Posts Tagged ‘Mortgage’

The Ultimate Guide To Buying Your First Home In Greater Vancouver

The Ultimate Guide To Buying Your First Home in Greater Vancouver

Are you getting ready to buy your first home?

While it’s a big task, when you are arm yourself with the right information, you can avoid setbacks that complicate the purchasing process.

Most of these items can easily be avoided if buyers have access to proper information. That’s why, if you’re looking to buy your first home in Vancouver or the surrounding area; here’s a guide to help you navigate through this complicated (and often daunting) process. 

Before you even start thinking about purchasing a home, there are a few things that you must consider.

Check Your Credit Score

The health of your credit score will dictate whether or not you can secure a loan, how much you can borrow and what interest rate you will get so it’s helpful to find out in advance where you are and what you can do to improve it.

Every lender has their own criteria, however, most consider a score of 650 and above low risk.

According to Mogo, your scores are calculated by:

  • 35% payment history – whether or not you make your payments on time.

  • 30% utilization ratio – they recommend staying before 35% of your total available credit and never going above 70%.

  • 15% length of credit – the longer you have accounts open, the more history it shows of you being responsible with credit.

  • 10% types of credit – have a mix of high risk credit such as credit cards and lines of credit, and low risk personal loans.

  • 10% inquiries – hard credit checks occur when you are applying for new credit, phones and even bank accounts. Too many can affect your credit rating.

Both Equifax and Transunion will give you a free report each year – go here for full instructions. Services such as Mogo and Credit Karma will give you free monthly updates without making formal credit checks that affect your scores.

Make sure to check your credit reports for any errors and look for ways you can improve your credit score by:

  • Paying your bills on time.
  • Paying your debts as quickly as possible.
  • Not going over the credit limit on your credit cards.
  • Reducing the number of credit applications you make.
  • Having healthy credit history.

credit score

Determine What You Can Afford

Given the high prices of real-estate in Vancouver and its surrounding areas, a downpayment for a house or a condo may be a significant amount of money.

You will be required to have at least 5% for a down payment to get a mortgage with default insurance; or at least 20% for a mortgage without default insurance.

You’ll also need to prove to your lender that you can cover your closing costs on top of your down payment.

Closing costs may include:

  • Mortgage Application Fees
  • Mortgage Insurance
  • Appraisal Fees
  • Survey Fees
  • Property Transfer Tax
  • Property Tax
  • GST
  • Legal Fees
  • Land Title Registration Fee
  • Title Insurance

For full details check out our article The First Homebuyer’s Guide to Closing Costs in Vancouver.

You should also factor in moving costs, home insurance and anything you might have to spend as soon as you move into your property.

mortgage budget

Find A Lender

There are a number of different ways to get a mortgage, the most popular being banks, credit unions, and mortgage brokers.

Each will have different terms, conditions, and interest rates.

Working with a mortgage broker will give you access to a wider range of mortgages and lenders than working with a solo lender such as your bank.  

Every mortgage broker will have relationships with different lenders, so ask them who they work with.

Mortgage brokers charge the lender a commission so you don’t have to pay any additional out of pocket fees with institutional mortgages.  There may be additional fees with private mortgages.

To make sure you find the right Mortgage broker, check out our guide on How to Choose the Right Mortgage Broker.

find a lender

Get Pre-approval On A Mortgage

Getting pre-approval doesn’t mean you are guaranteed to get a mortgage, or the amount that you’ve pre-approved for. It means the lender has assessed your financial situation and determined the maximum amount they will lend you and the interest rate they will apply.

Pre-approval allows you to begin looking at homes knowing your price range while understanding your mortgage payments.

Once you have found a home, the approved mortgage amount will depend on the value of the home and percentage of your down payment.

To get pre-approval you’ll need to provide:

  • Appropriate identification
  • Proof of employment or income
    • Your position within the organization.
    • Current salary or hourly rate.
    • Your employment length and history.
    • 2-3 years of your Notice of Assessment when self employed.
  • Proof you have the funds for a down payment.
  • What other assets you own.
  • Your debts and financial obligations including:
    • Credit card payments
    • Car payments
    • Lines of credit
    • Student loans
    • Child or spousal support payments
    • Any other debts

The lender will determine how much they are prepared to lend you based on your credit rating, income, and debts.

