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First
time buyers
In dealing with so many first time buyers
over the years, I have found one common thread most first time buyers have.
They find the process very overwhelming!
They use words and phrases like the ones below:
- Information
overload.
- Intimidating.
- Completely
blind.
- Pressure.
- Hidden
costs.
- Emotionally
stressful.
- Ignorant
of the home buying process.
- Little
knowledge.
- Sleepless
nights.
- Different
options.
My
commitment is to help you through this process, trying to make sure
that you do not experience the emotions listed above. I will
facilitate you you through the mortgage process offering you
continuous support and guidance from start to finish and after you
take possession of your first home.
When
Should I Refinance my Home Mortgage?
The decision to refinance a home
should be based on whether you will own the property long enough to
recapture the expense connected with the new loan and the overall
effect lower payments will have on your household budget. There
are some situations in which a refinancing decision should invariably
be made. If you are able to negotiate a "no-cost" mortgage
(you pay no penalty or closing costs), and if the new mortgage rate is
lower than your existing rate, than refinancing your loan would
certainly be of financial benefit to you. If the remaining mortgage
balance, including penalty and closing costs, can be refinanced at a
reduced monthly payment, and still be paid off within your existing
mortgage payment term, then refinancing would be highly advisable. If
you need extra cash for a home equity or auto loan, and the mortgage
rate is lower than alternative loan rates, then refinancing is
probably the best choice. Lastly, you can generally count on it being
time to refinance when your new mortgage rate is at least one to two
points lower than your existing rate, and you plan on staying in your
home for at least three to five years .
What
Do I Need To Consider About Refinancing My Home?
You need to thoroughly consider the following six factors:
1.The amount of reduction in the mortgage interest rate.
2.The amount of reduction in the monthly payment.
3.Any prepayment penalties on the old mortgage.
4.The amount of closing costs, including any appraisal of CMHC costs,
legal fees, etc.
5.The number of years you plan on retaining your home.
6.The effect on your cash flow overall lower payments could make.
When you refinance, the proceeds from your new mortgage loan are used
to pay off your old mortgage, bank loans, credit cards or new money
for renovations or any other worthwhile purpose. You are not simply
re-negotiating the terms of the old mortgage, such as reducing the
interest rate.
You need to expect that your home will have to be appraised again, and
possibly inspected. Your credit history and overall financial picture
will be reviewed again to make sure you qualify.
How does the 5% Down
Payment Program Work?
Under the 5% Down Payment
Program, the minimum down payment is 5% of the purchase price or
appraised value, whichever is less.
The down payment must be from
customer’s own resources or an outright financial gift from
immediate relatives. If the minimum equity requirement is being met by
way of a financial gift, the funds must be in the possession of the
borrower at the time of application.
Borrowers are also required to
demonstrate at time of application the ability to cover a closing cost
equal to at least 1.5% of the purchase price.
Maximum purchase price can range from
$125,000 to $250,000. I will confirm the maximum in your market area.
Maximum GDSR ~ 32% (Principal +
Interest + Property Taxes + Heating Costs must not exceed 32% of Gross
Income).
Maximum TDSR ~ 40% (Principal +
Interest + Property Taxes + Heating Costs + Monthly Obligations
including Credit Cards & Loans must not exceed 40% of Gross
Income).
Minimum loan term for CMHC is 6 months
with loan qualification based on the current 3 year posted rate.
GE Capital currently has no minimum
term requirement.
The mortgage loan insurance premium is
3.25% of the mortgage amount. (Premium can be added to the mortgage or
paid separately).
Credit history must be in good
standing.
How does the Home
Buyers’ Plan (HBP) work?
Each purchaser may borrow up
to $20,000 from their RRSP under the Home Buyers’ Plan. (The funds
must have been in the RRSP for at least 90 days prior to withdrawal to
be eligible under the program)
Provided you buy or build a qualifying
home and meet all of the conditions for making a withdrawal under the
Home Buyers’ Plan, you can use the particular funds you withdrew
under the Home Buyers’ Plan for other purposes. (Not only down
payment and closing cost, but for any other purpose you choose.)
This program is available to the first
time home buyer only. (You are considered a first time home buyer if,
at any time during the period beginning January 1, 1995 and ending 31
days prior to your withdrawal in 1998, you did not own a home while
you occupied it as your principal place of residence)
This information is current throughout
1999. And the program has been extended indefinitely.
Repayment of the funds back to your
RRSP can be made over 15 years. (The repayment period starts in 2001
and ends in 2015)
If the amount is not repaid in a year,
that year’s repayment amount will be added to your income and taxed.
In order for the home to qualify it
must be located in Canada and intended to be used as your principal
residence.
This program may be used in connection
with the 5% down program.
Why is verifying my Down
Payment important? If there is ‘one’ thing
that causes problems which may delay the closing of your house it’s
verification of the Down Payment. Here’s why:
To meet the Requirements of Canada
Mortgage and Housing Corporation, GENCOR (GE Capital) and the Major
Lending Institutions
On or before the issuance of a lending
commitment you will be asked to provide "Confirmation of Down
Payment" from Non-borrowed funds in one or more of the following
forms.
Down Payment from the Sale of an
Existing Property You will be required to provide a copy of
the unconditional "Purchase and Sale Agreement" on your
existing property. This needs to be accompanied by a copy of the
statement of "Mortgage Balance" on any mortgages presently
held against the property. The difference between the sale price and
the mortgages owing will substantiate the funds available for your
down payment.
