a pre-approval functions largely as a rate hold where the interest rate in the market at that time is held for 120 days, protecting your from any rate increases until the end of that 120 day period, giving you the opportunity to purchase a home within that timeframe
a pre-approval is not a guarantee that you will be approved for a mortgage. Instead it’s a preliminary analysis that has determined you are eligible for a mortgage as long as the details that have been provided in the application can be verified to the lenders satisfaction.
Down Payment
when purchasing a property, a minimum down payment of 5% down is required
with a down payment between 5-20% down, you will be required to have mortgage default insurance added to the mortgage. This is arranged by the lender and the premium is added to the mortgage amount – this is called a high-ratio mortgage
when you have more than 20% down, you avoid any mortgage default fees. This is called a conventional mortgage
certain types of properties have different down payment requirements. On a single family dwelling, 5% is the minimum while on a rental/investment property, 20% is required
Mortgage Default Insurance
the purpose of mortgage default insurance is to protect the lender.
With high ratio mortgages (mortgages over 80% of the home’s value), there is less equity retained in the property, resulting in higher risk for the lender if the property goes to power of sale. In these cases, the lender will require the mortgage be insured through CMHC or Genworth in order to protect their investment. As such, the cost is passed on to the consumer and is added to the mortgage amount.
Open vs. Closed Mortgages
there are two primary types of mortgages – open and closed mortgages
open mortgages are mortgages that have no penalty for paying out in full. This product is beneficial when you plan on being in a property for a short period of time and want to be able to have the flexibility to pay out the mortgage in full when the property is sold with no penalty. However, open mortgages have higher interest rates and these higher rates often offset the benefits of an open mortgage
a closed mortgage is the most common mortgage in the industry today. This product is closed meaning, if you wanted to pay out the entire mortgage in full there would be a penalty for doing this. As few people are in a position to do that, the benefits of this product surround its lower interest rates and flexible payment options, allowing you to apply lump sums up to a certain percentage of the mortgage each year without penalty. In addition, these mortgages are portable, meaning if you have sold your current house and have purchased a new one, this mortgage can be moved to the new property without penalty and can be increased according to what is needed. For most people, this is more than sufficient.
Legal Fees and Land Transfer Tax
when purchasing a property, a lawyer will be required in order to close the mortgage as he will take care of registering the property in your name and ensuring there are no liens held against that property. Legal fees typically range from $800 to $1500 including disbursements
The land transfer tax is a tax that is charged on all purchases to everyone except first time home buyers who are currently exempt from this tax. This fee will be in addition to legal fees and is a percentage of the property’s value
Investment Properties
the procedure for purchasing an investment property is identical to purchasing a home. The primary difference surrounds the down payment requirements as rules in the industry changed in April of 2010. The requirement now is 20% down
student rental properties are more difficult to finance than a standard rental property as lenders deem it a higher risk. We encourage you to contact us prior to moving forward with a purchase of a student rental property.
any property with more than 4 legal units becomes a commercial property, regardless of whether it is residential or not. In these cases, a commercial mortgage is required and the requirements for this type of mortgage are substantial compared to a residential mortgage.
Porting
a port is when you move your current mortgage from your existing home which has sold to a new property you have purchased
when porting, often the mortgage will have to increase in order to account for the difference in value – in these circumstances, you can increase the mortgage and the new funds will be based on the current market rate and blended with your existing mortgage
all mortgages we offer have this feature
Bridging
when the sale of your existing home happens after the purchase of your new home, often bridge financing is needed to extend additional funds for the down payment that you would be receiving from the sale of your current home
bridge financing is essentially a short term loan that ‘bridges’ the gap between your purchase and the sale of your home
bridge financing can only be received if there is a firm offer that has been received on your home. Without that offer, the lender has no security and they cannot provide any bridging
bridge financing is relatively inexpensive and traditionally can be done for up to 30 days, though exceptions can be made for special circumstances
