The mortgage financing process can be overwhelming if you are a first time buyer. The following information is designed to provide those looking for their 1st home with the basics on obtaining a mortgage.
Minimum Qualifying Requirements
- Majority of mortgage providers want to see a minimum of 5% of the total purchase price as your down payment.
- In addition to your down payment you must also have enough "cash" to cover your closing costs which typically account for 2% of the purchase price of the home.
- At least one applicant must have a credit rating of 680 or higher.
- Your current debt load must be low enough so that if you were to obtain a mortgage you would not have any trouble meeting monthly debt payments.
Common Types of Mortgags
Conventional Mortgage - Mortgage amount does not exceed 80% of the purchase price of the property. This means that you must have 20% or more available for the down payment.
High Ratio Mortgage - Mortgage amount exceeds 80% of the purchase price of the home. This means the down payment amount is less than 20% of the property value.
High Ratio Mortgage Insurance
When you purchase a home with less than 20% down payment you must purchase high ratio mortgage insurance. The Canada Mortgage and Housing Corporation is one institution that provides this insurance to lenders just in case you default on your loan. The insurance premium is usually added into your mortgage. The insurance premiums are as follows
- 5 - 9% down payment - 2.75% of purchase price
- 10 - 14% down payment - 2.00% of purchase price
- 15 - 19% down payment - 1.75% of purchase price
Mortgage Rate Options
Fixed Rate Mortgage - Interest rate is determined at the beginning of the mortgage and is set for the entire term.
Variable Rate Mortgage - Interest rate may change during the term of the mortgage reflecting changes in the current market rates.
Other Important Information
- Buyers must qualify at the 5 year fixed rate even if they are getting a lower variable rate.
- The highest amortization period available to buyers is 30 years.
- "Zero down" mortgages are available to those qho qualify based on specific terms and conditions
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Contact Lindsay for more information buying your first home.
