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Mortgage Financing FAQ

Mortgage Financing FAQ

The costs associated with purchasing a home, such as legal fees, disbursements and land transfer taxes, can be a particular burden for first-time home buyers, who must pay these costs on top of saving the money for a down payment.

To assist first-time home buyers with the costs associated with the purchase of a home, Budget 2009 proposes to introduce a First-Time Home Buyers’ Tax Credit a $5,000 non-refundable income tax credit amount on a qualifying home acquired after January 27, 2009.

For an eligible individual, the credit will provide up to $750 in federal tax relief starting in 2009. It is also proposed that the First-Time Home Buyers’ Tax Credit be made available to existing homeowners in respect of a more accessible or functional home purchased by an individual eligible for the Disability Tax Credit (DTC), or for the benefit of a DTC-eligible person who is related to the individual purchasing the home. For more information on the first time home buyers’ tax credit click here.

Save interest by buying your mortgage through a mortgage brokerage like us. Lower your interest cost over the life of your mortgage by using the accelerated payment approach. You can save some interest making bi-weekly or weekly payments, but the most significant impact on reducing your amortization period (life of your mortgage) is increasing the total payments made against your mortgage each year.

Biweekly payments total 26 times per year, whereas semi-monthly payments occur 24 times per year. If the monthly payment is divided by two and paid biweekly, you in effect are accelerating your payments by making the equivalent of one extra monthly payment per year. The extra monthly payment is what reduces the length of your mortgage. You can accomplish the same thing by just increasing your monthly payment, if monthly is a more convenient payment frequency for you. Another option is to take an accelerated semi-monthly payment frequency.

A payment frequency that is tied to your pay dates usually makes the most sense, and should typically be used.

It is possible to qualify for 100% financing that allows for a borrowed down payment. There are certain lenders / products in the market that offer this option and it depends upon your credit standing to determine what interest rate you would qualify for, as long as the payments for the borrowed down payment work within your qualifying debt service ratios. Call our us for details.

Down payments as small as 5% to buy a home are available from most lenders, with CMHC, Canada Guaranty or Genworth mortgage loan insurance, subject to certain maximum price restrictions. In addition to the down payment, you must also be able to show the ability to pay applicable closing costs (i.e. legal fees, prepaid property taxes, disbursements, appraisal, and survey certificate).

Your down payment is typically from your own savings (resources) or a gift from a family member. A gift letter signed by the donor is required that irrevocably forgives any claim to the gift. Mortgage Loan Insurance from Canada Mortgage and Housing Corporation (CMHC), requires that the gift money must be in the your possession before the application is sent to CMHC for approval. Mortgage Loan Insurance provided by Genworth, does not require that the gift money be in your possession until the closing date.

Mortgages with less than 20% down payment will require Mortgage Loan Insurance provided by CMHC, Genworth, Canada Guaranty or a lender’s own self insurance program.

A home inspection should be performed by a qualified professional. It is a visual examination of the property to determine the general condition of the home. The inspector will visually review and check all major components and working systems of the property. A detailed formal report of the results of the inspection should be provided to the purchaser within 24 hours.

An inspection can give you a feeling of comfort for one of the largest and most important purchases you will ever make. It can make your decision less stressful. The results of an inspection can be used to negotiate further on your purchase. It can indicate major or minor repairs required. An inspection report can recommend having an engineering inspection/report done if more serious foundational problems are suspected. Typically a home inspection can not give opinion, confirm or report on foundational issues.

Home inspections will help take away doubts and unknowns and should give you a very good idea of how much you may need to spend or re-negotiate due to repairs and replacements required for the property.

You can now re-finance up to 85% of the value of your home through certain lenders. This is based upon the current appraised value of the property. Through most lenders you can re-finance up to 80% of your home with mortgage loan insurance from CMHC or Genworth or Canada Guaranty.

A High-Ratio mortgage is one with an amount greater than 80% of the value of the property being purchased. Value is determined by the lesser of purchase price or appraised value. High-Ratio mortgages require Mortgage Loan Insurance.

A conventional mortgage is one where the down payment is equal to 20% or greater of the purchase price, or a loan to value (LTV) of 80% or less. Conventional mortgages do not normally require Mortgage Loan Insurance.

Yes you can include improvements into your mortgage when you buy your house. There are certain conditions that must be met in order to qualify for this.

Purchase plus improvement can be financed with 10% and even as little as 5% down. Canada Mortgage and Housing Corporation (CMHC), Genworth and Canada Guaranty are available to insure a mortgage for the purchase price of a home plus an amount to pay for immediate improvements that the purchaser would like to make. This enables you to finance renovations or improvements without having to establish separate financing.

If the improvements are structural in nature, the mortgage loan insurance premium is increased by one half of one percent (.5%).