20 Dec

5 WAYS YOU CAN KILL YOUR MORTGAGE APPROVAL

Mortgage Tips

Posted by: Tracy Price

So, you found your dream home, negotiated a fair price which was accepted. You supplied all the needed documentation to your mortgage broker and you are waiting for the day that you go to the lawyer’s to sign the final paperwork and pick up the keys.

All of a sudden your broker or the lawyer calls to say that there’s a problem. How could this be? Everything has been signed and conditions have been removed. What many home buyers do not realize is that your financing approval is based on the information the lender was provided at the time of the application. If there have been any changes to your financial situation, the lender is within their rights to cancel your mortgage approval. There are 5 things that can make home financing go sideways.

1 Employment – You were working for ABC company as a clerk for 5 years making $50,000 a year and just before home possession you change jobs. The lender will now ask for proof that probation for this new job is waived and new job letters and pay stubs at the very least. If you change industries they will want to see more proof that you are capable of keeping this job.
If your new job involves overtime or bonuses of any kind that vary over time, they will ask for a 2 year average which you will not be able to provide.
Another item that could ruin your chances of getting the mortgage is if you decide to change from an employee to a self-employed contractor just before possession day. Even though you are in the same industry, your employment status has changed . This is a big deal killer.

2. Debt – A week or two before your possession date, the lender will obtain a copy of your credit report and look for any changes to your debt load. Your approval was based on how much you owed on that particular date. Buying a new car or items for the new home need to be postponed until after possession of your new home.
Don’t be fooled by “Do not pay for 12 months” sales campaigns. You now owe this money regardless of when the payments start. Don’t buy a new car and don’t buy furniture for the new home. This will increase your debt ratio and can nullify your financing.

3. Down payment source – And yet again I reiterate that the approval is based on the initial information you have provided. You will be asked at the lawyer’s office to verify the source of the down payment and if it is different than what the lender has approved, then you may be in trouble. For example, you said that you were going to save the funds and then at the last minute Mom and Dad offer you the funds as a gift. There’s no problem accepting the gift if the lender knows about it in advance and has included this in their risk assessment, but it can end a deal.

4. Credit – Don’t forget to make your regular credit card payments. If your credit score falls due to late payments, this can kill your financing. If you have a high ratio mortgage in place which required CMHC insurance, a lower credit score could mean a withdrawal of their insurance once again , killing the deal.

5-Identity Documents – This can be a deal killer at the lawyer’s office. The lawyer is required to verify your identity documents and see that they match the mortgage documents. Many Canadians use their middle names if they have the same name as their parent. Lots of new Canadians adopt a more Canadian sounding name for their day-to-day lives but their passports and other documents show another name.

Be sure to use your legal name when you apply for a mortgage to avoid this catastrophe . Finally, keep in touch with your Dominion Lending Centres mortgage professional right up to possession day. Make this a happy experience rather than a heartbreaking one.

19 Dec

CMHC CHANGES TO ASSIST SELF-EMPLOYED BORROWERS

Bank Industry News

Posted by: Tracy Price

As a self-employed person myself, I was happy to hear that CMHC is willing to make some changes that will make it easier for us to qualify for a mortgage.
In an announcement on July 19, 2018, the CMHC has said “Self-employed Canadians represent a significant part of the Canadian workforce. These policy changes respond to that reality by making it easier for self-employed borrowers to obtain CMHC mortgage loan insurance and benefit from competitive interest rates.” — Romy Bowers, Chief Commercial Officer, Canada Mortgage and Housing Corporation. These policy changes are to take effect Oct. 1, 2018.

Traditionally self-employed borrowers will write as many expenses as they can to minimize the income tax they pay each year. While this is a good tax-saving technique it means that often a realistic annual income can not be established high enough to meet mortgage qualification guidelines.
Plain speak, we don’t look good on paper.

