Frequently asked mortgage questions

 

  • How much can I afford?
    • How much you can afford is determined by your income. For “A” lending no more than 39% of your income can go towards housing expenses. This includes property, interest, property taxes and heating costs. If your purchase is a condominium you must also add 50% of your condo fees into this calculation. With this calculation you must qualify at the Canadian stress test interest rate of 4.79%. Your income must also qualify with any other debts such as car loans, credit cards, line of credits etc. The max allowable is 44% of total income going towards debt repayment. For easy calculations download the My Mortgage Toolbox app

 

  • What is the minimum down payment?
    • The minimum down payment is 5%. However, this is subject to purchase price. On purchases over $500,000 the minimum down payment is 5% on first $500,000. 10 % on additional money over 500,000 up to 999,999 and 20% on purchases over 1 million.

 

  • Should I save 20% for a down payment?
    • 20% down payment will lower your monthly payments.
    • Affords you more flexibility with debt ratios and choice of lenders.
    • Allows you to save money by not paying for mortgage default insurance.

 

  • Can I use RRSP’s for my down payment of my first home?
    • First time homebuyers can pull up to $35,000 out of their RRSP’s to use as a down payment. This still counts as a tax deduction but must be repaid within 15 years.

 

  • Can I use a gifted down payment?
    • Yes, most lenders allow you to use a gifted down payment from a family member. A gift letter is required to be signed by both parties to confirm it is a gift and not a loan.

 

  • Will child support affect my qualification?
    • If you are paying child support, that amount will be added to your debt service ratios.
    • If you are receiving child support payments this can be added on top of your income.

 

  • What other costs should I be aware of?
    • You will need to prove that you have an additional 1-1.5% approximately for closing costs, land transfer taxes, and appraisal fees if applicable.

 

  • Can I still get a mortgage if I have previously had a bankruptcy?
    • Yes, you can still qualify for a mortgage after a bankruptcy has been discharged. Prime lenders will require you to be discharged for 2 years and 1 day before approval. Subprime or private lenders have more lenient requirements often 3-12 months.

 

  • I have bad credit; can I get a mortgage?
    • You can still get a mortgage even with bad credit. However, if your credit score is under 650 most major lenders will not want to take this amount of risk. Other lenders will take this mortgage but they come at a higher interest cost due to the risk involved.

 

  • What is considered good, fair and bad credit?
§     300-599 §     Needs improvement
§     600-649 §     Fair credit
§     650-719 §     Good credit
§     720-799 §     Very good credit
§     800-900 §     Excellent credit

 

 

  • How can I improve my credit score?
    • There are many ways to improve your credit score. Although some are situation specific. Generally, you can improve credit by:
    • paying your bills on time, every time.
    • Keep your credit cards well below limits. Under 40% utilization is recommended
    • Only apply for credit when necessary. Applying for multiple credit cards and line of credits within a short period of time can harm your credit score.
    • Use varied credit types, the credit mix with good repayment history shows lenders you are a good borrower.