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To assess your capacity for a new home, carefully analyze your taxable income and the monthly debt you’re managing. If you’re buying your primary residence, specifically calculate around 32% of your income. This should cover the mortgage payment, property taxes, and heating costs.

Following this, calculate 40% of your taxable income. Subtract all other monthly payments, such as car loans, credit card bills, and other debts. Use the lesser of these two calculations to determine the portion of your income available for housing-related payments, encompassing your mortgage.

In addition to the ratios, perform additional calculations to establish your overall affordability. Should the comfortable payment amount be below 32% of your income, consider opting for the lower amount to avoid financial strain. Ensure you factor in all other expenses to easily afford basic luxuries.

Mortgage Brokers represent you, not the lender. They operate independently of specific products, enabling them to seek the best package from Chartered Banks, Trusts, Insurance Companies, or Private Funds.

Home Inspections

A home inspection is a visual assessment by a qualified professional. It covers major components like the roof, ceilings, walls, and floors, as well as systems such as electrical, heating, plumbing, and drainage. Results are usually provided in writing within 24 hours.

Before deciding to purchase, it’s wise to get a home inspection. It clears doubts, revealing construction quality and potential repair needs. This helps calculate all costs before the final decision, providing a more secure feeling about your purchase.

To purchase a house, you typically need to make a minimum down payment of 5% of the house value. Besides the down payment, you must also demonstrate the ability to cover additional closing costs, such as legal fees, disbursements, appraisal fees, and a survey certificate.

You must contribute at least 5% of the down payment from your own cash or a gift from a family member; borrowing is not allowed. Some programs, like those offered by CMHC, accept alternate sources for the down payment. Lenders may also consider gift money but require a signed letter confirming it is a gift and not a loan.

If your down payment is less than 25% of the total value, you need loan insurance from either CMHC or GE.

Mortgage Loan Insurance is an insurance cover provided to a lender against default on mortgage installments, when the down payment amount is less than 20%. Like any other insurance, mortgage loan insurance too requires premium payments. The premium amount can vary between 0.5% to 3.15%, depending on the insurance provider and how much of the purchase price is financed by the mortgage; greater the down payment, lesser will be the premium. Mortgage loan insurance is distinct from Mortgage Life Insurance as the latter guarantees that your remaining mortgage at the time of your death will not be a burden to your estate.

A conventional mortgage is when the down payment is over 20% of the purchase price (or the loan value is under 80%). It typically doesn’t need mortgage loan insurance.

A mortgage exceeding 80% of the purchase price or appraisal is a High-Ratio mortgage. It necessitates mortgage loan insurance with premiums ranging from 0.5% to 3.15%, depending on the mortgage value.

A pre-approved mortgage guarantees an interest rate for about 120 days on a set amount. Calculated based on borrower information, it’s subject to conditions, like confirming employment and income. Brokers prefer clients with pre-approved mortgages for a clear price range when searching for a home.

Benefits of a pre-approved mortgage include clarity on affordability, simplifying the home search. It eliminates the uncertainty of monthly installments. The significant advantage is rate locking; even if market rates rise, the pre-approved fixed rate is honored. If rates drop, lenders often provide the lower rate.

Lenders may approve a mortgage after bankruptcy, but eligibility varies. Prospective borrowers can improve credit; consult your mortgage broker.

To make your mortgage application process as simple and lucid as possible, it is advisable that you collect all these documents beforehand so as to avoid any interruptions later.

Personal information and identification such as your drivers license or passport.
Job details, including confirmation and proof of income.
Your sources of income.
Proof of financial assets.
Information and details of all your bank accounts, loans and other debts.
Source and amount of down payment.
Proof of source of funds for the closing costs (usually about 1.5% of purchase price)

To simplify your mortgage application, collect all required documents in advance to prevent later interruptions.

If you pay child support and alimony, the amount is usually deducted from your total income when determining your qualifying mortgage amount. Conversely, if you receive child support and alimony, that amount is added to your total income. However, you must provide regular receipts for a specified time period, as outlined by the lender.

In a fixed-rate mortgage, you set the interest rate at the loan’s beginning, which can span 6 months to 30 years. This type provides predictability for monthly payments and allows for better planning.

In a variable or floating-rate mortgage, you fix payments for one or two years, but interest rates can change monthly based on market conditions. If rates drop, more goes toward reducing the principal; if they rise, more covers the interest. The rate is determined by a formula tied to the prime lending rate.

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