Normally CMHC wants to see two years established business history to be able to determine an average income. But the agency said it will now make allowances for people who acquire existing businesses, can demonstrate sufficient cash reserves, who will be expecting predictable earnings and have previous training and education.
Take for example a borrower that has been an interior designer with a firm for the past eight years and in the same industry for the past 30 years, but just struck out on his own last year. His main work contract is with the firm he used to work for, but now he has the ability to pick up additional contracts from the industry in which he has vast connections.
Where previously he would have had to entertain a mortgage with an interest rate at least 1% higher than the best on the market and have to pay a fee, now he would be able to meet insurance requirements and get preferred rates.

The other change that CMHC has made is to allow for more flexible documentation of income and the ability to look at Statements of Business Professional Activity from a sole-proprietor’s income tax submission to support Add Backs of certain write-offs to support a grossing-up of income. Basically, recognizing that many write-offs are simply for tax-saving purposes and are not a reduction of actual income. This could mean a significant increase in income and buying power.

It is refreshing after years of government claw-backs and conservative policy changes to finally see the swing back in the other direction. Self-employed Canadians have taken on the burden of an often fluctuating income and responsible income tax management all for the ability to work for themselves. These measures will help them with the reward of being able to own their own home as well.

18 Dec

WHAT IS A COLLATERAL MORTGAGE?

Mortgage Tips

Posted by: Tracy Price

A collateral mortgage is a way of registering your mortgage on title. This type of registration is sometimes used by banks and credit unions. Monoline lenders, on the other hand, rarely register your mortgage as a collateral charge – which is an all-indebtedness charge that allows you to access the equity in the home over and above your mortgage, up to the total charge registered.

What this means is that you may be able to get a home equity line of credit and/or a readvanceable mortgage, or increase your mortgage without having to re-register a mortgage. This is a real benefit to you in some cases because re-registering your mortgage can cost up to a thousand dollars.

However, there are some negatives to having a collateral mortgage.

  • First and most glaring – because it is an “all indebtedness” mortgage – it brings into account all other debts held by that lender into an umbrella registered against your home. This means that your credit cards, car loans, or any related debt at your mortgage’s institution can be held against your home, even if you’re up to date with your mortgage payments.
  • Secondly, if you want to switch your mortgage over to a different lender, they may not accept the transfer of your specific collateral mortgage. This means you’ll need to pay additional fees to discharge the mortgage and register a new one.
  • And lastly, collateral mortgages make it more difficult to have flexibility to get a second mortgage, obtain a home equity line of credit from a different institution, or use a different financial instrument on your home. This is because your collateral mortgage is often registered for the whole amount of your property.

To recap, collateral mortgages give you the flexibility to combine multiple mortgage products under one umbrella mortgage product while tying you up with that one lender. While this type of mortgage can be a great tool when used correctly, it does have its drawbacks. If you have any questions, a Dominion Lending Centres mortgage professional can help.

17 Dec

IMPROVING YOUR CREDIT SCORE

Mortgage Tips

Posted by: Tracy Price

Your credit score is a big factor when you apply for a mortgage. It can dictate how good your interest rate will be and the type of mortgage you qualify for.

Mortgage Professionals are experienced helping clients with a wide range of credit scores so we can find you a mortgage product even if your credit is far from perfect.

The good news about your credit score is that it can be improved:

  • Stop looking for more credit. If you’re frequently seeking credit that can affect your score as can the size of the balances you carry. Every time you apply for credit there is a hard credit check. It is particularly important that you not apply for a credit card in the six months leading up to your mortgage application. These credit checks may stay on your file for up to three years.
  • If your credit card is maxed out all the time, that’s going to hurt your credit score. Make some small monthly regular payments to reduce your balance and start using your debit card more. It’s important that you try to keep your balance under 30% or even 20% of your credit limit.
  • It’s also important to make your credit payments on time. People are often surprised that not paying their cell phone bill can hurt their credit score in the same way as not making their mortgage payment.
  • You should use your credit cards at least every few months. That’s so its use is reported to credit reporting agencies. As long as you pay the balance off quickly you won’t pay any interest.
  • You may wish to consider special credit cards used to rebuild credit. You simply make a deposit on the card and you get a credit limit for the value of that deposit. They are easy to get because the credit card company isn’t taking any risks.