Understand Mortgage Penalties

Before signing on the dotted line for a mortgage, make sure that you understand all of the fees associated with your mortgage. One important fee to understand are the penalties you will have to pay if you decide to sell your home and prepay your mortgage.

For more information, check out our article What Are Mortgage Penalties? (And How to Avoid Paying Them)

mortgage penalties

Check to see if you qualify for the First Time Home Buyer’s Program

First time home buyers in British Columbia may qualify for the First Time Home Buyers’ Program.

This program is run by the provincial government, and reduces or eliminates the amount of property transfer tax you pay when you purchase your first home.

In B.C., the Property Transfer Tax (PTT) is a tax of 1% on the first $200,000 and 2% of the remaining value of the purchase price to $2,000,000.

This can add up to a significant amount of number, which means that you should definitely check to see if you can be exempt from paying this tax.

Find A Realtor

find a great real estate agent

You don’t NEED a real estate agent to buy a home, but you should consider getting one.

A real estate agent will be able to guide you through the process of searching for and purchasing a house. These professionals are knowledgeable about the market, and have helped close deals in the past. They will make your life easier throughout your purchase.

Because you will be working closely with your real estate agent, it is recommended that you hire someone you trust. Shop around, make some calls, and find someone who you’ll be comfortable working with. 

To make sure you find the right Real Estate Agent, check out our Guide How to Pick the Right Real Estate Agent.

Then, put them to work helping you find a house.

House Search

search for a house

Remember the pre-approval is the maximum your lender will MAY give you. It makes sense to look for properties below the maximum.

Once you have an agent working with you, your mortgage has been pre-approved, and you’ve figured out how much you can spend on a down payment, you’re ready to start looking for a house.

This next phase is complicated and time consuming, and requires you to do a number of things. Here are just a few:

Prioritize

Finding the right house takes time and effort, and a healthy amount of patience.

That’s why, if you’re serious about finding a home, you should place the search high on your list of priorities.

This will inevitably mean making some sacrifices.

You’ll probably be seeing many houses and going into many meetings, so keep that in mind when making plans.

Prioritizing the search also means avoiding large expenses (such as buying a car). Doing this will have an impact on your financial situation, and may mean that your mortgage pre-approval is revoked.

Be Open

Perhaps one of the most important things that first time buyers need to know is that they probably won’t be buying their dream home.

And that’s ok.

Being open to new plans and flexible about your wishes is key to successfully buying your first home.

Maybe the house you find is great but isn’t in the area you wanted. Maybe the location is ideal, but you need to invest in changing wallpaper and cupboards. Maybe the yard is a bit smaller than you wished.

The perfect home possibly doesn’t exist (or is out of your price range) and that is just a reality that everyone has to deal with. 

As long as you have an open mind about your first home, you’ll be fine. And remember: this home will probably not be your forever home, which means that you’ll most likely be able to upgrade down the road. 

Take A Close Look

When selling a home, people often bring in Stagers and do minor facelifts to make the house look its best. This can mean a room might look bigger than it is, or that you don’t notice something.

When you start seriously considering a property, make sure you measure rooms and look closely at what might be hiding behind a coat of paint.

Make An Offer

make an offer

Once you’ve found a home you like and made sure it fits your budget, it’s time to make an offer. 

Making an offer requires that you sit down with your real estate agent (and perhaps a notary public or lawyer) to draw up an offer that incorporates the right amount of “subjects”.

These “subjects” are conditions that protect your purchase. For instance, the offer can include a subject that specifies that unless a fix is made, the offer will be rendered void.

It should also include a subject to inspection condition. This will allow you to get a third party professional to check the house for any serious issues that the untrained eye would miss. Doing so can save you a lot of money in the long run.

If you are getting a mortgage, it should definitely include also include a subject to a financing condition. Your lender may have approved your for financing, but not like that building.  Make sure the lender approves the property as well as you.

If buying a house or detached property, I always recommend you make sure you can get insurance on that property.  Sometimes there are things like older aluminum wiring that can make it difficult. Your lender will require you have insurance before they advance funds; so make sure you can get insurance before you remove subjects are you are obligated to complete.

