Top First-Time Home Buyer Questions.

For most First Time Home Buyers a home purchase will be one of the most important and financially rewarding investments you’ll ever make.

Like many who have never bought a home before, the process may seem a bit overwhelming, with so many moving parts and so many participants.

To help you, we’ve put together this information kit. Though not an exhaustive guide, it provides answers to the most frequently asked questions that we get from clients buying their first home.

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What’s the best way to save for my down payment?

There are different home purchasing and mortgage options available depending on how much of a down payment you can afford:

  • Conventional mortgage or a line of credit (20% down payment)
  • High Ratio mortgage (minimum 5% down) High ratio mortgages require mortgage default insurance. The premium can either be paid up front or added to the mortgage.

If you’re saving to buy your first home, one of the most effective ways to put money aside is with an automatic savings plan according to your cash flow.

You could use a Regular Savings Plan putting away whatever is manageable but substantial enough to meet your goal.

A Tax-Free Savings Account (TFSA) is one of the best places to save your downpayment. All earnings and withdrawals from your investment are tax-free. You can contribute up to $5,500 a year to a TFSA.

Registered Retirement Savings Plan (RRSP). Under the RRSP Home Buyers’ Plan, if you have and account in excess of $25,000 first-time home buyers can withdraw up to $25,000 from their  RRSP, tax-free, to use as a down payment on a home. The plan allows you 15 years to repay the amount withdrawn, starting the second year after the year of the withdrawal. Your down payment should be shown accumulating for at least 90 days on your bank or investment statements.

How much home can I afford?

Getting a mortgage pre-approval before you start house hunting should be your first step, you can use one of the many online calculators to help you figure how much you can buy. Talking to a mortgage professional to understand the ins and outs of the different mortgage lenders guidelines are also a good idea.  You can use our mortgage affordability calculator or a calculator available from one of the default mortgage insurer Canada Mortgage and Housing Corporation , Genworth Canada or Canada Guaranty to figure out an affordable range so you can start shopping.

What is a pre-approved mortgage?

Does it guarantee I’ll get the financing I need?

Getting a mortgage pre-approved mortgage means that you’ve reviewed your credit, earnings, assets (including your down payment) and liabilities with a mortgage lender, who has determined the amount of money that you should be able to borrow for the purpose of purchasing a home.

In order to proceed with a mortgage approval, the lender will want to assess the value of the property once you have signed an agreement of purchase and sale. They will also need to confirm your income and down payment via an employment letter and paystub if you haven’t already provided that information.

Having your mortgage pre-approval letter is a great advantage when you’re looking for a home. Knowing your price range will help you narrow your search, save time for you and your realtor and ensure you won’t be let down in finding out the home of your dreams is not within your reach. It will give you more credibility when negotiating as it will also show to your realtor and vendors that you are a serious purchaser.

One of the benefits of mortgage pre-approval the interest rate that’s quoted on your pre-approval is

guaranteed for 120 days. If mortgage rates increase your rate won’t be affected but if rates go lower, you could get the lower rate.

Why should I use a real estate agent?

Using the right real estate agent when purchasing your first home is very important. Having not gone through what might be the largest financial investment you will ever make its important to get it right the first time.

Your real estate agent will do a market research to help you find the right home at the right price. Based on your unique situation your real estate agent and will offer you  advice on what price to offer and any conditions you might want to consider, including in your Purchase Agreement.

It’s always a great idea to get referrals, read reviews and interview a few agents before you make your selection. In the end, choose someone you feel comfortable working with as you may end up spending a lot of time with your agent checking out homes.

Some realtor require that you sign a Buyer Representation Agreement prior to working with you. This contacts you to the agent for a fixed time period binding and ensures that the agent will represent you is compensated for doing so.

Always review the terms of a Buyer Representation Agreement, suggest allowable changes before signing it.

How can a mortgage agent help me?

Working with a Sunlite Mortgage agent has a definite advantage, especially if you are a first-time home buyer. Sunlite Mortgage agents have access to the major banks, credit union, and trust companies and their resources to get you the best mortgage for your unique financial situation. In most cases will negotiate with your bank and get a lower rate than you would. This is primarily because of the amount of business we send to each bank, credit union and trust company.

Your Sunlite Mortgage agent will not only help with your pre-approval but also look at your whole financial picture and provide personalized mortgage plan based on your needs. That includes reviewing your mortgage options with you and making sure you get the mortgage from the mortgage lender that’s right for you.

This will ensure that there are no last minute surprises once we have confirmed your approval and

will allow you to go shopping with confidence.

Do I need a good credit score to be approved for a mortgage?

Assessing your credit score is the first thing a lender look at before considering a mortgage application for approval. Lenders look at your history of bill payments, so they review your credit report to see your debt repayment history. Do you pay your debt (at least your minimum payments) when they become due. The two main Credit agencies in Canada: Trans Union and Equifax keep records of missed payments and overdrawn credit accounts.

These companies record if you have ever applied for or been accepted for a credit card, loan or other debt facility. They also report if you have ever had a collection, judgement, consumer proposal or bankruptcy.

If your repayment history is good — that is, you’ve always paid your bills on time and made at least the minimum payment due on your credit card bills — you will have a good credit rating. If your track record isn’t perfect, that doesn’t mean that you won’t get approved for financing. If your late payments are in the past or date back to your student years but you have since paid your bills on time, then you may not have difficulty in arranging financing. We have lenders who lend to people great, good and bad credit. We have lenders who will lend to people with no credit. Your Sunlite Mortgage agent can help you assess your situation and provide advice on which mortgage lender is right for you. If you would prefer to wait, we could advise you on how to improve your credit rating to get you ready to purchase your first home.