Contact a Dominion Lending Centres Mortgage Professional if you have any questions.

13 Dec

WHAT IS A PROPERTY ASSESSMENT VS A HOME APPRAISAL?

Mortgage Tips

Posted by: Tracy Price

It’s the time of year when many homeowners are getting their property assessments.

The real estate market is the single biggest influence on market values. Market forces vary from year to year and from property to property. The market value on an assessment notice may differ from that shown on a bank mortgage appraisal or a real estate appraisal because an assessment’s appraisal reflects the value at a different time of the year, while a private appraisal can be done at any time.

Use your Assessment as a starting point for the value of the property your planning your home purchase… Do not rely on a provincial assessment for the exact value of the property you’re considering purchasing. Markets can change quickly both increasing and decreasing in value depending on the area.

What is a Home Appraisal?
An appraisal is a document that gives an estimate of a property’s current fair market value.

Often there is no connection between a provincial assessment and appraised value. This is why lenders want an appraisal – an independent evaluation of the properties value at this moment in time.

Primarily home appraisals are completed at the request of a lender. Lenders want to know the value of a property in the current market before they are willing to lend against the home.

The appraisal is performed by an “appraiser” who is typically an educated, licensed, and heavily regulated third party offering an unbiased valuation of the property in question, trained to render expert opinions concerning property values.

When an appraisal is done, consideration is given to the property, the home, its location, amenities, as well as its physical condition.

Appraisals may also be required when an owner has less than 20% down payment and needs mortgage default insurance.

Who pays for the Home Appraisal?
Typically, the borrower pays the cost of the appraisal, and upon completion, the appraisal goes directly to the lender (does not go into the home buyer’s hands).

I know it sounds odd, but brokerages, lenders and appraisers cannot just show the buyer the appraisal on a property, even though the borrower paid for it.

Think of an appraisal as an administrative fee for finding today’s current value of the property
You need a Home Appraisal since the lender doesn’t want to lend on a poor investment and the appraisal helps the buyer decide if the property is worth what they offered (especially in hot markets like Vancouver & Toronto).

Why don’t you get a copy of the appraisal? The appraiser considers their client to be the lender (the reason the appraisal was ordered). The lender has guidelines for the appraisal, and the appraiser prepares his report according to those parameters.

The lender is free to share the appraisal with the borrower, but the appraiser cannot share it. This is because the lender is the client… NOT the borrower!! It doesn’t matter who pays for the appraisal.

Sometimes an appraisal can come in lower than the purchase price, causing angry calls to the Appraisal Institute of Canada (AIC), and the answer they give is: the Brokerage or Lender is the client of the appraiser, and as such has ownership of the report.

One of the main reasons the buyer pays for the appraisal, is that if the mortgage doesn’t go through, the lender does not want to be on the hook for paying for the appraisal and not getting the business.

Lenders are also aware that home buyers could take the appraisal and shop it around with other Lenders to try and get a better deal.

It is rare for Lenders to share the report. With most appraisal companies, the appraisal is only provided after the closing of the mortgage transaction and must have the lender’s approval.

After the funding of your mortgage, some mortgage brokers will refund the appraisal fee or sometimes the lender may agree to reimburse the cost of the appraisal.

While a lender does not have to release the entire appraisal, there are some pieces of information that remain the personal property of the buyer, and PIPEDA legislation guarantees them access to that. However, any information on the report that does not relate to the property itself (such as the neighboring properties or other data about the community) would come off the report before the lender provided it.

Some other reasons for getting an Appraisal:

  • to establish a reasonable price when selling real estate
  • to establish the replacement cost (insurance purposes).
  • to contest high property taxes.
  • to settle a divorce.
  • to settle an estate.
  • to use as a negotiation tool (in real estate transactions).
  • because a government agency requires it.
  • lawsuit

Getting your home ready for an Appraisal:
The appraiser report involves a report including pictures of the home and property with the appraiser’s value of the property, along with a short summary of how that information was derived.

