Frequently Asked Mortgage Questions
ABOUT YOUR MORTGAGE
Just click on any of the frequently asked mortgage questions below to open up the appropriate answers. If you still have questions, please don’t hesitate to contact us and a mortgage advisor will be happy to answer any questions you may have.
How Much Can I Afford to Pay for a Home?
To find out how much you will be able to pay for your new home, you need to analyze your taxable income along with the amount of debt that you have to pay off through monthly payments. If it is your main residence that you are going to purchase, calculate approximately 32% of your income to make the mortgage payment, property taxes and heating costs.
Next, you need to calculate 40% of your taxable income and from that, deduct all of your other monthly payments such as car loans, credit card bills and other such debts. The lesser of these two calculations will be used to determine how much of your income may be used towards housing related payments, including your mortgage.
Apart from what the ratios tell you, you should make calculations of your own to determine how much you can afford. If the payment amount you are comfortable with is less than 32% of your income you may want to settle for the lower amount rather than stretch yourself financially. Make sure you take all other expenses into consideration too so that you can easily afford the basic luxuries.
What is a Home Inspection and Should I Have it Done?
A home inspection is a visual examination of a house by a qualified professional to determine the overall condition and value of the home. When conducting a proper inspection, an authorized home inspector should check all the major components of the house such as the roof, ceilings, walls, and floors along with other systems such as the electrical connections, heating, plumbing and drainage and weather proofing. The inspector usually gives the results of the inspection in writing to the home owner within 24 hours of the inspection.
It is always advisable to get a home inspection done before making a purchase decision. A thorough inspection is likely to clear a majority of the doubts that you might have when purchasing a home. The inspection gives an idea about the quality of the construction and indicates whether any major repair work will be required. This allows you to calculate all the add-on costs before making the final decision. An inspection will definitely give you a more secure feeling about your purchase decision by removing most of your doubts.
What is the Minimum Down Payment on Purchasing with a Mortgage?
In most cases, you will need to pay a minimum of 5% of the house value as a down payment. In addition to the down payment, you must also be able to show that you have the capacity to cover other closing costs such as the legal fees and disbursements, appraisal fees and a survey certificate.
As a rule, at least 5% of the down payment must be from your own cash resources or a bona fide gift from a family member. Alternatives do remain for 100% financing of your purchase for well qualified buyers. Talk to your Jencor Underwriting Centre Advisor for details. Mortgage loan insurance is required whenever the downpayment is less than 20% of the lesser of the purchase price or appraised value. (see below)
What is Mortgage Loan Insurance?
Mortgage loan insurance protects the lender in the event of default on mortgage payments and is required whenever the down payment is less than 20%. The premium is payable by the borrower and typically ranges between 0.5% to 4.75% or more, depending on factors including the amount of downpayment and length of amortization. Mortgage loan insurance is distinct from Creditor Life Insurance as the former protects the lender in the event of default while the latter protects the heirs to the estate in the event of death.
What is a Conventional Mortgage?
A conventional mortgage is one in which the down payment amount is equal to more than 25% of the purchase price (or where the loan value is less than 75%). Such a mortgage normally does not require mortgage loan insurance.
What is a High-Ratio Mortgage?
A mortgage which is greater than 75% of the purchase price or appraisal, whichever is less, is known as a High-Ratio mortgage. A High-Ratio Mortgage requires mortgage loan insurance. Premiums for a mortgage loan insurance can range from 0.5% to 3.75%, depending on the value of the mortgage.
What is a Pre-Approved Mortgage and What are its Benefits?
A pre-approved mortgage is one that provides an interest rate guarantee from a lender for a specified period of time (usually 60 to 90 days) and for a set amount of money. The pre-approval is calculated on the basis of information provided by the borrower and is subject to certain conditions being fulfilled before the mortgage if finalized. These conditions usually include factors such as a written confirmation of employment and income among other things. Many brokers prefer it when their clients have a pre-approved mortgage as this gives a clear idea of the affordable price range when hunting for a new home.
The benefits of getting a pre-approved mortgage are many. First of all, pre-approval gives you an idea of what you can afford, making your search for a new home much simpler. It also does away with the tension of trying to find out what your monthly installments are going to be. Probably the greatest advantage of getting a pre-approved loan is that it allows you to lock in a rate. As the lender guarantees a fixed rate when pre-approving the mortgage, the borrower can secure that same rate even when the market prices climb up. In case a situation arises where the interest rates fall below those that were pre-approved, the lenders usually offer the lower rate.
Can I Qualify for a Mortgage if I Have Declared Bankruptcy?
Some lenders may consider you eligible for a mortgage even though you have faced bankruptcy. However, this decision may vary from lender to lender and will greatly depend on the circumstances surrounding the bankruptcy. Certain measures can be taken by the prospective borrowers to improve their credit rating. Approach your mortgage broker for details.
What Documentation is Required to Obtain a Mortgage?
To make your mortgage application process as simple and lucid as possible, it is advisable that you collect all these documents beforehand so as to avoid any interruptions later.
- Personal information and identification such as your drivers license or passport.
- Job details, including confirmation and proof of income.
- Your sources of income.
- Proof of financial assets.
- Information and details of all your bank accounts, loans and other debts.
- Source and amount of down payment.
- Proof of source of funds for the closing costs (usually about 2.5% of purchase price)
Will Child Support and Alimony Affect my Mortgage Qualification?
If you are paying child support and alimony to another person, generally the amount paid out is deducted from your total income before determining the mortgage amount that you would qualify for. If you are receiving child support and alimony from another person, the amount paid to you will be added to your total income before determining the mortgage that you will qualify for. However, you will be required to produce a regular receipt for the same for a set time period as specified by the lender.
What is the Difference Between Fixed, Variable, and Adjustable Rate Mortgages?
With a fixed rate mortgage (FRM), the interest rate is locked-in providing a consistent payment for the entire term which typically ranges from 6 months to 10 years. An FRM is often selected for peace of mind especially when income qualification is tight. A variable rate mortgage (VRM), is similar to a FRM in that the payments are fixed for the term of the mortgage but because the interest rate is subject to change, the amortization period (total number of years to pay off) with increase or decrease. If the interest rates drop, more of the payment goes towards reducing the principal and if the rates go up, a larger portion of the payment goes towards covering the interest. An adjustable rate mortgage (ARM) is similar to a VRM in that the interest rate can vary but the payment amount will also vary with an ARM to reflect the change in interest cost with the change in rates. Deciding on the right mortgage is best done in consultation with your trusted Jencor Underwriting Centre Advisor.