Down Payment from a Gift All or
part of the minimum equity requirement may be provided by way of a
financial gift, as long as all of the following conditions are met:
- the
donor is an Immediate relative of the borrower;
- the
Approved Lender has verified that the money is a genuine gift;
- the
Approved Lender has verified that the funds are in the
borrower’s possession prior to the time of the application to
CMHC or GENCOR for mortgage loan insurance.
The Approved Lender will
verify the authenticity of the gift by obtaining a written
confirmation, signed by the donor and the borrower, which will
include the following points:
- the
money is a genuine gift from the donor and does not ever
have to be repaid;
- no
part of the financial gift is being provided by any third
party having any interest (direct or indirect in the sale
of the subject property)
The Approved Lender is not
required to forward this confirmation to CMHC, but is expected to
retain the Information in its paper or electronic loan record.
Down Payment from Your Own Resources
You must supply verification satisfactory to C.M.H.C. or GENCOR
and the lender of accumulated savings from non-borrowed funds. This
may be in the form of a copy of your bank book confirming a balance
equivalent to your down payment including the amount of deposit
confirming the savings of said amount for a period of not less than
3 months.
Should a substantial deposit have been
made recently, the source of such funds, i.e. Bonds, Stocks,
G.I.C.’s or RRSP receipts will also be required.
To avoid any delay in funding your
transaction we suggest that you provide a form of the above noted
confirmation at least 14 days prior to your closing date.
What is the Purchase Plus
Plan? The Purchase Plus Plan lets
you add the cost of upgrades to your mortgage before you move in!
Eligible upgrades include a new electrical service, a new roof,
central air, a new furnace, new siding, eaves, soffits, facia, doors,
windows, a new kitchen, carpeting... or any other renovation that
would increase the value of the home.
The way it works is like this...
Let’s assume that you are a first time buyer and have 5% down
payment. Before the mortgage financing is arranged, written
quotes are obtained from licensed contractors for the repairs
and or the improvements to be done to the home. When the application
for mortgage financing is made, the request is made for 95% of the
purchase price PLUS 95% of the cost to complete the improvements.
Note: The lender will
“hold-back” on closing the “improvement” portion of the
mortgage until the work has been completed, normally within 30 to 60
days of closing. Once the work has been completed, the lender will
advance the balance of the funds and the contractor can be paid. What
does this mean? . . let me give you an example. . .
The purchase price is:$150,000 X 95% = $142,500
The quote for the improvements is:
$ 11,000 X 95% = $ 10,450
Total Mortgage is: $161,000 X 95% = $152,950
Therefore, an application is
made for a mortgage in the amount of $152,950 which is 95% of the
purchase price plus 95% of the improvements.
On closing this is what happens... The
Mortgage advanced to complete the purchase is $142,500 plus the
original 5% from the purchasers down payment ($7,500) sufficient funds
to complete the purchase of $150,000.
After closing the contractor completes
the improvements (normally within 30 to 60 days after the closing) the
lender advances the hold-back of $10,450, the purchaser pays the
additional 5% of the cost of the improvements ($550) and the $11,000
owed to the contractor can be paid as per the original quote for the
work.
And you will get $11,000 of
improvements done to your home with a cash outlay of only $550 (the
balance was financed with your mortgage)!
What costs will I have to
pay on closing?
To avoid any surprises on closing, a
good rule of thumb is to set aside an amount equal to 2-3% of the
purchase price to cover expenses like these:
The Offer
The Deposit:
Part of your down payment, a deposit is due upon acceptance of your
offer.
Prior to Closing
Home Inspection:
Prepared by a qualified inspector to assess the property for defects
and poor maintenance.
Appraisal:
Prepared by an appraiser chosen by the lender, by CMHC or GENCOR if
the mortgage is insured by either company.
Closing Costs
Legal Fee/Disbursements:
Your lawyer will quote his fee for closing the purchase and mortgage(s)
plus an approximation for his disbursements, which includes
registration fees, courier costs, photocopies, etc. Ask for an
estimate.
Land Transfer Tax:
See the chart enclosed in this package to calculate the Land Transfer
Tax which is due on closing and reflected in the “Statement of
Adjustments” which your lawyer prepares prior to closing day.
Interest Adjustment:
Monthly mortgage payments are due on the first of the month. Unless
the closing date is the first of the month, you must prepay the amount
of the interest accruing up to the 1st day of the following month, the
Interest Adjustment Date.
CMHC or GE & PST:
If your mortgage is insured by CMHC or GENCOR the insurance premium
will usually be added to the mortgage so it is not a cash requirement
on closing. However, the premium is subject to 8% PST, and the tax
must be paid on closing.
Prepaid Expenses:
If the Vendor has prepaid any other expenses such as utilities, water
and sewage taxes, oil in tank or taxes, he must be compensated. This
will be reflected in the Statement of Adjustments.
Property Tax Hold-back:
If the lender is collecting and paying property taxes you may be
required to pay to the lender an amount to ensure sufficient funds are
available to pay the next installment of property taxes when due.
Other Fees:
Occasionally, a lender or the broker will charge a fee for providing
the mortgage. If so, these costs should be disclosed to you at the
time the Statement of Mortgage is issued to you.
How
much will the Land Transfer Tax be?
The following are some samples of Land
Transfer Tax (LTT) payable:
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Land Transfer Tax Calculator
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All
information on this site is copyright © 2008 Toronto Real Estate Board.
All rights reserved. Although TREB endeavours to ensure the accuracy and
timeliness of information, it is not guaranteed. TREB accepts no
responsibility for any loss arising from any use or reliance on the
information contained herein.
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