9 tips for high value home appraisals

Most lenders have an approved appraiser list which requires appraisers to have the appropriate designation. Lenders tend to reject appraisals that are ordered directly by property owners. Lenders want the appraisal to be ordered by the broker or the lender, primarily to avoid potential interference from the property owner.

Home Appraisal Costs
Appraisal costs do vary. Most home appraisals start around $350 (plus tax) but they can go much higher depending on how expensive the home is, complexity of the appraisal and how easily the appraiser can access comparable data.

Are you thinking of buying a home? As you can tell there is lots to discuss, call a Dominion Lending Centres mortgage professional to have a chat!

12 Dec

7 SURE-FIRE WAYS TO GROW YOUR CREDIT SCORE

General

Posted by: Tracy Price

Have you ever wished for a simplified guide on how to actually GROW your credit score? Well today is your lucky day! We have had years of experience working with individuals who come to us with poor or damaged credit and we have found 7 steps that prove to be tried and true in fixing it.

First off though—why are we so focused in on credit scores? Simply put, your credit score details your history of borrowing money. It shows how timely you are on payments; how responsible you are with it and how you manage it.

In a Nutshell: Your credit score represents to the lender that you have proven yourself capable of paying your bills on time and are responsible when managing credit. You credit score will also impact the interest rate that you receive. So, when we are talking about mortgages, your credit score=very important.

Now that we have that covered, here are our 7 sure-fire ways to grow your credit and make the mortgage application process, a breeze:

1. Have at least 2 credit lines at all times
This means that you should always have 2 “tradelines” going. Whether this be 2 credit cards, a credit card and a line of credit and a car loan etc. You want to show that you can manage credit, and this is one easy way to do it. As an added note, the limit on the credit lines will need to be set at a minimum $2,000.

2. Make your payments on time each and every month
No skipped payments! You should ALWAYS make the minimum payment required on all your lines of credit each month.

3. Do not let your credit be pulled too often.
This one is something people often forget about. Having your credit pulled for new credit cards, car loans, and other things frequently raises a red flag for lenders and can significantly lower your credit score

4. Do not exceed 50% of the available credit limit on your credit card or credit line.
We know this one can be hard to do. One easy way to monitor this is to only use a credit card for certain fixed bills such as a cable/internet bill, cell-phone bill, etc. This way you can easily keep track of what credit you have used and what is available still.

5. If you have missed a payment, get back on track right away.
If you did, by chance, miss a payment, do not fret. Instead, get back on track with your month by month payments. Lenders would look at the one missed payment as an abnormality versus a normal occurrence if you are back on track by the following month.

6. Make sure each partner has their own credit.
We cannot tell you how frustrating it can be for couples when they realize that all their credit cards and lines of credit are only under one name…leaving the other person with no proven track record of managing credit! We advise clients to both grow their credit by making sure all joint accounts report for you both.

7. Do not exceed the Credit limit.
It is important to not go over or exceed the credit limit you have been given. Having overdrawn credit, shows the lender that you are not able to responsibly manage credit.

If you follow these 7 steps and are responsible with your credit, you will have no problem when it comes time to purchase a home! In need of more advice? Contact a Dominion Lending Centres Broker-they will be more than happy to help you.

11 Dec

6 HOME PURCHASE CLOSING COSTS

Purchasing

Posted by: Tracy Price

When you purchase your home, there are 6 additional costs to account for. They include:

  • Home Fire and Flood Insurance
  • Title Insurance
  • Legal Fees
  • Adjustments
  • Land Transfer Tax
  • GST

Here’s an overview of what you can expect.

Home and Fire Insurance. Mortgage lenders will require a certificate of fire insurance to be in place by the time you take possession of your home. The amount required is generally at least the amount of the mortgage or the replacement cost of the home. This cost can vary on the property size and extras being insured, as well as the insurance company and the municipality. Home insurance can vary anywhere from $400 per year for condos to $2,000 for large homes.

Title Insurance. This is a one-time fee of about $150 and it protects you against any issues, defects or fraud on your title. Your lawyer or notary helps you purchase this.