Get your finance approved

If the seller approves your offer, you must go back to your bank (or mortgage broker) and finish the loan approval process. As long as your financial situation has not changed since getting pre-approval, this should not be a difficult process.

Arrange an inspection

Once your financing has been approved, it’s time to do a final inspection.

This will cost around $500 (or more) and may take a while to do, so book it in as soon as you put your offer in.

Review Closing Costs

Inspection is just one of the many closing costs you’ll have to incur. 

Unfortunately, these costs will add up, and many people don’t know they exist. That’s why it’s important to review them beforehand.

In general, you should keep in mind that these costs could add up to nearly 4% of the final purchasing price.

For more information about Closing Costs, check out our Guide The First Time Homebuyer’s Guide to Real Estate Purchase Closing Costs In Vancouver.

Closing

real estate closing

At this point, you should know exactly how much money you’ll need for your BC Notary or Lawyer to complete the transaction. They will let you know what the best way to make this payment is, and will advise you on what you need to bring to the signing.

During this part of the process, you’ll have to go through a lot of paperwork. You’ll also potentially have to go back to the bank to make sure all mortgage details are finalized.

This part of the process may be tedious, but once it’s done, you’ll be the proud owner of your first home!

Next Steps

Now that you know the steps involved in purchasing a home, there are a few things you can do right now to get the ball rolling.

1. Find out how much you can borrow. Doing this will give you a clearer picture of how you’ll be able to pay for your new home.

2. Get advice from a BC Notary. Notaries provide professional legal guidance on the purchase or sale of a home and can help you navigate through the legal part of purchasing a home.

Want to know more? Get in touch now.

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What Are Mortgage Penalties

What Are Mortgage Penalties? (And How to Avoid Paying Them)

What happens if you want to sell your home before the end of a fixed year mortgage?

When you got your mortgage you shopped around for different options, eventually found a good deal, and likely settled for a five-year mortgage, with a fixed or variable rate.

Then after three years, you decide to sell your property.

You still have two years on your term. This means you’ll have to break your mortgage contract in order to sell.

You call the bank to find out how much it will cost. When the voice on the other side of the phone tells you the figure, you can’t believe what you are hearing.

You put down the phone in a hurry, and ask yourself the following question:

Why Is It So Expensive to Prepay Your Mortgage?

You’d think that lenders would love you for paying out a loan early—but that isn’t the case.

Lenders don’t want you to pay your loan early because they want the interest payments.

Mortgage contracts include specific language regarding the penalties you need to pay if you want to prepay your mortgage.

Whether pay the whole mortgage off in cash, or by switching to a new mortgage, you’ll most likely have to pay these (often) astronomical penalties.

That’s why, before you sign a new mortgage contract, you’ll want to know exactly how much these penalties are.

Lenders want your interest

How Much Will It Cost to Break My Mortgage?

The amount of money you’ll pay in penalties for breaking your mortgage will depend on the type of mortgage contract you have.

Variable rate mortgage

Variable rate mortgages are mortgages in which the interest rate is adjusted periodically to reflect market conditions.

If you have a variable rate mortgage, the penalty you’ll have to pay for breaking your mortgage is of three months of interest on your current balance.

In other words, if the current balance on your loan is of $100,000 and the interest rate on your mortgage is 2.79%, you’ll be paying $697.50 in penalty.

Here is how we got those numbers:  

Interest rate x current balance x three-months = penalty
or
.0279 x 100,000 x (3/12) = $697.50

Fixed Rate Mortgage

A fixed rate mortgage is a mortgage in which interest rates and payments are fixed for the duration of the term.

This type of mortgage provides monthly financial stability, but calculating the penalty for breaking your fixed rate mortgage is complicated.

The general rule of thumb in these cases is that when you break a fixed rate mortgage you will pay whichever is greatest between the three month interest or the interest rate differential.

How to Figure Out Your Penalty

First, calculate your three month interest rate using the same equation as above. Here’s what that would look like using the example above.  

 

Interest rate x current balance x three-months = penalty

Then, figure out what your interest rate differential (IRD) is.

