John Karevska Real Estate

Of course now, first and foremost, we have new rules regarding the “STRESS TEST”

In Simple Terms

• If you have LESS than 20% down payment, you will be qualified at the 4.99% Stress Test
• If you have MORE than 20% down payment, you will be qualified at the Lender’s/Bank Current Interest Rate + 2% Stress Test                                                            ( Example – Current Lender/Bank Interest Rate 3.39% + 2% = 5.39% )

1. What’s the best rate I can get?

Your credit score plays a big part in the interest rate for which you’ll qualify, as the riskier you appear as a borrower, the higher your rate will be. Rate is definitely not the most important aspect of a mortgage, however, as many rock bottom rates come from no frills mortgage products. In other words, even if you qualify for the lowest rate, you often give up other things such as prepayment and porting privileges when opting for the lowest rate. 

2. What’s the maximum mortgage amount for which I qualify?

To determine the amount for which you qualify, there are two calculations you’ll need to complete. The first is your Gross Debt Service (GDS) ratio. GDS looks at your proposed new housing costs (mortgage payments, taxes, heating costs and 50% of maintenance / condo fees, if applicable). Generally speaking, this amount should be no more than 39% of your gross monthly income. For example, if your gross monthly income is 6000$, you should not be spending more than $2340 in monthly housing expenses. Second, you will need to calculate your Total Debt Service (TDS) ratio. The TDS measures your total debt obligations (including housing costs, loans, car payments and credit card bills). Generally speaking, your TDS Ratio should be no more than 44% of your gross monthly income. Keep in mind that these numbers are prescribed maximums and that you should strive for lower ratios, for a more affordable lifestyle. Before falling in love with a potential new home, you may want to obtain a pre-qualification for a mortgage. This will help you stay within your price range and spend your time looking for homes you can reasonably afford. 

3. How much money do I need for a down payment?

The minimum down payment required is 5% of the purchase price of the home. In order to avoid paying mortgage default insurance (CMHC), you need to have at least 20% down payment.

4. What happens if I don’t have the full down payment amount?

There are programs available that enable you to use other forms of down payment, such as from your RRSP’s, a cash-back product or gifted funds from a family member.

5. What will a lender look at when qualifying me for a mortgage?

Most lenders look at 5 factors when determining whether you qualify for a mortgage: Income, Debts, Employment History, Credit History and Value of the Property you wish to purchase. One of the first things a lender will consider is how much of your total income you’ll be spending on housing. This helps the lender decide whether you can comfortably afford a house. A lender will then look at your debts, which generally include house payments as well as payments on all loans, credit cards, child support, etc. A history of steady employment, usually within the same industry for several years, helps you qualify. But a short history in your current job shouldn’t prevent you from getting a mortgage, as long as there have been no gaps in income over the past 2 years. Good credit is also very important in qualifying for a mortgage. The lender will also want to know that the house is worth the price you plan to pay, as part of their investment in the transaction.

6. Should I go with a fixed or variable rate mortgage?

The answer to this question depends on your personal risk tolerance. If, for instance, you’re a first-time homebuyer and/or you have a set budget that you can comfortably spend on your mortgage, it’s smart to lock into a fixed mortgage with predictable payments over a specific period of time. If, however, you’re financial situation can handle the potential fluctuations of a variable rate mortgage, this may save you money over the long run. Another option is to opt for a variable rate, but make payments based on what you would have paid if you selected a fixed rate. Finally, there are also 50/50 mortgage options that enable you to split your mortgage into both fixed and variable options.

7. How much will my mortgage payments be?

Monthly mortgage payments vary based on several factors, including: the size of your mortgage, whether you’re paying mortgage default insurance (CMHC), your mortgage amortization, interest rate and frequency of mortgage payments (monthly, bi-weekly). You can view some useful calculators to find out your specific mortgage payments: (http://www.munsayacfinancial.com/index.php/mortgage-calculators)

8. What credit score do I need to qualify?

Generally speaking, you’re a prime candidate for a mortgage if your credit score is 680 and above. The higher you can get above 700 the better, as you will qualify for the lowest rates. These days almost anyone can obtain a mortgage, but the key for those with good credit scores is the size of the down payment. If you have a sufficient down payment, you can reduce the risk to the lender providing you with the mortgage. Statistics show that default rates on the mortgages decline as the down payment increases.

9. What happens if my credit score isn’t great?

There are several things you can do to boost your credit fairly quickly. Following are five steps you can use to help attain a speedy credit score boost: 1) Pay down credit cards. The number one way to increase your credit score is to pay down your credit cards so they’re below 70% of your limits. Revolving credit like credit cards seems to have a more significant impact on credit scores than ca loans and lines of credit. 2) Limit the use of credit cards. Racking up a large amount then paying it off in monthly installments can hurt your credit score. If there is a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you may pay the balance off the next month. 3) Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other lenders view your file. Ensure everything’s up to date as old bills that have been [aid can come back to haunt you. Some financial institutions don’t even report your maximum limits. As such, the credit bureau is left to only use the balance that’s on hand. The problem is, if you consistently charge the same amount each month – say $1,000 to $1,500 – it may appear to the credit-scoring agencies that you’re regularly maxing out your cards. The best bet is to pay your balances down or off before your statement periods close. 4) Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuer may stop updating your accounts. As such, the cards can lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the cards for a long time. Use these cards periodically and then pay them off. 5) Don’t let mistakes build up. Always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of this situation. 

10. How much will I have to pay for closing costs?

As a general rule of thumb, it’s recommended that you put aside at least 1.5% of the purchase price (in addition to the down payment) strictly to cover closing costs. Land Transfer Tax is charged whenever a property is purchased. The tax will vary from region to region. GST/HST is only charged on new homes, and does not affect homes priced at less than $400,000. Even homes that exceed the prices threshold are only taxed on the portion that exceeds $400,000. Certain conditions may apply. Please contact your lawyer/notary for more detailed information. Your lawyer/notary will charge you a fee for drawing up the mortgage and conveyance of title (cost range is $1,000). Other costs include such things as an appraisal fee & home inspection (approx. $350/each), title insurance and PST on CMHC amount (if applicable).