Legal Fees. Thirdly, you are required to pay legal fees. Your lawyer or notary will charge you anywhere from $700 to $1,000 to help with your purchase. There are also fees to register your title with the municipalities. All told, you’re looking at around $1,000 to 1,300, after tax.

Adjustments. An adjustment is a cost to you to pay the seller back for prepaying any property tax or condo fees on your behalf. Simply put, if you take possession in the middle of a month, the seller has already paid for the whole month and you must pay the seller back for what they’re not using.

Land transfer tax. Land transfer tax, or property transfer tax (PTT) as it’s known as in British Columbia, is a fee that is charged to you by the province. First-time home buyers are exempt from this fee if they are purchasing a property under $500,000. All home buyers are exempt if they are purchasing a new property under $750,000.

In British Columbia, the PTT is 1% on the first $200,000 of purchase and 2% thereafter. However, if the property being purchased is over $2,000,000, then it is 3% on any value over $2,000,000.

GST. GST is only paid on new construction purchases. GST is 5% on the purchase price. However, there is a partial GST rebate on properties under $450,000.

Please don’t hesitate to contact a Dominion Lending Centres mortgage professional for your home financing and mortgage needs.

10 Dec

FIXED VERSUS VARIABLE INTEREST RATES

Mortgage Tips

Posted by: Tracy Price

Fixed Interest Rates

This is usually the more popular choice for clients when it comes to deciding on which type of interest rate they want. There are many reasons why, but the most unsurprising answer is always safety. With a fixed interest rate, you know exactly what you are paying every month and you know that the amount of interest being charged for the term of your mortgage will not increase and it will not decrease. Fixed interest rates can be taken on 1-year, 2-year, 3-year, 5-year, as well as 7 and 10-year terms. Please note, term is not meant to be confused with amortization. When you have a 5-year term but a 25-year amortization- the term is when your mortgage is up for renewal, but it will still take you the 25 years to pay off the entire debt. The biggest knock on fixed interest rates when it comes to mortgages, especially 5-year terms, is the potential penalty. If you want to break your mortgage and pay it out, switch lenders, take advantage of a lower rate, or anything like this and your term is not over, there will be a penalty. With a 5-year term, a fixed rate penalty can be anywhere from $1,000- $20,000 or more. It all depends on the lender’s current rates, what yours currently is, the length of time remaining on your term, and the balance outstanding. The formula used is called an IRD (interest rate differential) and the penalty owed will either be the amount this formula produces or three month’s interest- which ever is greater. Fixed interest rates, especially 5-year terms can be the most favourable. They are safe, competitive interest rates that you will not need to worry about changing for the term of your mortgage. However, if you do not have your mortgage for the entire term, it could hurt you.

Variable Rate Interest

The Bank of Canada sets what they call a target overnight rate and that interest rate influences the prime rate a lender offers consumers. A variable rate, is either the lender’s prime lending rate plus or minus another number. For example, let us say someone has a variable interest rate of prime minus 0.70. If their lender’s prime lending rate is 5.00% in this example, they have an effective interest rate of 4.30%. However, if for example the prime rate changed to 6.00%, the same person’s interest rate would now be 5.30%. Written on a mortgage, these interest rates would look like P-0.7. Variable interest rates are usually only available on 5-year terms with some lenders offering the possibility of taking a 3-year variable interest rate. When it comes to penalties, variable interest rates are almost always calculated using 3-months interest, NOT the IRD formula used to calculate the penalty on a fixed term mortgage. This ends up being significantly less expensive as breaking a 5-year term mortgage at a fixed rate of 3.49% with a balance of $500,000 will cost approximately $15,000. That is if you use the current progression of interest rates and broke it at the beginning of year 3. A variable interest rate of Prime Minus 0.5% with prime rate at 3.45% will only cost $3,800. That is a difference of $11,200. You can expect to pay this kind of amount for the safety of a fixed rate mortgage over 5-years if you break it early.

Which one is best?

