Frequently Asked Questions About Buying A Home
When buying a home, we often don’t have the entire sum on-hand, and mortgages are an easy way to raise the necessary capital. However, when it comes to the mortgage and finance sector, clients have many questions but often find answers difficult to come by. Milosevic AMP - Mortgage Broker wants to arm you with the most accurate information to help you make informed decisions. To do this, we’ve answered some of the most frequently asked questions about buying a home.
1. What documents are required to get a mortgage?
When applying for a mortgage, lenders may ask for various documents and proof, but in general, they want to know details about potential borrowers’ income and job status to make sure that they can make their mortgage payments through the entire term. Some of the documents that you may need are the two most recent pay stubs to prove how much money you receive or make on a regular basis, a letter of employment to show your job title, income amount, and status. Two years T4 statements to show how much you’ve earned in the previous years. A Notice of Assessment to show any outstanding taxes that you may still owe. Proof of down payment and closing costs via three months’ worth of bank statements. Savings, investments, or the current value of your registered retirement savings plan (RRSP’s) can be used towards the down payment.
For self-employed applicants, proof of income, two years of income tax returns, business license or articles of incorporation, financial statements of their business, purchase and sale agreement, and multiple service listing for the property you are purchasing.
2. What is the difference between a pre-qualification and pre-approval?
A pre-qualification is based on basic financial information a client provides to a mortgage broker or lender to determine if the potential borrower would qualify for a mortgage and estimate how much they can afford. It does not include a credit check or verified information and is not a firm guarantee that the mortgage will be approved. A pre-approval is similar to a pre-qualification, but in this process, the broker or the lender will check the borrower’s credit and collect income and tax documents to verify their income and employment so they can confidently commit to lending a certain amount of money.
3. What is included in a mortgage payment?
Each mortgage situation is different, but typically there are three to four parts of a mortgage payment. They include the principal (repayment of your outstanding balance), interest (interest charged on the outstanding balance), taxes (annual property taxes, if included in your mortgage), and default insurance (if your down payment is less than 20%).
4. What is the difference between a fixed or variable rate mortgage?
With a fixed-rate mortgage, the payment a borrower makes each month will stay the same for the mortgage term, usually five years. Fixed-rate, on the other hand, is typically a bit higher but provides a consistent mortgage payment. There is often a more significant penalty if a borrower decides to break their mortgage before the term is over. Another difference is a borrower cannot switch a fixed rate into a variable without breaking the mortgage. But, with a variable rate mortgage, the payments are set for the term, even though interest rates may fluctuate during that time. If the bank’s prime rate goes down, then more of the mortgage payment will go towards the principal, and if its rate goes up, more of the payment will go towards the interest. Variable-rate is typically lower than fixed, and so is the penalty for breaking the mortgage before the term. A borrower can lock the variable rate into a fixed rate at any time without breaking the mortgage.
5. How much money is needed to purchase a home?
A down payment is the buyer’s contribution towards the total purchase price of the home. If the home purchase price is $500,000 or less, they will need a 5% down payment. Similarly, if the home purchase price is $500,000 to $999,999, they will need a 5% down payment for the first $500,000 and 10% on the remainder of the purchase price, and if the purchase price is $1,000.0000 (million) and up, they will need 20% down payment. In addition to the down payment, it is also imperative to budget for closing costs that must be paid when purchasing a property. Closing costs usually run 1.5% of the total purchase price. They may include lawyer’s fees, home inspection, appraisal, PST (Provincial Sales Tax), on default insurance premium if the down payment is less than 20%. If purchasing a new building, you will need to pay HST on the home’s total cost (but first-time homebuyers can receive a maximum of $24,000 back in rebates).
If you have any more questions about mortgage acquisition, get in touch with Angela Milosevic AMP - Mortgage Broker. As a top mortgage broker in Cambridge, Ontario, I have over twelve years of experience and have assisted hundreds of individuals to get the financial boost they need. Some of the mortgage services I offer include first-time homebuyer mortgages, mortgage refinances for debt consolidation, home renovation or investment, and self-employed mortgages, and much more.