The purchase of a home is often the single largest purchase you will ever make. As such, getting accurate and reliable advice can be priceless, saving time and money.
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Once you have committed to purchasing a house in the near future, it is a great idea to get a pre-approval. A pre-approval functions largely as a rate hold where the interest rate at that time is held for 120 days, protecting you from any rate increases until the end of the 120 day period. This can give you the peace of mind you need to search for a house on your time, rather than facing any pressure from the market.
A pre-approval is not a guarantee that you will be approved, however. Instead it is a preliminary analysis that has determined you are eligible for a mortgage as long as the details provided can be verified to the lender’s satisfaction.
When purchasing a new owner-occupied home, a minimum down payment of 5% is required. This limitation has changed from previous years when no down payment was needed as the government has tried to crack down on spending.
With a down payment between 5-20% you will be required to have mortgage default insurance added on top of the mortgage. Mortgage default insurance is insurance that protects the lender as they are providing a considerable amount of funds compared to the value of the home. Because there is less equity retained in the property, there is a higher risk for the lender. The cost of this insurance is added to the mortgage as opposed to being paid immediately out of your pocket on closing.
When you have more than 20% down, you are able to avoid the mortgage default insurance all together – this is called a conventional mortgage. Conventional mortgages typically hold more relaxed rules compared to insured mortgages because the lender has a higher level of comfort with the greater equity available in the property. In cases where a beacon score is not quite high enough or the property is more unique, a lender may make concessions that they may not have otherwise been able to make if the mortgage was insured.
In the event you are purchasing a rental/investment property, the down payment required is 20%. This requirement was put
in place in early 2010 in order to encourage responsible purchasing of investment properties and put a limit on the accessibility of investment properties to those who are able to make these substantial investments.
There are two primary types of mortgages – open and closed. Open mortgages have no penalty for paying them out in full. This is beneficial when you plan on keeping a property for a short period of time and want the flexibility to pay out the mortgage in full without penalty.
The significant downside to open mortgages surround their higher interest rates. This alone will more often than not offset their benefits.
Closed mortgages are the most common mortgages in the industry today. While they cannot be paid in full without a penalty, few people are in a position to pay out their mortgage
Additionally closed mortgages offer options to increase payments or apply lump sums towards the mortgage to pay it off quicker, giving you some of the benefits of an open mortgage without paying the higher interest rates for it. Also, closed mortgages are usually portable meaning they can be transferred to another property in the event you purchase a house within your mortgage term. This is done without any penalty and you are given the option to increase the mortgage as needed at that time if additional funds are required.
When purchasing a property, a lawyer is required to close the mortgage and register the property in your name. Legal fees typically range from $800 to $1500 including disbursements.
Additionally a fee called the land transfer tax is charged on purchases for everyone. First-time homebuyers are eligible for a land transfer tax exemption up to $2000. This fee is in addition to the legal fees and is a percentage of the property’s value.
Use our Land Transfer Tax Calculator to find out what the land transfer tax on the property you’re about to purchase.
Have a mortgage question? Ask an expert or call our office at 905-304-6963.