for a high ratio mortgage 25 years. Home buyers who are purchasing a primary residence with less than 20% down payment will have to pay an insurer premium to have the mortgage insured with one of the 3 insurers (CMHC, Sagen and Canada Guaranty). The insurer premium can be added to the mortgage amount or paid up front on the closing date. It is more common for it to be added to the mortgage.
CMHC's Mortgage Insurance Calculator
Conventional mortgages are those where the total down payment is at least 20% of the purchase price for a primary residence, and as such avoid paying the insurer premium. By putting 20% down the home buyer will have a lower mortgage but can also take advantage of a 30 year amortization which lowers the mortgage payment versus a 25 year amortization on the same mortgage amount. Some lenders also offer 35 or 40 year amortizations, for more information on this please contact one of our mortgage agents.
The Total Debt Servicing ratio is the second calculation that lenders look at. Like the GDS, the TDS ratio looks at the carrying costs relative to income but also includes other debt payments like credit cards, loans, vehicle leases, lines of credits, and with some lenders cell phone payments.
Debts are categorized into four categories: Revolving, Installment, Open & Mortgage. Credit cards and line of credits are revolving credit, loans are installment credit and cellular phones are considered open credit (no credit limit, full balance is due monthly). Lenders will typically use 3% of the outstanding balance on revolving and open debt for the TDS calculation and the monthly payment as reported on the credit bureau for installment credit. Some lenders may use 3% of the total limit for revolving credit. The maximum the TDS should be is 42% or 44% with strong credit scores for all applicants.
Please note: We have access to lenders that will consider GDS and TDS ratios higher than the industry standard. For more information contact us today for an appointment.
High Ratio mortgages (purchases with less than 20% down payment) have a maximum amortization of 25 years. Conventional mortgages (20% or more equity in the property) can have an amortization of 30 or 35 years (ask your Approved Financial Services mortgage agent about the 35 or 40 year options).
Qualifying requirements can affect whether an applicant can have a variable rate, please refer to our section on Qualifying rates for more details.
Government requirements limit the maximum a HELOC can be to 65% Loan-to Value (LTV). Lenders that offer HELOCs also have more stringent requirements than for mortgages. Approval for HELOCs are typically calculated based on a 25 year amortization and are required to be qualified based on the government's qualifying criteria (see the section on Qualifying Rates).