Whether you are a first time home buyer or it’s been awhile since you last bought a home, you probably have many questions. That’s why we offer step-by-step personal assistance from a knowledgeable Best Mortgages Vancouver Mortgage Specialist who is familiar with the home buying process.
We’ll be by your side each step of the way, from mortgage pre-approval, finalizing your mortgage and to the purchase of your home. To have a Best Mortgage Vancouver Mortgage Specialist contact you online contact form or call us at 604-961-2400.
Step 1: Getting Pre-Approved
One of the first steps in buying your home is obtaining a pre-approved mortgage. With a pre-approved mortgage you will:
- Know how much you can afford and what your payments will be
- Lock in your interest rate at today’s rate (or lower if rates drop), guaranteed for up to 120 days
- Demonstrate that you are a serious buyer, which can help in your negotiations with sellers and their agents.
It is important to remember that although you may have been approved for a mortgage the lender will still want to review the property you have selected to make sure the property also meets their lending criteria.
How much can you afford?
Taking on too much debt can really weigh you down. So, you need to look at the big picture when financing your home. That means tallying up your total debt load, not just the mortgage payments.
In processing your mortgage application, lenders will consider two affordability factors to determine the maximum mortgage you are qualified for:
- The Gross debt service ratio: This factor considers how much of your income is going towards your housing costs. Your monthly housing costs shouldn’t exceed 32% of your gross monthly income. Over and above your mortgage payments lenders take into account the property taxes, a heating factor, and ½ of monthly condominium or strata fees if applicable.
- The Total debt service ratio: This factor takes into account not only your housing costs but also your other monthly financial obligations. Lenders prefer to see 40% or less of your gross monthly income going to cover your housing costs and other debts. Those expenses include housing costs and debt, such as car loans, credit card payments, personal loans and line-of-credit payments.
If your credit score is high enough the lender may only use the Total debt service ratio and will allow the Total debt service ratio to be as high as 44%.
What can you afford? Our mortgage qualifier calculator will help you figure out how much you should spend on your home.
Costs to Consider
Mortgage loan insurance: The cost of insurance is based on the amount you borrow as a percentage of the value of your home.
(% of the value o f your home)
(% of total mortgage)
|Up to and including 65%||0.50%|
|Up to and including 75%||0.65%|
|Up to and including 80%||1.00%|
|Up to and including 85%||1.75%|
|Up to and including 90%||2.00%|
|Up to and including 95%||
|Up to and including 100%||3.10%|
The premium may be paid as a lump sum or added to your total mortgage amount.
Appraisal Fee: Between $300 and $450, depending on your home’s location.
Property transfer tax:
In B.C. the Property Purchase Tax is payable when an application is made to register a change of title and based on the property’s fair-market value:
- if the fair-market value is $200,000 or less, the tax is 1% of fair-market value
- if the fair-market value is greater than $200,000 the tax is 1% of the value up to $200,000 and 2% on the fair-market value over $200,000. First Time Buyers may be exempt from this tax provided.
Property Purchase Tax Exemption
You may qualify for a tax exemption if you, and the property you are purchasing, meet the following guidelines:
- The maximum purchase price to qualify for the exemption in Vancouver, Victoria, Squamish, Whistler, and the Fraser Valley is $475,000. In all other areas of the province, the maximum qualifying purchase price is $500,000.
- You may never have previously owned an interest in your principal residence (anywhere in the world).
- You must be a Canadian Citizen or Landed Immigrant and have been a resident of British Columbia for at least 12 consecutive months immediately prior to the purchase.
- The purchaser must occupy the property as their principal residence within 92 days of completion.
- Under certain circumstances, the purchase of raw land or a building lot may qualify.
- Other conditions apply may apply.
These include your lawyer’s fees plus miscellaneous costs to transfer the property. These vary according to the legal firm used.
Required to ensure the house is situated on the lot within legal limits. You may ask the seller to provide this as a condition of your offer.
An optional but advisable step to take. Have an independent professional inspect your house and make a satisfactory inspection a condition of your offer. The cost will vary according to the home and inspector. Expect to pay $350 to $450 for a $300,000 home.
Tax: New homes are subject to 7% GST.
