Dlc Homebuyers Guide

Dominion Lending Centres Home Buyer’s Guide

1

Dominion Lending Centres

Guide to Financing Your Home


2

Table of Contents My Service Pledge to You 3 Your Professional Team 4-5 Types of Mortgages 6 The Process 7 What is considered & Documents Required 8 Conventional vs. High ratio 9 Closing Costs 10 Special Financing Programs 11-12 Appendix A- Closing Cost Worksheet 13


3

Service is what we offer! My service pledge to you… Purchasing a home is one of the most stressful things that you will do in your lifetime. For most people, it is the single largest investment that they will make period! This is why it is important to surround yourself with professionals who will not only offer you a tremendous amount of knowledge and support but who will also make the process as stress free as possible. As your mortgage expert, I will show you that I care about your needs first and foremost. In fact, understanding your needs is a very important part of the mortgage process. By understanding your needs I can save you thousands of dollars in potential payout penalties, extra legal fees etc. I will communicate with you during the process and after the mortgage has funded. I send my newsletter to you on a monthly basis so that you are informed on what’s happening in the mortgage market. Many people just forget about their mortgage until the renewal date when there are many reasons that it pays to be informed at all times. My goal is to give impartial advice on where the market is going, (are rates going up or down?) so that you are equipped with information that will help you when making financial decisions. Honesty and integrity is the number one principle great Mortgage Experts build their business by. I believe in earning business by cultivating many referrals, as it is an indication to new clients that their friends, family, realtors, financial planners and accountants have all had extremely positive experience in working with me. This guide has been compiled to provide a complete guide encompassing the home buying and financing process and it is my hopes that you find it to be a very useful and informative tool.


4

Your Professional Team Mortgage Associate In the U.S. over 85% of mortgages are generated through mortgage brokers. In Canada, this number is as low as 25%. The reason for this stark difference is deregulation in the U.S. Markets. However, the trend to move towards using brokers to arrange mortgage financing is increasing in staggering numbers. Each year 5-10% increase in market share is taking place. Why has this shift occurred? Well, very simply put, SERVICE! The banks are cutting back on staff and are centralizing operations to save money. This does not bode well for the consumer. Unlike individual banking representatives, who often move from one branch to another hoping to make advancement in the corporations, as your mortgage broker, it is my intention to create a lifelong relationship. Today many banks are buying out smaller trust companies to expand their portfolios. Most major banks lend out money through these trust arms at reduced rates. If you just stick with your bank, you lose access to hundreds of other financing arms that may have better rates, products and packages to offer you.

Mortgage brokers get paid from the lenders so their service is offered to you without charge. What else can you ask for? Better rates, personalized service, flexibility and products at no cost to you. Some will say that the fee is built into the rate, not so. It costs the banks approximately 40% less to generate a mortgage through a broker than a branch. There is no overhead to pay if the bank does not get a clients’ business, instead the mortgage broker bears the entire cost of day-to-day business.

Realtors

Your realtor is an integral part of your team. Your realtor can give you access to properties that never make it to the MLS web site. Most good properties are sold in a matter of days and often it takes longer to make it through the MLS process. Realtors get access to information about homes that might come on the market before any listing is signed. More importantly, your realtor can tell you how to be successful in your bid for a desired property. In today’s competitive real estate market, it is very difficult to acquire any property without the help of a real estate professional. I have developed relationships with numerous realtors and can recommend a qualified realtor if necessary.

Lawyers and Notaries


5

Arrangements will need to be made for a notary or lawyer to draw up the mortgage documents and register them on file for you. Since the visit to your lawyer is the last step of the entire process, it is extremely important that it be handled with care. I can recommend qualified and professional lawyers and notaries who specialize in real estate transactions and can make the process smooth and simple. Home Inspectors This is probably the best $300-$400 you will ever spend. Sometimes a competitive situation won’t allow you to have an inspection done however, it is highly recommended. Whenever possible have an inspection done so that you know about what you can’t see behind the walls. There may be mold, old wiring or leaks that will cost you a lot to fix down the road. Either myself or your realtor can recommend a good inspector.


