Below you’ll find answers to common questions I get about mortgages and the application process.

How much can I afford?

A mortgage calculator is a quick and easy tool that lets you know the maximum amount of mortgage you qualify for and allows you to estimate your mortgage payments. It’s important to review your entire monthly budget to ensure this amount is comfortable and leaves room for unexpected expenses.

For example, the mortgage industry uses a formula to calculate the maximum amount one would qualify for. The answer gives us a total debt service (TDS) percentage that cannot be exceeded. This is your blended mortgage payment (principal and interest), property taxes, heat, and debt payments (credit cards, car payments and other loans) in comparison to your gross income. However, that calculation does not factor in other lifestyle costs like bills, gas, groceries, daycare, tuition, entertainment, etc and does not consider your NET (take-home) pay.

When planning the amount of mortgage you can afford – think of the bigger picture.

Important reminder:

I never suggest that my clients become ‘house poor’ or over-commit themselves. It’s important to know your overall budget and lifestyle when deciding how much per month you want to spend on a mortgage payment.

How much do I need for a downpayment?

If your home will be owner-occupied, you need at least 5% down for the first $500,000 of the purchase price, and 10% for any amount over $500,000 up to $999,999. If the purchase price is $1,000,000 or more, the minimum down payment is 20%.

You will need at least 20% down if you are buying a rental property. (Certain individual circumstances may change the amount – contact me for more details.)

Below are some approximate amounts:

Downpayment amounts

Purchase price

 Minimum

10%

20%

$300,000

$15,000

$30,000

$60,000

$400,000

$20,000

$40,000

$80,000

$500,000

$25,000

$50,000

$100,000

$600,000

$25,000 +

$10,000 =

$35,000

$60,000 $120,000

$700,000

$25,000 +

$20,000 =

$45,000

$70,000 $140,000

$800,000

$25,000 +

$30,000 =

$55,000

$80,000 $160,000

$900,000

$25,000 +

$40,000 =

$65,000

$90,000 $180,000

$1,000,000

N/A

N/A

$200,000

 

I have my downpayment saved. What are the other costs I need to know about?

Are you ready to buy a home? Make sure to budget for upfront purchase costs to avoid any surprises!

During the underwriting process:

  • Appraisal fee (approx. $500)
  • Home inspection (approx. $500

At the lawyer’s office:

  • Closing costs (approx. 1.5% of your mortgage or purchase price): land transfer tax, title insurance, legal fees and disbursements
  • Prepaid property taxes and utilities

After closing:

  • Moving expenses
  • Renovations and/or repairs
  • Home insurance
  • Mortgage or term life insurance

 

Confused? Some common mortgage terminology may help

Appraisal – Lenders sometimes require appraisals to be done on homes. This estimate is to confirm the value to confirm the sale price. The lender needs to be assured that the $300,000 house you are purchasing is actually worth what you are paying for it. The cost for this typically ranges from $350 to $500 or more in special cases.

Amortization period – The number of years it will take to pay off your mortgage through regular payments: most mortgages are amortized over 25 years although if you have 20% equity 30 year mortgages are still available.

Closing costs – These are the costs paid to your lawyer on closing. It includes lawyers fee, title insurance, land transfer tax ( if applicable ) , appraisal costs, PST on the High Ratio mortgage insurance and property tax/heating adjustments.

Closed mortgage – A mortgage that cannot be paid off or renegotiated before the end of the term without paying a penalty – usually 3 months interest or the interest rate differential (whichever is greater).

Collateral mortgage – This refers to how a mortgage is registered on title. It could be a conventional or high ratio mortgage. A collateral mortgage has the ability to be re-advanced at a later date when there is enough equity to do so. This can save the cost of refinancing in the future but can also limit transferability at renewal.

Conventional mortgage – A mortgage loan to a maximum of 80% of the lending value of the property. Mortgage insurance is usually not required in this situation, but some lenders still do insure mortgages on loans of 80% or less of property value.

Down payment – A down payment is the amount of money you put towards the price of your home. The remaining amount left over is your mortgage.

Fixed rate – This means the interest you pay towards your mortgage won’t change thought the term of your mortgage.

High ratio mortgage – Any mortgage where the purchaser is supplying less than 20% for a down payment. In most cases the mortgage must be insured against default by CMHC, Genworth or Canada Guaranty.

