1 Nov

When and How to Get a Mortgage Pre-Approval in Ontario

First Time Home Buyer

Posted by: Krishna Menon

In order to save time and avoid issues that arise when buying a home, you need to get a mortgage pre-approval. It’s a vital step in the home buying process that should not be overlooked. This step is basically the determining factor of how much you can afford to spend on a home, which will provide you with your shopping budget. Mortgage rates can sometimes increase during your home search, so another great benefit to get pre-approved for a mortgage is you can lock in your mortgage rate.

 

Mortgage Pre-Approval: What Is It?

 

To put it simply, a pre-approved mortgage is a process, that gives you access to the vital information you’ll require during your home search, such as:

 

  • How much you can afford to spend on a home
  • The amount on your monthly mortgage payments (based on your maximum purchase price)
  • First term mortgage rates

 

There is no cost to getting pre-approved for a mortgage in Ontario, and there is also no requirement to commit to a particular lender. However, it’s important to keep in mind that just because you get pre-approved, that doesn’t mean your mortgage interest rate is guaranteed. You need to lock in your rate. This will protect you, should interest rates rise. Also, just because you lock in your rate, that also doesn’t mean that if rates drop, you won’t reap the benefit. Most times your lender will honour the rate drop too.

 

Why You Need a Mortgage Pre-Approval

 

There are several benefits to getting pre-approved for a mortgage, including:

 

  • Saved time during your home search allowing to only search for homes that are within your price range
  • It shows your real estate agent that you’re serious about buying a home
  • Makes your service experience more pleasurable, as it’s both faster and extremely targeted
  • Tells sellers that you won’t have an issue in financing the sale, improving your chances to compete with other offers on the table
  • Allows you to lock in a rate, while still having the ability to get a lower rate if rates fall during your home search

 

How-to Get a Mortgage Pre-Approved

 

In order to get a mortgage pre-approved, you’ll first need to meet with a mortgage broker. A mortgage broker has access to a network of lenders and they are the best resource to have on your side. They’ll help you determine your budget and collect or gather any supporting documentation you’ll require.

 

  1. Your Credit Score. Lenders will want to measure your financial health so they can determine the level of risk associated with lending you money for your home purchase. Quite often if your credit score falls between 680 and 900, you can qualify for a mortgage. You’d qualify to borrow from an “A” lender, which could be a well-known financial institution such as BMO, TD Canada Trust, etc. However, if you’re credit score falls between 600 and 680, then lenders may look at other financial details in order to determine if you’ll qualify for either an “A” lender, or a “B” lender. Now, should your credit score fall below 600, you’d only qualify to borrow from a “B” lender, and you most likely won’t get the best mortgage rates offered today.
  2. Your Down Payment. Your down payment requirement could range from 5 to 20 percent. If you pay down 20 percent or more, then you won’t have to purchase mortgage default insurance. But, anything less than a 20 percent down payment would require an additional mortgage insurance purchase, for lender default protection.
  3. Your Debt Service Ratios. Lenders will determine your maximum monthly mortgage payment by calculating your debt service ratios. These calculations include factors such as you income per month, monthly expenses and your monthly debt payment amounts and over, as well as overall debt. They basically want to ensure your can afford your monthly mortgage payments.
  4. Supporting Documents. The documents you’ll need to provide to your mortgage broker for your mortgage pre-approval can vary. It all depends on the mortgage broker and lender you choose to work with. However, just to give you an idea, here are some of the documents you may be asked to provide:

 

  • Your ID
  • Income proof such as pay stubs, an employment letter, or your income tax assessment
  • Banking financial and other investment statements – shows you have your down payment covered and that you can cover any closing costs
  • Proof of any/all assets
  • Any/all documentation in relation to your debts

 

To start your pre-approval now, get in touch with us today.

13 Sep

Are You The Average First-Time Buyer?

First Time Home Buyer

Posted by: Krishna Menon

You are a first-time buyer and I bet you’re wondering how you compare to other first-time buyers. There are probably a million questions you’re asking yourself including:

  • Do I look like the average first-time buyer?
  • Who are these average first-time buyers and what does their information look like?
  • What is in their savings accounts and what are they looking to spend?

 

Well, the only way to really get answers to these questions is to do your research or read this article. Numbers add up in such a way that we now have the ability to profile the average first-time buyer.