6

Types of Mortgages

Mortgages can be a confusing subject. Buying or selling a home is an emotional decision and can be very stressful. As a mortgage expert I will take the confusion out of mortgages and make the process as smooth as possible. In Canada, there are two major categories that mortgages fall into, either closed or open. Most mortgages are closed mortgages meaning that you cannot pay out the mortgage in full without paying a penalty to the lender. An open mortgage allows you to pay out the mortgage anytime without penalty. However, you typically pay a higher rate than the same closed version. Open mortgages may have an administration fee that is higher than a closed mortgage if do in fact decide to fully pay off the mortgage. This is partly why it is so important to read the fine print and ask about these changes. In most cases, it is better to take the closed product if you do not intend to fully payout the mortgage in a short period of time.

Closed mortgages are offered in terms starting at 6 months or longer. The interest rate is fixed during that term. The term should not be confused with the amortization. Amortization is the time period it would take to retire the mortgage by making regular payments. Variable rate mortgages have a rate that floats with the prime rate and are often closed mortgages. Let me help you make one of the biggest decisions in your life by providing options and advising you on the best scenario for your needs.


7

The Process The number one question a homebuyer has is “What is the process, what’s next?” In very simple terms here is a flow chart of the process that you are about to embark on.

1. Get pre-approved: Avoid any hiccups or obstacles before you look at

properties. Being pre-approved helps in the following ways:

• Determines price range – it will help you understand what your monthly costs will be and you to know what price range you should start looking at.

• Guarantees the rate – for up to 6 months. We will automatically adjust your rate

down with any market reductions.

• Allow you to put in a competitive offer – become a successful bidder with a short subject to financing reductions.

2. Put in an offer: Once you have found the property that meets your needs you

will put in an offer that will be accepted or countered. This may go back and forth until you reach an acceptable price for both the vendor and yourself.

3. Offer is accepted:

• Fax us a copy

• An appraisal is ordered if necessary

• Send in any remaining documents required for financing (income confirmation,

down payment confirmation etc.)

• Send an inspector in (if applicable) – I can help you arrange this

• Receive the lender’s approval on property and final approval letter

4. Remove Subjects: At this point, your financing is in place and you are ready to proceed with the purchase of the property.

5. Lawyers’ Office: You will be asked to provide any money that is to be used as

your down payment, which is not already on deposit with your realtor. Typically you will go in 1-2 days prior to the completion date.


8

What is considered when a lender is looking at your mortgage application? • Income and Job Stability – Your income determines how much you may borrow. In most cases, 32% of your gross income for salaried, non-self employed or commissioned persons is used to determine how much you can borrow to cover the cost of the mortgage payments, taxes, and any applicable maintenance. All other debts i.e. car loans, credit cards etc. must not exceed an additional 8% of your gross income. • Credit History – Your credit must show that you pay your bills on time. If not, you may still be approved but the interest rate may be higher than expected.

What you need to supply the lender:

a) Income confirmation: For salaried persons: letter of employment and most recent pay stub.

b) Down payment confirmation: The lender will require that you demonstrate what source your down payment is coming from. You will have to send in bank statements, statements showing RRSP’s, stocks etc. You must show a 3-month history of the money. If there are any large lump sum deposits, you are likely to be asked to show where the deposit originated. For mortgages where your down payment is less than 20% of the purchase price, you will also be asked to demonstrate that you have access to 1.5% of the purchase price in your bank account. You must be able to show this through a credit card, line of credit, gift from family or savings in case closing costs run higher then expected.

c) Contract of purchase and sale: This is a copy of the accepted offer of the home

you intend to purchase and a copy of the MLS listing sheet.


9

Conventional Mortgage vs. High Ratio Mortgage

Whenever possible it is advisable to try to put a 20% down payment into the new home. Most individuals are unable to do this so their mortgage needs to be CMHC or GE Capital insured, due to the fact that the Bank Act will only allow financial institutions to lend up to 80% of the price without it. The mortgage is insured so that if you default on your mortgage the lender is paid out in full and the insurer is left to deal with the borrower. The insuring companies charge an insurance premium. The premiums are based on the loan to value.