For this, you’ll need to know the following four things: the current balance on your mortgage, your original rate, the rate you can get now and the remaining number of months in your mortgage term. This information can normally be found on your online banking profile.

Using the same example from above, let’s assume that the current balance on your mortgage is $100,000, your original interest rate was 2.79%, the current rate is 2.59%, and you have two years (24 months) remaining in your mortgage term. In this case, your interest rate differential is $400.

Here’s how we got this number:

(Contract rate – Current market rate) x Current balance x Remainder of contract = IRD
or
(.0279-.0275) x 100,000 x (24/12) = $400

In this example, because the three month interest ($697.50) is higher than the IRD ($400), your penalty will be of three months interest rate. In many cases, however, your IRD will be much higher than the three month interest.

Many times penalties are in the thousands or tens of thousands of dollars, meaning that you may need to reconsider whether or not to break your mortgage.

Also, some lending institutions may use different methods to calculate your interest rate differential, including variables like discounts and advances. Make sure you ask your lending institution how they calculate IRD.

Different types of mortgages

How To Figure Out Your Penalty Without Math

First, you’ll need to get the following information:

  • When you mortgage started
  • Whether it’s variable or fixed
  • The term on your mortgage
  • The remaining balance
  • Your existing interest rate

Next, go to the Penalty Calculator on Ratehub.ca and fill out the information about your mortgage.

An example is a 3 year mortgage for $100,000 with HSBC with a 2.79% interest rate would have a $75 penalty on a variable mortgage, but a $3175 on a fixed rate. The same figures with CIBC is estimated about $875 on variable and $3875 on fixed rate.

It shows that rates are different for every bank and mortgage.

Is There Any Way I Can Avoid the Prepayment Penalty?

Here are a few things you can do to avoid paying astronomical prepayment penalties.

1. Review Your Contract Before You Sign It

Your mortgage will most likely be the most complicated document you ever sign. That’s why it’s important that you review your contract thoroughly before signing it. This includes looking specifically at prepayment penalties.

Get some help with this from an expert, and make sure you know exactly what you are signing.

2. Explore Prepayment Clauses

Some mortgages include clauses that allow you to pre-pay up to 20% of your mortgage balance per calendar year without a penalty. If you have calculated your penalty and figure out it is going to be astronomical, you can pay down up to 20% of your mortgage, and incur the penalties on the reduced balance.

3. Port Your Mortgage

If you’re looking to buy a new property, one of the ways to avoid paying a prepayment property is to port your mortgage. This means taking your existing mortgage—with its current rate and terms—and transferring it from one property to another. This can only be done if you’re buying a new property at the same time as you are selling your old one, and needs to be approved by your lending institution.

4. Get Your Mortgage Assumed

If you are selling your house, this means transferring your mortgage to the buyer. Not all loans will allow you to do this (most won’t, in fact) but it could be an option if your contract allows it and your differential is very high. Ask an expert to look at your contract to make sure you qualify for this.

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First Time Homebuyers Guide to Real Estate Closing Costs

The First Time Homebuyer’s Guide to Real Estate Purchase Closing Costs In Vancouver

Buying your first house is an exciting (and sometimes nerve-wracking) time.

When you’ve never purchased property before, you might be surprised when you find out about some of the costs associated with closing a deal.

Budgeting for these costs is important because you’ll be required to show proof you have the funds to cover your downpayment and closing costs to secure your mortgage.

This guide will help save you from being surprised by unexpected closing costs.

1. Mortgage Costs

Mortgage Costs

Mortgage Application Fee

If you’re applying for a mortgage, your bank or lender may also charge a mortgage application fee, though usually only with private rather than institutional lenders.  Keep this in mind when you are shopping around for mortgages.

BC HOME Partnership Program

When you are borrowing a portion of your down payment through the BC Home Owner Mortgage and Equity (HOME) Partnership Program, there will be additional fees of $560  for their lawyer fees to complete the loan.

Thankfully this isn’t something that you have to pay upfront, it is added to your loan.