First-Time Buyers in Canada: The Average

 

You could be in your mid to late twenties, and dreaming about your first home. You’re not wrong, it’s the perfect age to start considering making your first big purchase. Even if it’s five years from now when you can actually afford it, you still need to begin planning for it.

 

Surprisingly enough, for the average Canadian first-time homebuyer, they have three characteristics that are quite unique:

 

  1. The average buyer is usually in their late twenties, like you.
  2. The average home in Toronto and the GTA is valued at a little over $400,000.
  3. The average homebuyer has saved approximately $50,000 for their down payment to put towards their home purchase. Since this would fall under the maximum 20 percent down payment requirement, they’d also need to purchase mortgage loan insurance.

 

When you hear about these characteristics you must be thinking, I am the average homebuyer , right? Well the answer to this is yes, providing you live in Ontario.

Other Interesting First-Time Homebuyer Statistics

There are lots of other interesting first-time buyer statistics around the web, believe it or not.

 

Did you know that nearly a third of new homebuyers expect their parents or other family members to help them financially? Are you one of this 30 percent?

 

Even more interesting, nearly ⅔ (60 percent), of first-time buyers have to delay their buying plans, mainly due to the rising costs within the real estate market. These same numbers apply to first-time homebuyers that set fixed, maximum budget for what they actually want to spend on their home. Most of which would spend more just to get a home they really want.

 

You really need to ask yourself just how ready you are? Are you an average buyer now that you’ve read this article? Maybe you need to save more, plan longer or speak to a mortgage agent to learn more about down payment options for your financial circumstances.

 

My Milton Mortgage team can answer all of your questions and help you plan for a brighter and better future, in a home you love. Contact our team today.

30 Aug

Great Programs, Rebates and Tax Credits for First-Time Home Buyers

First Time Home Buyer

Posted by: Krishna Menon

Buying a home for the first time can be both exciting and an costly investment. It’s a big decision, but being a first-time buyer also has its advantages. Here are a few of them:

  • Home Buyer Tax Credit (HBTC)
  • Ontario Land Transfer Tax Credit
  • RRSP Home Buyers Plan
  • Toronto Municipal Land Transfer Tax Credit

Let’s explore each a little further.

Home Buyer Tax Credit (HBTC)

With the HBTC you can be eligible to receive up to $750 cashback when filing your tax return for the year you purchased your home. This tax credit is issued by the federal government, and all you have to do in complete line 369 on your income tax return.

 

To qualify for the Home Buyer Tax Credit:

 

  • You, or your spouse must have purchased a qualifying home, and
  • You did not live in another home in the same year of your newly purchased home, or four years prior to your new purchase

 

If you purchased your home with a spouse, first you’ll have to decide which one of you will claim the HBTC, or if you’ll share the HBTC. Be sure that your claims combined do not exceed the maximum allowable amount of $750.

 

First-Time Home Buyers Ontario Land Transfer Tax Credit

As a first-time buyer you will receive a credit or rebate which is costed to the province of Ontario for your Land Transfer Tax. The maximum you can receive for this credit is up to $2,000. If your home is $227,500 or less, this means it that you can essentially buy your first home without paying any fees to transfer the land. Any amount over and above this will be taxed at about 1.5 percent.

 

To qualify for the Ontario Land Transfer Tax Credit:

 

  • You as the owner, must be residing in the property
  • You must be a first-time buyer, without previous interest in another home (worldwide)

 

You can get an instant refund if you speak to your real estate lawyer before your closing date.

 

Be advised, you may experience a refund reduction if you, your spouse, or common law partner are not a first-time buyer.

First Time Home Buyers RRSP Plan (HBP)

The First Time Home Buyers RRSP Plan (HBP) enables first-time buyers to withdraw up to $25,000 from RRSPs. The intention is to build or buy a home, for a relative with a disability. The amount withdrawn comes with a 15 year repayment period, but the minimum annual repayment would be 1/15 of the withdrawn amount. For instance, should you use the entire $25,000, your minimum annual payment would be approximately $1,670. Should you pay less than the stated minimum within these 15 years, the balance would be added to your income.

 

In order to qualify for the HBP, you cannot be a homeowner in the previous 4 years.

