1. Do I need great credit to get a mortgage?
Not necessarily, but it will certainly help. It is possible to get a conventional mortgage with a FICO credit score as low as 620, and you can obtain a higher-cost B Lender mortgage with a score in the 500s. However, be aware that the lower your score, the higher your interest rate will be. On a $250,000 mortgage, the difference between a 620 credit score and an “excellent” 760 adds up to more than $86,000 in interest savings over the life of a 30-year loan.
2. How much of a down payment do I need?
The short answer is that you can get a conventional mortgage with as little as 5% down. Whether a conventional or B Loan loan, you’ll have to pay private mortgage CMHC insurance whether your down payment is 20% or not of the home’s sale price.
3. What are closing costs, and how much should I expect them to be?
The term “closing costs” refer to all of the charges you’ll need to pay before your loan is completed. This can include documentation fees, title insurance, legal fess, and more. Closing costs can vary significantly, but generally, expect to pay around $2000-$10,000 depending on the move and the property your purchasing.
4. Should I choose a fixed-rate or an adjustable-rate mortgage?
When interest rates are historically low, like they are now, a fixed-rate mortgage makes good financial sense. Not surprisingly, the vast majority of mortgages originated today are fixed-rate. In fact, only about 3% of buyers are choosing adjustable-rate loans.
That said, while a fixed-rate mortgage is the best choice for the majority of homebuyers, there are some circumstances where an variable rate may be better. For example, if you expect to sell the house before the fixed-interest period ends and the rate starts to float, an variable rate could end up saving you thousands of dollars. Or, during periods of falling interest rates, a variable rate can allow you to get a low initial rate, and will save you money later if rates drop further.
5. Should I “lock” my interest rate?
A rate lock means that you’re guaranteed today’s mortgage interest rate for some predetermined period, typically 30 to 60 days. If interest rates have been trending upward, it’s generally a good idea to lock in your rate. While the prevailing mortgage rate doesn’t usually make a big move in a month or two, it’s certainly possible.
6. What type of mortgage is best for me?
There are several different types of mortgages to choose from. A conventional mortgage is tougher to qualify for credit-wise, but an b loan can be costlier..
7. Should I get a 15-year , 25 year, or 30-year term loan?
This depends on how much you want to stretch your budget. If you can afford the higher monthly payments, a 15-year mortgage usually comes with a better interest rate than a 30-year version. Not only will you pay off the house quicker, but you can save a tremendous amount of interest. On the other hand, a 30-year mortgage will cost less per month, allowing you to afford a bigger or nicer house, or one in a better location.
8. What documentation should I gather?
Your lender may ask for many different items, but in general, be prepared to show all of the following:
- Income verification (Last two years’ tax returns, T4s, NOA’s, and your last few pay stubs)
- Drivers’ license and SIN #/card (or alternative ID)
- Bank statements
- Proof of funds to close (and an explanation of where they came from, if it’s not obvious)
- If some or all of your down payment is coming from a gift, you will need gift letter from the source of the funds that confirm they are gift, not a loan.
9. What is a pre-qualification?
A pre-qualification is a basic review of your finances to determine if you would qualify for a mortgage. In general, a pre-qualification is based on unverified information you provide and does not include a credit check or any documentation, and is therefore not a firm guarantee of a loan.
10. What is a pre-approval?
Unlike a pre-qualification, a pre-approval can be a highly useful tool in the homebuying process. It’s essentially the same thing as applying for a mortgage, just without a specific home attached to it. As part of a pre-approval, a lender will check your credit, verify your income and employment, and commit to lending a certain amount of money. A pre-approval can show sellers that you’re serious about buying a home, and that you’re likely to be able to follow through on a bid, and close on their property.
11. Why does it take so long to close a mortgage?
Mortgages tend to take at least 30 days to originate, and many first-timers don’t expect this much of a waiting period. The short answer is that a lot of things need to happen between you submitting your mortgage application and you taking ownership of your home.
12. How is my mortgage payment determined?
Depending on your situation, there are typically three or four parts of your mortgage payment:
- Principal: Repayment of your outstanding balance.
- Interest: Payment of the interest charged on the outstanding balance.
- Taxes: See question 12. One-twelfth of your expected annual property taxes will be included in your mortgage payment, and deposited into your mortage account.
- Insurance: This includes homeowner’s insurance, as well as any other hazard insurances you’re required to have, such as flood or windstorm.
13. Will my monthly payments change during the loan term?
Probably. Even with a fixed-rate loan, your payment is likely to change over time. The reason? Your property taxes and insurance expenses tend to fluctuate. If they rise, it may be necessary for your lender to ask for a higher payment.
Mortgage rates spiking in 2018: Refi before it’s too late!
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