Loan to value ratio (LTV) – The ratio of the loan to the lending value of the property expressed as a percentage. For example, if a property is worth $200,000 and the mortgage is $160,000 the LTV is 80%.

Maturity date – The last day of the TERM of the mortgage agreement. On this day you must either pay off the loan, renew it with the same lender, or move it to different lender for another term.

Mortgage insurance – If your mortgage is hi-ratio (greater than 80% of the purchase price), you must have mortgage loan or default insurance. The insurance premium is a one time charge that can either be paid up front or added to the loan amount and paid as part of the regular monthly payment.

Mortgage life insurance – This insurance guarantees that if any person with coverage dies the mortgage will be paid in full. It is available through the lender or broker and the premium is added to your monthly payments. However, you may wish to compare rates for an equivalent product, such as term insurance, through an insurance agent.

Mortgage term – The Length of time you are committed to a mortgage rate, lender and conditions of your mortgage. Usually terms range from 6 months to 10 years, with 5 years being the most popular choice. Once you complete your term, you can renegotiate for a new term, renew your mortgage or pay out the existing principal.

Open mortgage – A mortgage that can be renegotiated, prepaid in any amount or paid off at any time without penalty. The interest rate is usually variable and higher than a closed variable rate mortgage with the same term.

Payment frequency – Payment schedule in which you would like to pay your mortgage. Choose from weekly, bi-weekly, semi-monthly and monthly and accelerated options are available too, to pay help off your mortgage faster.

Title insurance – Protects against loss or damage caused by occurances affecting title to the property. This could include, but is not limited to, a defect in title or the existence of a lien or encumbrance.

Variable rate – Floating rate or adjustable rate mortgage, this type of mortgage has an interest rate that fluctuates with the prime lending rate. One potential benefit of variable rate mortgages is lower interest rates, but in return, mortgagors (homeowners) take on risk: if the prime rate goes up, a larger chunk of your mortgage payment will go toward the interest, not paying down your principal. The result: your mortgage could take longer to pay off and cost you more in interest.

Source: Kingston Mortgage Solutions

What first-time homebuyer credits and programs are available?

While you work towards saving for a down payment and closing costs, below is information about the various programs and credits available to first-time home buyers. Some of these may help you reach the 5% amount quicker but do have pros and cons to consider.
You can also get insights and tips by visiting CMHC’s website to review the Homebuying Step by Step Guide.
 
1) First Time Home Buyers‘ Tax Credit of $750
There is a first-time home buyers tax credit. You will claim this on your first taxes after your purchase. It does not impact your purchase but will impact your return tax or the amount owing. 
 
2) Tax-free first home savings account (FHSA)
The most recent one, just announced in the latest federal budget, begins in 2023 and allows $8,000 tax-free to be saved per year and used towards a down payment within 15 years.
 
3) The Home Buyers‘ Plan
You can use RRSP savings through the Home Buyers Plan. The max is $35,000 per person. This would be paid back over 15 years on your income tax or by contributing to your RRSP again. As you continue to save, I suggest using a TSFA or other joint savings that will also allow more options to use the money.
 
4) First-time home buyer land transfer tax rebate
First-time home buyers may be eligible to get a rebate of up to $4,000 for any land-transfer tax paid on the first $368,000 of qualifying homes. To claim the refund, you must be a legal adult who has never owned a home or an interest in a home (even one you inherited or were gifted by a family member).

The Home Ownership Program (HOP) assists low-to-moderate income households to buy affordable homes by providing down payment assistance in the form of a forgivable loan.

Households that are currently renting in the City of Kingston or the County of Frontenac and who do not have a vested interest in any other real estate may apply to the HOP for down payment assistance equal to 10% of the purchase price to a maximum of $44,000.

If you have a combined, pre-tax household income of less than $91,000 and would like to purchase a home priced at $440,000 or less in the City of Kingston or the County of Frontenac, you may be eligible for this program.

Looking for the First-Time Home Buyer Incentive? It was discontinued as of March 31, 2024.

What is a credit score and how do I find out mine?

Many people ask what credit is, what their credit score is and how can they improve it.

A good credit score is very important when applying for a mortgage. You must have good credit in order to purchase a home and get a great interest rate.   If you don’t have enough credit, a long enough credit history or a history of late payments, the mortgage companies and insurers may not approve you.  Credit is a very important part of the mortgage financing approval process.