It completely depends on the person. Your loan’s term (length of time before it either expires or is up for renewal) can be anywhere from a year to 5 years, or longer. A first-time home buyer typically has a mortgage term of 5 years. Within those 5 years, the prime rate could move up or down, but you won’t know by how much or when until it happens. Recently, variable rates have been lower than fixed rates, however, they run the risk of changing. With fixed interest rates, you know exactly what your payments will be and what it will cost you every month regardless of a lender’s prime rate changing. If you go to the site www.tradingeconomics.com/canada/bank-lending-rate you can see the 10-year history of lender’s prime lending rate. Because lenders usually change their prime lending rate together to match one another (except for TD), this graph is a good representation. As you can see, from 2008 to 2018, the interest rate has dropped from 5.75% to 2.25% all the way back up to 3.45%.  Canada has had this prime lending rate since 1960, and in that time it has seen an all-time high of 22.75% (1981) and all-time low of 2.25% (2010). Whether you want the risk of variable or the stability of a fixed rate is up to you, but allow this information to be the basis of your decision based on your own personal needs. If you have any questions, contact a Dominion Lending Centres mortgage professional near you.

6 Dec

DOCUMENTS YOU NEED FOR YOUR MORTGAGE PRE-APPROVAL

Purchasing

Posted by: Tracy Price

Being fully pre-approved means that the lender has agreed to have you as a client (you have a pre-approval certificate) and the mortgage broker has reviewed and approved ALL your income and down payment documents (as listed below) prior to you going house hunting. Many bankers will say you’re approved; you go out shopping and then they  say ‘sorry you not approved’ due to some factor. Get a pre-approval in writing!
Excited! Of course. You are venturing into your first or possibly your next biggest loan application and investment of your life.

What documents are required to APPROVE your mortgage?
Being prepared with the RIGHT DOCUMENTS when you want to qualify for your mortgage is HUGE; just like applying for a job or going for a job interview. Come prepared or don’t get hired (or in this case, declined).
I assist all my clients along the way to ensure any questions are asked and YOU are prepared UPFRONT and fully PRE-APPROVED before you go house hunting.
No stress, no running around, no surprises.

Why is this important?
You can have a leg up against the competition when buying your dream home as you can have a very short timeline (ie: 1 day to confirm vs 5-7 days) for “financing subjects”.
Think? You’re the seller and you know the buyer doesn’t have to run around finding financing and the deal may fall apart. This is the #1 reason deals DO fall apart. You will likely get the home over someone who isn’t fully approved and has to have financing subjects. The home is yours and nobody’s time is wasted.
If you just walked into the bank, filled an application and gave little or no documents, and got a rate – you have a RATEHOLD. This is NOT a pre-approval. This guarantees nothing and you will be super stressed out when you put an offer in, have 5-7 days to remove financing subjects and you need to get any or all of the below documents. That’s not fun is it? Use a Dominion Lending Centres mortgage broker ALWAYS. We don’t cost you anything!
When you get a full pre-approval, you as a person(s) are approved; ie: the broker did their work of reviewing (takes a few days) to call your employer, review your documents, etc. All we have to do is get the property approved, which takes a day or two. Much less stress, fastest approval…faster into your home!

Here is exactly the documents you need MUST have (there is NO negotiation on these) to get your mortgage approved with ease. Keyword here is EASE. Banks/Lenders have to adhere to rules, audit files and if you don’t have any of these or haven’t been requested to supply them…a big FLAG that your mortgage approval might be in jeopardy and you will be running around like a crazy person two days before your financing subject removal.
Read carefully and note the details of each requirement to prevent you from pulling your hair out later.
Here is the list for the “average” T4 full-time working person with 5-15% as their down payment (there is more for self-employed, and part-time noted below):

