Frequently Asked Questions About Buying A Home
As a first-time homebuyer, there are hundreds of tiny details and decisions you will need to go over before buying a house. After all, buying a home is one of the largest purchases you’ll ever make. So it’s important to ask the right questions and do your homework to learn as much as possible about the options at your disposal. We at Canadian Tailored Mortgage Solutions have your best interest at heart. We want to arm you with the most accurate information available to help you understand the home buying process. To do this, we’ve answered some of the most frequently asked questions about buying a home.
1. How much can I afford to pay for a home?
To determine exactly how much of a house you can afford, it’s important to not only assess your buying power with a pre-approval but also to take a look at your monthly budget. Going over your monthly budget is essential to determine if the income you have left after paying your mortgage payment, property taxes, and utilities is enough to service any additional debts and other household expenses you may have. Sitting with a financial advisor can also be an essential step in the home buying process to help you budget accordingly.
2. What is a home inspection, and should I have one done?
A home inspection can be a vital part of the home buying process. Getting a home inspection done before finalizing your offer on the property can be essential to determine if this is the right property for you. An inspection will identify any defects with the home’s foundation, structure, electrical, roof, HVAC, and plumbing. The home inspector will also provide a report with their findings that you can provide to the sellers if anything major needs to be addressed.
3. What is a down payment, and what is the minimum down payment needed to purchase a home?
A down payment is the portion of the cost of the home that the buyers cover from their own funds. You will need a down payment of at least 5% to purchase a home, depending on the home’s purchase price. The down payment is not the only cost you have to account for when buying a home; you must also cover the closing costs (for example, legal fees and disbursements, appraisal fees, etc.). We typically recommend you to budget for an additional 1.5% to 2% of the purchase price for your closing costs.
At least 5% of your down payment must be from your own resources or a gift from an immediate family member. For gifted down payments, a gift letter will be needed. Mortgages with a down payment of less than 20% must have mortgage loan insurance provided by either CMHC, Genworth, or Canada Guaranty.
4. What is mortgage loan insurance?
Mortgage loan insurance helps protect lenders against potential mortgage default. Mortgage insurance allows you to purchase a home with a minimum down payment starting at 5%. The amount you will pay for mortgage insurance will be determined once you have approval from the mortgage insurer and lender. There are three mortgage default insurance providers in Canada. They are the Canada Mortgage and Housing Corporation (CMHC), Sagen (formerly known as Genworth Financial, and Canada Guaranty.
5. What is a conventional mortgage?
A conventional mortgage is one where the down payment is 20% or more of the home purchase price. This type of mortgage usually does not require mortgage insurance. In certain cases, the lender will require the mortgage to be insured, depending on the property.
6. What is a high ratio mortgage?
A high ratio mortgage is one where the down payment on the home is less than 20%. With this type of mortgage, you are required to have mortgage insurance. The mortgage insurance will be added to your monthly mortgage payment.
7. How will child support affect mortgage qualification?
Any child support or spousal support payments will be factored into your monthly debt payments when applying for a mortgage. You will need to provide proof of the payments you are required to make by providing a divorce or separation or child support agreement.
8. What mortgage term should I choose?
Before choosing your mortgage term, it’s essential to think about your long-term and short-term goals. Choosing a longer term of five years or more isn’t ideal if you plan to sell or upgrade your home before the five-year term is up because, depending on the lender, the penalty for breaking the mortgage can be expensive. Before choosing your term, it’s important to discuss your plans with your mortgage broker.
If you have any more questions about buying a home, get in touch with the experts at Canadian Tailored Mortgage Solutions. As the best mortgage brokerage in Pickering, Ontario, we provide a wide range of mortgage solutions. We serve clients across Pickering, Oshawa, Bowmanville, Mississauga, Brampton, Markham, Stouffville, Oakville, Barrie, Durham Region, GTA, Ontario, and the surrounding areas. To learn more about how we can help you, please click here or contact us by clicking here.