Lenders rely heavily on your history as an indication of how you will manage your mortgage and financing in the future. Unfortunately, lower credit ratings can decrease your chances of getting approved for a mortgage and may result in needing a co-signor or having to pay a higher rate and lender fee. I can help you learn about your credit score and make sure it’s where it needs to be to secure a mortgage.   It’s also a good idea to find a trusted credit monitoring website to keep an eye on your balances, credit cards and loans.  A few suggestions are:

Borrowell – free
Credit Karma – free
Transunion – $19.95/month
Equifax – $19.95/month

Some sure-fire ways to help your credit score are:

  1. Have at least two types of credit at all times. Some examples would be a credit card (with a minimum limit of $2000), car loan or lease or a line of credit. This will show that you can manage your credit. Not having any credit at all is challenging, lenders need a track record of your credit in order to properly judge you for your mortgage financing.
  2. Make your payments each month and on time. NEVER skip a payment and always make at least the minimum payment owing.
  3. Do not exceed more then 70% of your available credit on your line of credit or credit cards and if you can, try to pay the credit cards off every month to avoid high interest charges. This is hard for some people to do, but if you can get in the habit of never charging more than you can pay then you won’t get caught in the credit trap.  Exceeding your credit limit can substantially decrease your credit score and lenders view this as not responsibly managing your credit.  There are always occasions where a credit card has to be used for an emergency expense, so keeping available credit open for these instances is important so it doesn’t hurt your credit score.
  4. Do not let your credit be pulled too often.  Each credit pull affects the score so if you are searching for credit this will be reflected in your score.  Your mortgage agent is required to take a full application and pull a credit bureau in order give you an idea of what a lender will offer you but we use the same credit bureau for multiple lenders so this is better than going from bank to bank looking for a mortgage.  It’s also advisable NOT having your credit pulled for credit cards, line of credits or car loans often as this will lower your credit score and raise red flags. If you are declined for credit seek to learn why before applying at the next place.

I can discuss your credit file with you and provide suggestions on how to build, maintain or improve your credit scores.

What are the steps in the mortgage process?

Each individual mortgage process is unique but generally, the following steps apply:

  1. Initial conversation with me to discuss your situation
  2. Fill out my online application
  3. Send initial documents for review
  4. Follow-up conversation to discuss your options and the next steps
  5. Submission of your application to a lender
  6. Sign the commitment letter and submit additional documents we near final lender approval and complete the normal underwriting process
  7. Meet with a real estate lawyer to sign the final papers
  8. Close your new mortgage (and get the keys to your new home)

What documents do I need to send?

I’ll need to get a number of documents before submitting your application or pre-approval.

Examples include:

  • Photo ID and SIN to run a credit check for all borrowers
  • A mortgage current statement and property tax bill
  • Income verification for all borrowers: A letter of employment, 2 recent pay stubs, recent T4s or T1 generals if you are self-employed

I may require more information and documents further along in the process as we near lender approval and complete the normal underwriting process.

At what point in the home-buying process should I contact a mortgage agent?

Anytime. When shopping for a home, most people reach out to a real estate agent first. Once you know the steps in the home-buying process – whether it is your first or second home – it is important to ensure your finances match your goals. I can collect information and provide a pre-qualification (or pre-approval) that gives you the confidence to move forward.

If you already own a home and are curious about refinancing options, I’d be happy to talk anytime to go over your options. When your mortgage is due for renewal, the best time is about 6 months before the maturity date to get the best advice and avoid paying early payout penalties.

What is the difference between a mortgage agent and a bank mortgage specialist?

As a mortgage agent, I work for you. With access to multiple lenders, from major banks to private lenders, I’m able to find the individualized mortgage solution that meets your needs. A mortgage specialist at the bank has access to one lender which might not offer the product that is what’s best for you.

It’s important to think ahead when getting a mortgage. I have options like pre-payment privileges, portability, low early payout penalties, and more. I’ll listen and provide advice that will ensure you are on track to achieve your short- and long-term financial goals.

I’ll provide you with some options so you can compare the two – what your bank is offering and what I’m able to offer. Ultimately, you decide which you feel most comfortable using. It never hurts to get a second opinion on the biggest financial decision you will probably ever make.

How much does a mortgage agent cost?

My services are free. The banks and lenders pay a finder’s fee, which means that there are no extra fees for you to pay.