Frequently Asked Questions About Obtaining A Mortgage
If you’re planning to buy a house, you’ve definitely considered obtaining a mortgage. However, the process of trying to pick a mortgage product that best suits you can be quite a challenge.
As a professional mortgage broker in Edmonton, Alberta, with several years of experience, I want to help you make well-informed decisions about a mortgage. To make you more aware of the most commonly used home financing option, I have answered some of the most frequently asked questions about obtaining a mortgage.
1. What is a mortgage stress test, and how is it calculated?
In finance, “stress tests” are ways of considering the worst-case scenario for any investment. When it comes to mortgages, stress tests determine the risks of each loan application. How much can the borrower afford given their current debt-to-income ratio, and would they still be able to make the monthly mortgage payments should the rates increase? How would their payments be affected in the case of a temporary job loss? These are all important factors in determining how likely a borrower is to default on their loan payments. In October 2016, we were introduced with the first “stress testing” policies where all purchasers putting less than 20% down payment had to qualify at the benchmark rate. This is the same benchmark rate that purchasers had to qualify on if they had wanted a variable rate mortgage. In January 2018, purchasers putting 20% or more down payment also had to go through a new set of stress tests which involve having to qualify at 2% higher than the contract rate.
2. How can I pay off my mortgage sooner?
There are ways to reduce the number of years to pay down your mortgage. You’ll enjoy significant savings by:
a. Selecting a non-monthly or accelerated payment schedule.
b. Increasing your payment frequency schedule.
c. Making principal prepayments.
d. Making Double-Up Payments.
e. Selecting a shorter amortization at renewal.
3. How will child support affect my mortgage qualification?
While child support and alimony are paid by you to another person, generally the amount paid out is deducted from your total income before determining the size of mortgage you will qualify for. In cases when child support and alimony are received by you from another person, generally, the amount paid may be added to your total income before determining the size of mortgage you will qualify for, provided proof of regular receipt is available for a period of time determined by the lender.
4. Why is an appraisal necessary?
Every conventional mortgage that includes a minimum of 20% down payment requires an appraisal because the mortgage is uninsured. The lender wants to see that your purchase price is in line with the property’s fair market value. Lenders want to know that you are purchasing a quality property and that they will be able to recuperate the full amount if you default on the loan.
5. What will I pay in closing costs?
Closing costs will vary depending on your situation. They may include appraisal fees, survey fees, your legal fees, and realtor commissions. I can help you determine how much your closing costs will be. Give me a call!
6. How can you use your RRSP’s to help buy your first home?
Today, about 50% of first-time home buyers use their RRSP savings to help finance a down payment. With the federal government’s Home Buyers’ Plan, you can use up to $25,000 in RRSP savings ($50,000 for a couple) to help pay for your down payment on your first home. You then have fifteen years to repay your RRSP.
To qualify, the RRSP funds you’re using must be on deposit for at least ninety days. You’ll also need a signed agreement to buy a qualifying home.
Even if you have already saved for your down payment, it may make good financial sense to access your savings through the Home Buyers’ Plan. For example, if you had already saved $20,000 for a down payment - and assuming you still had enough “contribution room” in your RRSP for a contribution of that amount, you could move your savings into a registered investment at least ninety days before your closing date. Then, simply withdraw the money through the Home Buyers’ Plan.
What’s the advantage? Your $25,000 RRSP contribution will count as a tax deduction this year. Use any tax refund you receive to repay the RRSP or other expenses related to buying your home.
7. What can a mortgage broker do for you?
Mortgage brokers are experts dedicated to finding the right mortgage solution and simplifying the mortgage financing process. The broker will take the time to understand your individual situation and tailor the best solution from among the hundreds of products available to today’s homebuyers. Brokers complete all the paperwork and keep up-to-date on industry issues and changes that could affect the decision you make about which mortgage solution is right for you.
A mortgage broker will save you time. Comparison shopping involves going from lender to lender repeating your story, asking the same questions and analyzing the answers. That’s time most people don’t have. On top of that, home financing is highly competitive, and each product can be complex, which is why you should have an expert on your side.
A mortgage broker will also work with you on strategies to manage monthly payments or improve your credit rating.
8. What questions should I ask my mortgage broker?
While picking a broker, here is a list of question you must ask a mortgage agent you are considering:
a. How long have you been a mortgage broker?
b. How long has your company been in business?
c. Can I get references from your clients?
d. How do mortgage brokers make money?
e. What is your experience with this type of transaction?
f. What is the process for closing my mortgage?
g. How quickly can it be done?
h. Which lenders do you work with and why?
Answers to these questions will help you make a better selection as there are good ones and there are not so good ones. Choose wisely!
If you have any more questions about obtaining a mortgage, get in touch with Karen Pacheco. As the most professional mortgage broker in Edmonton, Alberta, I can help you buy your first home, trade up a home, invest in real estate, consolidate a debt, and help you achieve your financial goals. I have access to multiple mortgage lenders and will help you find the best rates and best mortgage options to help you buy your dream home. To learn more about how I can help you, please click here or contact me by clicking here.