You need to know who pays the GST, yourself or the builder. Check this by reviewing the offer to purchase—you pay if the offer to purchase says ‘plus GST’ and the builder pays if it says ‘GST included.’ There is, however, a rebate on the GST if the home costs less than $450,000. Once again, you need to establish who gets the rebate. More rebate information is available online from the Canadian Revenue Agency.
Prepaid taxes or utility bills:
If these costs are prepaid, you must reimburse the seller on a pro-rated basis.
How can you get your down payment?
The higher your down payment, the lower your mortgage payments. Here are some other things to keep in mind:
- If you do not have a down payment that is 20% of the purchase price of your home, you will have to apply for a high-ratio mortgage.
- If you do not have enough money saved for a down payment, you may be able to finance your down payment or withdraw your RRSP’s’ and apply the cash toward the down payment.
High-ratio versus conventional mortgages
Mortgages with more than a 20% down payment are known as conventional mortgages. Not everybody has that much cash. If you don’t, you’ll need to apply for a high-ratio mortgage. Because of the smaller down payment, these mortgages are considered riskier and require special mortgage insurance. Insurance for these mortgages is provided by the Canadian Housing and Mortgage Corporation (CHMC), www.cmhc-schl.gc.ca, Genworth Financial, www.genworth.ca and Canada Guaranty. In these cases both the lender and one of CHMC, GE or Canada Guaranty must approve your mortgage application.
Financing your down payment
In some cases you may be able to purchase a home wthout a down payment.
Or if you don’t have enough savings for the minimum 5% down payment, you’re not necessarily stuck. You may use a personal loan or a line of credit for the down payment. You can turn to your family for assistance. Whatever you do, though, the money you borrow can’t be registered against the property.
If you decide to borrow your down payment, you will pay a higher insurance premium. In addition, the lenders will include the borrowed down payment in calculating a mortgage that you can afford.
The Home Buyers’ Plan—using RRSPs
Your RRSP is usually reserved for retirement, but you may be able to tap these funds to buy your first home by using the Home Buyers’ Plan. If you qualify, the plan lets you withdraw up to $20,000 tax free from your RRSP to use as a down payment. Some conditions apply:
- You must purchase your home by October 1 in the year following your RRSP withdrawal.
- You must have entered into a written agreement to buy or build a qualifying home.
- All RRSP withdrawals must be made within the same calendar year.
- To remain tax free, these funds must be repaid within 15 years. Repayments start in the second calendar year following the withdrawal.
Step 3 Finding the Right Home
Start the Search
Once you figure out what you can afford to pay for a house and obtain a pre-qualified mortgage; you are ready to start your search. There are a variety of sources you can use to find the home that is right for you:
- Word of mouth. By telling everyone you know that you are looking for a house, you might hear about homes that are just becoming available on the market.
- Newspapers and real estate magazines. Check the new homes section in daily newspapers or look for real estate magazines available at newsstands, convenience stores and other outlets. These free publications feature pictures and brief descriptions of a variety of homes.
- The Internet. Check out real estate websites, such as www.mls.ca, for information and pictures of a wide range of properties. This site allows you to narrow your search by location, price, number of bedrooms and other features.
- “For Sale” signs. Drive around a neighbourhood that interests you and look for “For Sale” signs. This is a good way to find homes that are being sold by the owner.
- Visit new development sites. If you are looking for a newly built home, this will allow you to see the different models available and to get information from builders.
- Work with a real estate agent. For most buyers, a real estate agent is key to finding the right home. You’ll want to find someone whose attitude and availability inspire your trust. In addition you’ll want to work with a realtor who’s active in the neighbourhood that you want to live in, as they may be aware of some properties that aren’t available through the Multiple Listing Services. If you are not presently working with a realtor we would be happy to provide you with a referral to a realtor familiar with the area in which you want to buy. Click here for client contact form
Useful Tips for Your Search
- Keep records. Whether you work with a real estate agent or search by yourself, it’s a good idea to visit several different homes before choosing one. Most realtors will provide you with feature sheets on the properties you view to help you remember which properties have which features. Don’t forget to consider the home’s utility costs, property taxes and major repairs, as these will affect your monthly housing expenses. Ask to see copies of bills. You should also be ready to compromise. Chances are you won’t find a home that has everything you want.
- Think twice. Even if a home seems perfect, go back and take a closer, more critical look at it. Visit on different days and times, chat with prospective neighbours and look beyond cosmetics.