The number one question that homebuyers ask is: Can I qualify for a mortgage?
Before you meet with a realtor, before you explore neighbourhoods, and before you check out open houses, you need to know if you are actually in a position to qualify for a mortgage.
There are many questions to ask, many options to consider, and many answers you need before moving forward. Here are some key questions we hear from our customers and some helpful tips from the team at Champion Mortgage.
What’s my credit rating?
One of the first things that happens when you go to a lender to discuss a mortgage application, or complete a pre-approval application online, is that you consent that the lender run a credit report.
Lenders will require that you give your approval for them to run a credit history report in order to proceed with your pre-approval application. The credit report provides lenders with a detailed breakdown of your credit history with accompanying dates of when each type of credit or account was opened and closed.
- Bank cards
- Credit cards
- Auto loans
- Student loans
- Any information relating to past bankruptcies, foreclosures, suits, liens, etc.
The information provided in your credit report is reviewed by your lender to gauge your credit worthiness and assess the level of risk associated with lending you funds in support of your mortgage application.
It is important to note that every time a lender is given consent to access your credit report, your credit rating can be affected. This means that, if you run a number of reports in a short period of time (for example, doing several pre-approvals online with different banks), you may actually be negatively impacting your credit score.
The good news is, that Champion Mortgage will only need to run your credit report once. We are able to repurpose the information in your credit report when we reach out to multiple lenders to negotiate the best rate and plan for you. This saves your credit score from being damaged.
Can I afford a down payment?
Every home purchase requires a down payment. This is an amount of money that you put towards the purchase of your home. In Ontario, the requirements vary, depending on the price of your home.
- If your home costs $500,000 or less, you will need a minimum of 5% of the purchase price
- If your home costs $500,000 to $1 million, you will need 5% of the first $500,000 and then 10% for the remaining portion above $500,00
- If your home costs $1 million or more, you will need 20% of the purchase price
If you are self-employed, or you have poor credit history, you may be required to provide a larger down payment.
Depending on your situation, there are options that you may be eligible for to help you with your down payment and mortgage process. These options include:
- The Home Buyer’s Plan
- If you have RRSPs, you may be eligible to to withdraw up to $25,000 (tax-free) from your RRSPs for your home purchase.
- One-Time Gift
- If you have an immediate relative who is willing to gift you the funds for your down payment, there is a process to arrange this transfer.
- If you have a legally-binding agreement with another person (or people) to share your home (and your mortgage), then you can look at dividing the cost of the down payment.
The good news is that Champion Mortgage will be able to guide you through all the options to help you make homeownership possible.
Can I afford the additional costs of buying a home?
Buying a home involves a lot more than simply figuring out a suitable mortgage. There are many costs involved in purchasing a home. Here are some of the expenses to plan for:
- Home Inspection Fee
- This is optional, but is recommended to avoid potential unforeseen problems with the home.
- Deposit (this will count towards your down payment)
- This amount indicates your intent to purchase the home.
- Legal Fees
- Costs for your lawyer and all the accompanying paperwork.
- Title Insurance
- Generally optional, but is recommended to avoid liens, fraud, encroachment, or other issues from prior owners.
- Appraisal Fee/Valuation Fee
- Lenders request this to determine the property value for the mortgage.
- Land Transfer Tax
- The tax varies depending on where the home is located, but typically includes both provincial and municipal tax.
- Mortgage Default Insurance
- If you purchase a home with less than a 20% down payment.
Then there are costs including; interest adjustments, property tax, utilities, home insurance, mortgage life insurance, and renovation. These combined costs can really add up and need to be planned for as part of your home buying plan.
How Champion helped: A real life story
Many Canadians are struggling to qualify for a mortgage on their own, but that’s where we can help.
David came to us frustrated because he wasn’t able to qualify for the home he was looking for and was looking for a second opinion. Our team reviewed his situation and agreed that, given the mortgage rules and high property values, he simply wouldn’t qualify for the home he wanted on his own. Through our conversation, we learned that his best friend was also looking for a home and experiencing the same frustration. We suggested they consider purchasing a home together and proposed a mortgage option to get a plan in place. Our solution resulted in David and his friend being successful in buying a detached home. After living in it for five years, they sold the home at a profit of over $100,000 which allowed them to be able to buy their own homes.
Champion Mortgage will be able to guide you through all the costs and work with you to create a strategy to help make homeownership possible.