Loan to Value Insurance Premiums › Up to and including 65% .50% of the loan amount › Up to and including 75% .65% of the loan amount › Up to and including 80% 1.00% of the loan amount › Up to and including 85% 1.75% of the loan amount › Up to and including 90% 2.00% of the loan amount › Up to and including 95% 2.75% of the loan amount › Up to and including 100% 3.10% of the loan amount You may borrow up to 100% of any price for any owner-occupied purchase, in most urban areas. If you are buying a property for investment purposes, the maximum loan amount is 90% and the insurance premium is higher than shown above.


10

Closing Costs The following is a list that will help to assist you in calculating your true costs in purchasing your new home.

a) Property Transfer Tax - this is a tax that is charged whenever a property is bought. The tax is 1% of the first $200,000 of the purchase price and 2% of the balance. The B.C. Government has allowed some buyers to be exempt if you meet certain criteria. Please consult your lawyer/notary for this information.

b) GST – GST is 6% of the purchase price and is charged in cases where the

property is new or substantially renovated. There is a rebate program so you do not have to pay the full tax. Certain conditions may apply, please contact you lawyer/notary for this information.

c) Legal Fees – Your lawyer or notary will charge you a fee for drawing up the

mortgage and conveyance of title. The amount of the fee will depend on the individual that you use. The typical cost is $800-$1000.

d) Survey – If you are purchasing a single family home, you will need to give your

lender a survey certificate showing where the property sits within the property lines. However, some exceptions are made on low loan to value deals and acreage properties.

Often a survey will cost $300-$350 but the lender will accept a copy of an existing survey. See appendix A for the closing cost worksheet.


11

Special Financing Programs Purchase with Improvements: This program allows you to add into your mortgage the costs for renovating your new property. It is offered for mortgages where the down payment is less than 20%. For situations where your down payment exceeds 20%, you would simply set aside a portion of money that was meant for the down payment to be used for the renovations. The lender will require that you supply a list of work to be done and a quotation from a contractor. Once the work is complete, the lender will send the appraiser back into the property to verify that the work has been complete and then your lawyer or notary will release these funds to you. This is important to note, as you will essentially have to pay for the renovations in advance and then be reimbursed. Business-For-Self Financing:

Several new programs have recently been developed to assist people who are self-employed. It is recognized that what is shown on a BFS tax return may not truly reflect the actual income earned for that party. We have several programs where qualification is based on declared income instead of taxable income. You will be required to have clean credit and supply us with the last 3 years tax assessments from Revenue Canada confirming that you have filed as self employed and that you are up to date with your taxes.

You may put as little as 5% down for these programs, however, the interest rate paid may be slightly higher than fully qualified applications. For applications where you have a 25% down payment or greater you will be asked to supply only the last years notice of assessment to the lender. The interest rate should not be increased on the applications.

0% Down Payment Programs: In 2003, many lenders introduced 0% down payment programs. This is a trend that originated in the U.S. In order to benefit from these programs an applicant must have very good credit, have stable employment and must qualify under the qualifying ratios. The mortgage is insured through CMHC, Genworth Financial or AIG Insurance.


12

Each lenders insurance premium will vary as well as the interest rate for the mortgage. Many lenders have a 5-year minimum term that the client must choose from. I can go over the various programs under this category based on the strengths of your application. Sub-Prime Mortgages:

Sub-Prime is a term used to describe a file that does not quite work under the major banks normal criteria. Often the applications have slightly poor credit and perhaps the lending ratios are higher than what is typically allowed. The sub-prime lender will lend up to 90% of the purchase price but at higher rates. If you have been declined for a mortgage from your bank you should most certainly speak with a mortgage broker about sub-prime programs. U.S. Residents: U.S. residents may purchase properties by putting 35% down of the purchase price. An application and U.S. bureau is required, but the process is very straightforward. For U.S. residents relocating to Canada, you may be able to put as little as 10% down. You must show that you have secured employment and you must have sold you primary home in the U.S.


13

APPENDIX A: Closing Cost Worksheet: Purchase Price: $______________ Subtract Deposit with realtor: $______________ Subtract Net Mortgage Amount: $______________ Legal Fees: $______________ Property Transfer Tax: $______________ GST: $______________ Appraisal Fee: $______________ Survey Certificate: $______________ Tax Adjustment: $______________ Interest Adjustment: $______________ Total Closing Cost: $______________