Frequently Asked Questions About Mortgage Financing
When it comes to mortgage financing, you may have a ton of questions but find answers difficult to come by. At Anita Mortgage Team, we want to arm you with the most accurate information available to help you understand the mortgage process and obtain the best solutions for your needs. To do this, we’ve answered some of the most frequently asked questions about mortgage financing.
1. Do I need to have great credit to get a mortgage?
No, you do not need great credit. But, to obtain a mortgage with a prime “A lender” and have access to the lowest interest rates, you will need decent established credit. As a mortgage professional, we have access to alternative lenders as well. These lenders will offer lower loan to value mortgages with slightly higher interest rates. However, this may be an excellent option, even short term, while you establish a good credit history.
2. Do I have to pay to use a mortgage professional?
In most cases, you do not have to pay to use a mortgage professional. Prime residential lenders will pay the mortgage broker a commission. The amount of commission paid will depend on the lender, mortgage product, and the term of the mortgage. If your mortgage professional needs to use an alternative or private lender, you will be required to pay a broker and lender fee. Also, if you require a commercial mortgage, you will be charged both - a broker and a lender fee. The amount of fees will depend on the lender. Your mortgage professional will discuss the fee amount with you as soon as they have a possible lending option.
3. What is the minimum down payment required to buy a new home?
The amount of down payment required will depend on a few conditions like whether you will be living in the house. If you are purchasing an owner-occupied property, the minimum down payment is usually 5%. On the other hand, if the purchase price of that property is over $500,000, you will need 5% of the first $500,000 and 10% of the amount over $500,000. If you are purchasing an investment property, you will need a minimum of 20% down payment, or possibly more. It will depend on the lender and the location of the property.
4. How do brokers determine how much of a mortgage I can be approved for?
The amount of mortgage you can be approved for will depend on your income and current debt. Assuming we are obtaining a mortgage through a prime “A lender,” we look at your debt servicing ratios. First, we look at your Gross Debt Servicing ratio (GDS). 39% of your gross annual income can go to the principal, and interest payments, property tax, predetermined heating amount, and condo fees, if any. Some lenders will only allow a GDS of 32% to 35%. Your mortgage broker will be able to help you increase this. Then we must look at your Total Debt Servicing Ratio (TDS). This is a combination of the GDS and any other monthly payment obligations you may have. It is where we add in any loan, line of credit, or credit card payments. The TDS maximum is 40% to 44%. This will also depend on the lender, insurer, and strength of the overall application. Alternative and private lenders will have slightly different GDS and TDS guidelines. Your mortgage professional will be able to discuss this with you.
5. Are all loans and debt payments looked at the same when qualifying for a mortgage?
No. When we are calculating your debt servicing ratios to determine your mortgage qualifications, the type of liability matters. Installment loans are based on the agreed monthly payment. But, any unsecured line of credit or credit card must be debt serviced by using a 3% of balance or limit (depending on the lender) as a monthly payment obligation even if you are only required to make a minimum monthly interest payment.
6. Is there such a thing as a zero-down mortgage today?
Gone are the days of a zero-down mortgage, but there is a flex down mortgage option, in which you can use borrowed funds as a down payment. It is essential to know that the loan, credit card, or line of credit payment must be included in your total debt servicing ratio (TDS). This product is supported by the insurers, CMHC, Genworth, and Canada Guarantee, but not all lenders support this product. Your mortgage professional will help you determine which lender will be best for you.
If you have any more questions about mortgage financing, get in touch with the experts at the Anita Mortgage Team. We are qualified mortgage professionals in Airdrie, Alberta, and we specialize in purchase mortgage, mortgage renewals, mortgage refinance, and home equity loans. We have sufficient knowledge of and experience with the mortgage products currently offered by multiple lenders and can provide you with a range of options to choose from. If your credit history is tarnished, we will work with you and guide you through the process of re-establishing your credit, putting you in a better position to borrow in the future. We will also guide you as your financial educator through the refinancing and mortgage renewal process.