10 Most Commonly Asked Mortgage Questions - Week 2

In continuing with our series on the 10 most commonly asked mortgage questions this week we look at down payments & qualifying.  The blog is written by our guest blogger, John Eivindson, from Dominion lending, who services Gabriola, and has provided a wealth of information on lending practices.

How much money do I need for a down payment?


     The minimum down payment required is 5% of the purchase price of the home. And in order to avoid paying mortgage default insurance, you need to have at least a 20% down payment.


What happens if I don’t have the full down payment amount?

     There are programs available that enable you to use other forms of down payment, such as from your RRSPs, a cash-back product, or a gift.


What will a lender look at when qualifying me for a mortgage?

     Most lenders look at five factors when determining whether you qualify for a mortgage: 1. Income; 2. Debts; 3. Employment History; 4. Credit history; and 5. Value of the Property you wish to purchase. One of the first things a lender will consider is how much of your total income you’ll be spending on housing. This helps the lender decide whether you can comfortably afford a house. A lender will then look at your debts, which generally include monthly house payments as well as payments on all loans, credit cards, child support, etc. A history of steady employment, usually within the same job for several years, helps you qualify. But a short history in your current job shouldn’t prevent you from getting a mortgage, as long as there have been no gaps in income over the past two years. Good credit is also very important in qualifying for a mortgage. The lender will also want to know that the house is worth the price you plan to pay.

10 Most Commonly asked Mortgage Questions

     As REALTORs we are always looking to provide our clients with questions to answers they may have in regards to all aspects of a real estate purchase.  On Gabriola we had the opportunity to have Dominion lending come in to one of our meetings, who provided a wealth of information on lending practices.  As a result we've asked them to be a guest blogger over the next few weeks, where they'll answer the 10 Most Commonly asked Mortgage Questions... 

What’s the best rate I can get?


     Your credit score plays a big part in the interest rate for which you will qualify, as the riskier you appear as a borrower, the higher your rate will be. Rate is definitely not the most important aspect of a mortgage, however, as many rock-bottom rates often come from no frills mortgage products. In other words, even if you qualify for the lowest rate, you often have to give up other things such as prepayments and porting privileges when opting for the lowest-rate product.



What’s the maximum mortgage amount for which I can qualify?

    To determine the amount for which you will qualify, there are two calculations you’ll need to complete. The first is your Gross Debt Service (GDS) ratio. GDS looks at your proposed new housing costs (mortgage payments, taxes, heating costs and 50% of strata/condo fees, if applicable). Generally speaking, this amount should be no more than 32% of your gross monthly income. For example, if your gross monthly income is $4,000, you should not be spending more than $1,280 in monthly housing expenses. Second, you will need to calculate your Total Debt Service (TDS) ratio. The TDS ratio measures your total debt obligations (including housing costs, loans, car payments and credit card bills). Generally speaking, your TDS ratio should be no more than 40% of your gross monthly income. Keep in mind that these numbers are prescribed maximums and that you should strive for lower ratios for a more affordable lifestyle. Before falling in love with a potential new home, you may want to obtain a pre-approved mortgage. This will help you stay within your price range and spend your time looking at homes you can reasonably afford.

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Gabriola - Market Value and Property Assesments

BC Tax assessment notices were recently sent out to property owners, some owners saw an increase while others saw a dramatic decrease in the assessment of their property. The assessment notice that property owners receive reflects the the value as of July 1 of the previous year, in a changing market, on the day when assessments are sent out they are already 6 months old. There are important factors to consider when a buyer looks at assessment notices, homeowners in the same neighborhood may have protested their taxed value, there may have been a sale that skews the value, upgrades that didn't require a permit, and the length of time since the BC Assessment appraiser has conducted a property inspection.

The Market Value takes into consideration recent Real Estate transactions, supply and demand of housing in the local market, current economic situation, and mortgage rates. If your looking at purchasing a property, you may choose to get an appraisal rather than looking at the tax assessment as they will consider similar homes that have sold and replacement cost formulas based on current prices. Mortgage Lenders will likely require an appraisal to make sure you aren't paying more than market value.