You can get a free copy of your credit file by mail just by asking. For details, visit Equifax.ca or Transunion.ca.

Dreaming of owning your own home but

not sure if you qualify for a mortgage?

Even if your credit history is less than perfect,

we can help you find a solution.

What is mortgage default insurance?

If you are purchasing a home with less than 20% down payment, the mortgage act requires that your mortgage is insured against you defaulting on your mortgage payment. This insurance is paid for by the borrower and protects the lender.

Note that is you are going through financial stress your lender and mortgage insurer may have a program to reduce your mortgage payment to prevent you from defaulting.

Your mortgage insurance cost will vary depending on the total amount borrowed. The cost of the insurance is calculated in increments of 5% to 19.99%is usually added to your mortgage.

What are “closing costs,” and how much money should I set aside for them?

Closing costs are those additional expenses that come due when you complete the purchase of your home. They typically include:

  • Lawyer’s or notary’s fees. When you buy a home, you need to hire a lawyer to complete a title search (to make sure there are no outstanding liens against the property and that the vendor owns the property), ensure all the documentation has been accurately completed, register your mortgage and register you as the new owner of the property.

At Sunlite Mortgage as a thank you for your business we reimburse First Time Home Buyers legal fees on mortgages of $300,000.00 as a cash back once your mortgage is close. To get our free legal closing service click here.

  • Land transfer tax. Most provinces (and some municipalities) charge a fee to the new owner each time a property changes ownership.
  • If the seller if your home as pre-paid property taxes, you the buyer will need to reimburse those monies when you take possession of your home since you will be acquiring the benefits of those prepayments.

These amounts will vary depending on your location and the value of the property you are buying but a rule of thumb is that you will need 1.5% – 2.5% of the purchase price. Its suggested that creating a budget be a part of your home buying strategy as you may also need to budget for appliances (if not included with the home), utility hook-up, redecorating, paying a professional mover or do minor or major renovation.

What are the best mortgage options for me?

When choosing your mortgage, you’ll need to decide whether you want a variable, fixed rate or a line of credit. The options that are right for you will depend on your situation and your personal preferences. Here’s a look at how they stack up:

  • Variable-rate mortgage. With a variable-rate mortgage, the interest rate you are charged fluctuates based on your mortgage lender’s prime lending rate. In times of declining interest rates or stable low interest rates, a variable rate allows you to pay off your mortgage faster as most of your mortgage payment goes towards the principal. With a variable rate mortgage, the payment you make is fixed; however, if interest rates rise, more of your payment will go towards paying interest and less to the principal.
  • Fixed-rate mortgage. With a fixed-rate mortgage, your interest rate is locked in for the term of your mortgage contract allowing you to budget for the term. Fixed rate mortgage terms range from 1 – 10 years. With a fixed-rate mortgage your payments will not change if your lender interest rates increases or decreases rates during the term of your mortgage.

How long will it take to pay off my mortgage?

The length of time needed to pay off your mortgage completely is called the amortization. Many first-time buyers opt for a 25-year amortization, but your amortization can be shorter or longer depending on your budget and whether you have a high ratio mortgage or a conventional mortgage.

Choosing a longer amortization requires that you have a down payment of at least 20% of the purchase price of the property you are purchasing. Choosing a longer amortization will lower the amount of your regular payments, but it means you’ll be paying more interest over the life of your mortgage. Shortening your amortization, on the other hand, increases your regular payment but saves you interest overall and means you’ll be mortgage-free sooner.

Most mortgage has a pre-payment option, which allows you to shorten your amortization and pay less interest overall You could opt to prepay the maximum 15% or 20% of your original mortgage amount annually. That could make you pay off your mortgage in about 5 years. Alternatively, you could choose one of the more popular options – accelerated weekly or bi-weekly payment schedule rather than a monthly schedule. Essentially, your regular monthly payment will be divided into four (or two). Because some months in the year have five weeks rather than four, over the course of the year, you’ll make the equivalent of an extra month’s payment.

How can I protect my mortgage payments?

Protecting your loved ones and providing a home in the event of unfortunate accident is as important to us as it is to you. To make sure that you and your family will remain in your home should unexpected happen we offer insurance option to protect your most valuable financial asset.

Our Mortgage Protection Plan can help to provide a financial safety net for your mortgage precisely when you and your family need it most:

  • Life Insurance: can help to pay off or reduce your outstanding mortgage balance of up to $1,000,000 in the event of death
  • Disability Insurance: can help make regular payments towards your mortgage balance of up to $10,000/mo for 24 months in the event of a disability
  • Critical Illness Insurance: can help to pay off or reduce your outstanding mortgage balance of up to $300,000 in the event you are diagnosed with a covered critical illness

Ready to go House Shopping?

Looking for a fast pre-approval? A Sunlite Mortgage is ready to assist you or you can apply for a 120 day rate hold from the comforts of your home, it only takes 5 minutes.
Your pre-approval will be ready in less than 4 business hours.

120-day interest rate guarantee — With so many lenders to choose from we will try to get you the lowest rate for your unique credit situation.

You may already have insurance through your employer or other means, but having an insurance dedicated to replace your mortgage preserves your legacy for your loved ones.

This group insurance program is underwritten by The Manufacturers Life Assurance Company. The benefits are subject to certain terms and conditions and there are eligibility restrictions.

Personal lending products and residential mortgages are offered by Sunlite Mortgage on behalf of our lender partners and are subject to their standard lending criteria for personal loans and mortgage lending policies.

Next Week – How to make the most out of the First Time Home Buyer’s initiative.

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