Mortgage Default Insurance

If you’re taking out a mortgage for over 80% of the appraised value of the house, you will also have to take out a mortgage default insurance. Here is a link to the premium calculator for Canada Mortgage Housing Corporation (CMHC).

This ensures that the bank will not lose any money if you cannot make your mortgage payments and the value of your home is not sufficient to repay your debt.

Appraisal Fee

If the bank requires an appraisal of the home before approving your loan, you will probably have to pay the appraiser’s fee.

Survey Fee

Property boundaries and compliance cannot usually be determined without an up to date Survey Certificate.  A survey is prepared by a Land Surveyor and the cost varies depending on the region.  Your bank may also require that you present a survey certificate that shows exactly where the boundaries of the property are and where the buildings fall within them.

If the previous owners can’t provide this certificate, you’ll have to pay for the surveyor’s fee.

Title Insurance

Many lenders require title insurance before they will advance mortgage funds.

Title Insurance may insure the Lender and the Owner in the event of defects in title that are not readily apparent.  If you wish to have further information on Title Insurance, please contact my office and I will give you the information to contact a title insurance provider so that you may discuss the limits of coverage with them.

2. Government Taxes

Government Fees

Property Transfer Tax

In B.C., the provincial government collects a property transfer tax that must be paid before any home can be legally transferred to a new owner.

The Property Transfer Tax (PTT) is a tax of 1% on the first $200,000, 2% on the value up to $2,000,000 and 3% of the remaining value of the purchase price.

Some buyers (including qualified first-time buyers) may be exempt from this tax.

Property Tax and Municipal Utilities

This cost catches many people by surprise.

If the current owners have already paid the city in full for the house’s yearly property tax (and utilities if billed separately), then you will have to reimburse them for your share of the year’s taxes.

GST

If the home you are purchasing is newly constructed or substantially renovated, you may have to pay 5% of the purchasing price on GST. However, there are some rebates available, depending on the value of the home.

Foreign Buyer’s Property Tax

In B.C., the government has introduced an additional 15% property transfer tax on foreign nationals, corporations, and trusts that are buying in Metro Vancouver.

The tax does not apply to Canadian citizens or permanent residents or foreigners living in Canada on a work permit.

3. Other Fees

Other Fees

Home Inspection Fees

While it’s not necessary to have a home inspection, it’s a good investment to make sure you don’t unknowingly become responsible for any major defects of the property.

Legal Closing Fees

During the purchase process, you will need to hire notary public or a lawyer that will review the contract and title; prepare documentation necessary for the transaction, handle the exchange of funds and register the application to transfer ownership of the property as well as secure the new mortgage. They will charge a fee for their services and disbursements for due diligence requirements.  Fees vary from office to office, but are fairly consistent as there is competition is providing this service.  You will hear the term “Conveyance” or “Conveyancing” which refers to this process and loosely means to convey legal title of the property from Seller to Buyer.

Land Title Registration Fee

Whenever a title is registered with B.C. Land and Survey, a small fee must be paid. Normally (but not always) this fee is paid for by the lawyer or notary public and included as a disbursement on their accounts.

Utility Bills

You may be required to reimburse the seller for any utilities (water, sewerage, garbage, recycling, drainage) paid to the city in advance.

Strata Fees

Check with the Strata to find out when your fees are due as you may have to pay them soon after you move in.

General moving costs and “Move In” Fees.

Moving house costs money. Whether you hire a moving company, or hire a truck and move yourself, you are going to have out of pocket expenses.  Many Condominiums in Vancouver also have “Move In” fees.  Your notary or lawyer will generally pay these on your behalf.

You may also be required to pay for connecting your new utilities in your new home.

Got more questions?

If you have any questions regarding closing costs or need assistance with your Real Estate transfer, we can help.

Contact our office for further information, for a quote on your transaction and to make an appointment for your real estate closing.

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Claim Your Home Owners Grant Before Year End

As we approach the end of the year one of the things you may not be thinking about is claiming your Home Owners’ Grant. The Home Owner’s Grant is a base amount of $570.00 off your property taxes if the property is your primary resident; this amount is different if you are a senior citizen. What is important to remember is that if you’re a First Time Home Buyer and your lender pays your property taxes on your behalf, this process needs to be done by you.

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