FAQ

How much is my affordability?

To determine ‘affordability’ you will first need to know your taxable income along with the amount of any debt outstanding and the monthly payments. Assuming it is your principal residence you are purchasing, calculate 32% of your income for use toward a mortgage payment, property taxes and heating costs. If applicable, half of the estimated monthly condominium maintenance fees will also be included in this calculation.

Second, calculate 40% of your taxable income and deduct all of your monthly debt payments, including car loans, credit cards, lines of credit payments. The lesser of the first or second calculation will be used to help determine how much of your income may be used towards housing related payments, including your mortgage payment. These calculations are based on lenders’ usual guidelines.

In addition to considering what the ratios say you can afford, make sure you calculate how much you think you can afford. If the payment amount you are comfortable with is less than 32% of your income you may want to settle for the lower amount rather than stretch yourself financially.

How much down payment do I need for a home?

A minimum down payment of 5% is required to purchase a home, subject to certain restrictions. In addition to the down payment, you must also be able to show that you can cover the applicable closing costs.

Mortgages with less than 20% down must have mortgage loan insurance provided by CMHC, Genworth Financial Canada or Canada Guaranty.

What is mortgage insurance?

Mortgage loan insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, Genworth Financial Canada or Canada Guaranty, approved private corporations. This insurance is required by law to insure lenders against default on mortgages with a loan to value ratio greater than 80%. The insurance premiums, ranging from 0.50% to 3.75%, are paid by the borrower and can be added directly onto the mortgage amount. This is not the same as mortgage life insurance.

What is a conventional mortgage?

A conventional mortgage is usually one where the down payment is equal to 20% or more of the purchase price, a loan to value of or less than 80%, and does not normally require mortgage loan insurance. If your down payment is less than 20% of the purchase price, you will generally require a high-ratio mortgage with mortgage loan insurance.

Can I use gift funds as a down payment?

Most lenders will accept down payment funds that are a gift from family as an acceptable down payment. A gift letter signed by the donor is usually required to confirm that the funds are a true gift and not a loan. Where the mortgage requires mortgage loan insurance, CMHC requires the gift money to be in the purchaser’s possession before the application is sent in to them for approval. Where mortgage loan insurance is provided by CapitalGenworth Financial Canada or Canada Guaranty this may not be a requirement.

What is a pre-approved mortgage?

A pre-approved mortgage provides an interest rate guarantee from a lender for a specified period of time usually 60 to 90 days and for a set amount of money. The pre-approval is calculated based on information provided by you and is generally subject to certain conditions being met before the mortgage is finalized.

What is a down payment?

The down payment is that portion of the purchase price you arrange yourself. The amount of the down payment which represents your financial stake, or the equity in your new home should be determined well before you start house hunting.

How can I get a home with as little as 5% down?

Most lenders now offer insured mortgages for both new and resale homes with lower down payment requirements than conventional mortgages – as low as 5%. Low down payment mortgages must be insured to cover potential default of payment, and their carrying costs are therefore higher than a conventional mortgage because they include the insurance premium.

How can I pay off your mortgage sooner?

You can reduce the number of years to pay down your mortgage. Following are some of the ways to do that:

  • Selecting a non-monthly or accelerated payment schedule
  • Increasing your payment frequency schedule
  • Making principal prepayments
  • Making Double-Up Payments
  • Selecting a shorter amortization at renewal
How can I use my RRSP to help you buy your first home?

Today, about 50% of first-time home buyers use their RRSP savings to help finance a down payment. With the federal government’s Home Buyers’ Plan, you can use up to $20,000 in RRSP savings ($40,000 for a couple) to help pay for your down payment on your first home. You then have 15 years to repay your RRSP.

To qualify, the RRSP funds you’re using must be on deposit for at least 90 days. You’ll also need a signed agreement to buy a qualifying home.

What are the costs associated with buying a home?

Down payment: First and foremost, you have to make sure you have enough money for a down payment – the portion of the purchase price that you furnish yourself.

To qualify for a conventional mortgage, you will need a down payment of 20% or more. However, you can qualify for a low-down payment insured mortgage with a down payment as low as 5%.

Home Inspection fee: If you want to have the home inspected by a professional building inspector – which we highly recommend – you will need to pay an inspection fee. The inspection may bring to light areas where repairs or maintenance are required and will assure you that the house is structurally sound. Usually the inspector will provide you with a written report. If they don’t, then ask for one.

Lawyer/Notary fee: You will be responsible for paying the fees and disbursements for the lawyer or notary acting for you in the purchase of your home. We suggest you shop around before making your decision on who you are going to use, because fees for these services may vary significantly.

Property Insurance: Finally, you will be required to have property insurance in place by the closing date. And you will be responsible for the cost of moving.

Closing?Adjustment Costs: There are closing and adjustment costs, interest adjustment costs between buyer and seller and (depending on where you live) land transfer tax – a one-time tax based on a percentage of the purchase price of the property and/or mortgage amount.

Other Purchanses: Remember, there will be all kinds of things you’ll have to purchase early on – appliances, garden tools, cleaning materials etc. So factor these expenses into your initial costs.

What should the length of my mortgage term be?

The length of mortgage terms varies widely  from six months right up to 25 years. As a rule of thumb, the shorter the term, the lower the interest rate the longer the term, the higher the rate.

While four or five year mortgages are what most home buyers typically choose, you may consider a short-term mortgage if you have a higher tolerance for risk, if you have time to watch rates or are not prepared to make a long-term commitment right now.

What are the monthly costs of owning a home?

Basically, as a home owner you’ll have financial responsibilities. Some of them, like taxes, may not be billed monthly, so do the calculations to break them down into monthly costs. Below you will find a list of these expenses.

The Mortgage Payment: For most home buyers, this is the largest monthly expense. The actual amount of the mortgage payment can vary widely since it is based on a number of variables, such as mortgage term or amortization.

Property Taxes: Property tax can be paid in two ways – remitted directly to the municipality by you, in which case you may be required to periodically show proof of payment to your financial institution; or paid as part of your monthly mortgage payment.

School Taxes: In some municipalities, these taxes are integrated into the property taxes. In others, they are collected separately and are payable in a single lump sum, usually due at the end of the current school year.

Utilities: As a home owner, you’ll be responsible for all utility bills including heating, gas, electricity, water, telephone and cable.

Maintenance and Upkeep: You will also have to cover the cost of painting, roof repairs, electrical and plumbing, walks and driveway, lawn care and snow removal. A well-maintained property helps to preserve your home’s market value, enhances the neighbourhood and, depending on the kind of renovations you make could add to the worth of your property.