 

GST/HST New Housing Rebate

If you’ve purchased a home that has been newly built or plan on building your own home, you’ll be required to pay HST or GST on the purchase price. As such, you’ll also qualify for a housing rebate.

 

The housing rebate is 36% of the GST/HST that all Canadian buyers pay, for a rebate of up to $6,300.

 

To qualify for the GST/HST New Housing Rebate:

 

  • Your home must have a fair market value of less than $350,000 – If your home is slightly over this about a partial rebate can still be issued so long as your home’s market value doesn’t exceed $450,000
  • You have bought a new or majorly renovated home dwelling from a builder, or have a purchase shared interest in a co-op home
  • You need to be an individual homebuyer (corporations/businesses are not eligible)
  • You must reside in the home primarily

 

For more information about first-time buyer programs, rebates and tax credits speak to a financial professional today. Contact Us.

10 Apr

First-Time Home Buyers: Dos & Don’ts

First Time Home Buyer

Posted by: Krishna Menon

It’s quite normal to feel overwhelmed when you’re considering buying your first home. After all, it’s probably the biggest investment you’ll ever make throughout your life. This is why we’ve put together the helpful tips, so that first-time buyers know what to do and what not do when purchasing their very first home.

The Dos

#1: Getting Pre-Approved

This is the first step in buying a home. You need to get pre-approved for a mortgage before you hire a real estate agent. Let’s be realistic, it would really suck to find a home you like and then find out you actually can’t afford it. So make sure not to do this step backwards, you don’t want to let yourself down.

Going through the pre-approval process will also make you aware of any existing credit problems, even thing you might not know about. It’s not uncommon for people to discover these things, however it’s important to catch it first and rectify it where possible. You don’t want it to affect your chances of getting approved for your mortgage.

Your credit, income and down payment are the three qualifying factors in your mortgage approval. Then there are other things like mortgage default insurance. In this case, having a 20 percent down payment will help to avoid having to pay this. If your down payment is less than 20 percent, your default insurance with be calculated based on your mortgage size and actual down payment amount. The more you put down, the less you have to borrow, the less you pay in interest.

RRSPs are a great ahead-of-time planning option. It can give first-time buyers like yourself extra funds when it’s time to make your purchase, allowing you to borrow up to $25,000 if you’re buying alone. This is also tax-free and the repayment term is 15 years. However, if you’re buying a home with someone else you can both borrow up to $50,000 combined.

#2: Hire a Mortgage Broker

Just because you’re buying a home, doesn’t mean you have to hire a mortgage broker. But, since it’s your first time going through the home-buying process, it is highly recommended. A mortgage broker can be your go-to resource for market information and buying and process questions. They will do all of the legwork for you and connect you with appraisers, credit counsellors, lenders, inspectors and insurance agents. Their network is huge.

#3: Know Your Budget

Before you decide to buy you need to be mindful of your budget and lifestyle. Even if you can afford your own home, you may still have to sacrifice sometimes in order to pay your mortgage.

Remember life is unpredictable, so if you lose your job or expand your family and take time off work, then you need to be sure you can still manage. You don’t want to be house poor when you enter into home ownership.

The Don’ts

#1: Don’t Get Attached, It’s Only a Starter Home

One of the biggest mistakes people make when buying their first home is that they assume they are buying the home with the intent to live in it for decades. This is quite often not the case. The average home buyer only stays in their home for 7 to 10 years. So, this is why it’s called a starter home, don’t forget that.

#2: Don’t Let Your Emotions Take Over

Most often times first-time buyers let their emotions control their decisions that they forget to think about other things such as:

  • The re-sale value of the home they’re buying
  • Location of the property
  • Buying a home only with the intent of staying for 5 years

# 3: Get Approved First, Don’t Make a Big Purchase First

Although getting a approved first might seem like the obvious first step, you’d actually be surprised how many first-time buyers will run out when trying to buy and purchase a car or use a portion of their savings, and this can cause your mortgage application to be denied. Remember your credit, income, saving and/or down payment are all factors in your approval. Therefore, it’s better to wait until your home closes before making any purchases of this nature.

When you close your home sale, you’ll have to pay closing costs. You should put aside money to cover these costs. We’d recommend at least a minimum of 1.5 percent if the purchase price, up to 4 percent.

Don’t let yourself become a statistic when it comes to mortgage mistakes, let us help you along the way to avoid the bumps in the home-buying road.