  1. Are you a Full-time Employee?
    Last 2 paystubs: must show all tax deductions, name of company and have your name on it.
  2. Any other income? Child Support, Long Term Disability, EI, Foster Care, part-time income? Bring anything that supports it. NOTE: if you are divorced/separated and paying support, bring your finalized separation/divorce agreement. With some lenders, we can request a statutory declaration from lawyer.
  3. Notice of Assessment from Canada Revenue for the previous tax filed year. Can’t find it? you can request it from Rev Can to send it to you by mail (give 4-6 weeks for it though) or get it online from your CRA online Account.
  4. T4’s for your previous 2 years.
  5. 90 day history of bank statement showing the money you are using to put down on your purchase.
    Why 90 days? Unless you can prove you got the money either a sale of a house, car or other immediate forms of money (receipt required)…saved money takes time and the rules from the banks/government is 90 days. They just want to make sure you aren’t a drug dealer, borrowed the money and put it in your account or other fraud issues. OWN SOURCES = 90 days. BORROWED is fine, but must be disclosed. GIFT is when mom/dad give you money. Once you have an approval for “own sources” you can’t decide to change your mind and do gifted or borrowed. That’s a whole new approval.

Down Payments
Own Sources: For example “own sources” include if you are a first time buyer and your money is in RRSP’s then, have your last quarterly statement for the RRSP money. If your money is in three different savings account, you need to print off three months history with the beginning balance and end balance as of current. The account statements MUST have your NAME ON IT or it could be anyone’s account. I see this all the time. If it doesn’t print out with your name, print the summary page of your accounts. This usually has your name on it, list of your accounts and balances. Just think, the bank needs to see YOU have X$ in your (not your mom’s or grandparents) account.

GIFT: If mom/dad/grandparents are giving you money…then the bank needs to know this as the mortgage is submitted differently (this is called a GIFT).

If you are PART-TIME employee? All of the above, except you will need to bring three years of Notice of Assessments. You need to be working for two years in the same job to use part-time income. You can have your Full-time job and have another part-time gig… you can use that income too (as long as it’s been two years).

If you are Self Employed?

  1. two years of your T1 Generals with Statement of Business Activities
  2. Statement of Business Activities.
  3. 3 years of CRA Notice of Assessments
  4. If incorporated: your incorporation license, articles of incorporation
  5. 90 day history of bank statement showing the money you are using to put down on your purchase.
5 Dec

WHAT’S AN ACCEPTABLE DOWN PAYMENT FOR A HOUSE?

Purchasing

Posted by: Tracy Price

Ask people this question and you will get a variety of answers.  Most home owners will say 10% is what you should put down. However, if you speak with your grandparents, they are likely to suggest that 20% is what you need for a down payment.

The truth is 5% is the minimum down payment that you can make on a home in Canada. If you are planning on buying a $200,000 home then you need $10,000.

It all can be explained by the creation of the Canadian Mortgage and Housing corporation (CMHC) by the Canadian government on January 1st, 1946. Before this time, you needed to have 20% down payment to purchase a home . This made home ownership difficult for many Canadians. CMHC  was created to ease home ownership. This was done by offering mortgage default insurance. Basically what CMHC does is it guarantees that you will not default on your mortgage payments. If you do, they will reimburse the lender who gave you the mortgage up to 100% of what the homeowner borrowed. In return lenders allow you to purchase a home with a smaller down payment and a lower interest rate.

CMHC charges an insurance premium for this service to cover any losses that may occur from defaulted mortgages. This program was so successful that CMHC lowered the minimum down payment to 5% in the 1980’s.

However, if you have little credit history or some late payments in the past they may ask you to provide 10% instead of the tradition 5% if they feel there is a risk that you may default at some time.

You should also be aware that the more money you put down, the lower your monthly mortgage payments will be. You also can save thousands in mortgage default insurance premiums by putting 20% down.  At this time,  home buyers who put 5% down have to pay a fee of 4% to CMHC or one of the other mortgage default insurers to obtain home financing. On a $400,000 home this is close to $16,000.

If you can provide a 10% down payment the insurance premium falls to 3.10% and if you can provide 20% it drops to zero.  While 20% can seem like an impossible amount to save, you can use a combination of savings, a gift from family and/or a portion of your RRSP savings to achieve this figure. The best recommendation that I can make is to speak with your Dominion Lending Centres mortgage professional to discuss your options and where to start on your home buying adventure.