Mortgage FAQs / Myths / General info

[TimLacroix]

There have been a lot of questions lately and wanted to list a few of them here.

1. Buying a home with 5% down - The 5% down payment guideline does not apply to just First Time Home Buyers. It is to anyone and everyone buying a Owner Occupied/ Principal Residence.

2. CMHC, Genworth, Canada Guarantee - to avoid these premiums being added to your mortgage, 20% down payment (equity) is required.

3. Maternity Income - Full salaried income for someone on maternity can be used for mortgage qualifying. Letter of employment is needed confirming annual salary amount and position is available for your return after maternity is over.

4. Amortization - note that currently 30 and 35 year amortizations are still available on conventional mortgages only. This means that there is 20% more equity or down payment in the property.

5. Self Employed - this is a big area but will highlight income and down payment.
Option 1 - Verified Income - Can purchase with 5% down payment. Income used is 2 years NOA average.
Option 2 - Stated Income - Can purchase with 10% down payment. Income is declared based on a reasonability test for the type of job etc... plus annual gross revenue information.

Typically lenders also would like to see 2 years self employment. Exceptions can be made if you have transitioned from employment to self employment in the same industry.

Please do not hesitate to PM me for more details on the above items OR do not hesitate to ask any other question.

There have been non stop rule changes and continues to be subtle changes that might affect you or help you in qualifying for a mortgage.

[revelations]

Question about the transition to self employment phase, do you need something in writing to prove that you were in the same industry previous or an employer reference?

[TimLacroix]

Originally posted by revelations
Question about the transition to self employment phase, do you need something in writing to prove that you were in the same industry previous or an employer reference?

Yes, what will be required is previous 1-2 years of T4's, ROE (record employment) are the typical docs required. Credit bureau usually assists as well by showing previous employer details.

If you have specific details, please let me know as there are always other ways to skin a cat.

[heavyfuel]

If you're self employed for 9 years, excellent credit and history, have 10% down, and owe the CRA just under 30k but they're not on you like hyenas cuz you're making solid regular payments, is the CRA gonna cockblock you?

[TimLacroix]

Originally posted by heavyfuel
If you're self employed, excellent credit and history, have 10% down, and owe the CRA just under 30k but they're not on you like hyenas cuz you're making solid regular payments, is the CRA gonna cockblock you?

Typically lenders want to see owing balances to CRA paid before funding a mortgage.

There are some options here depending on the full picture.

If you wish to discuss, please call me at 403-648-1541 or provide me with a number and I will call you.

[afrotl]

What are the guidelines when it comes to Assumptions.
For example you own a property and about to leave the country and you found someone who wants to assume it due to the good interest rate and low mortgage payments.

Your bank says yes they can assume your property so far as they qualify however the bank does not tell you if you are still on the hook in case they mess up.
A broker I know says so far as you get a lawyer to draft up a letter stating that so far they qualify, you are free of anything after that and ensure the banks agrees to it.

Any incite on that?

Thanks.

[TimLacroix]

Originally posted by afrotl
What are the guidelines when it comes to Assumptions.
For example you own a property and about to leave the country and you found someone who wants to assume it due to the good interest rate and low mortgage payments.

Your bank says yes they can assume your property so far as they qualify however the bank does not tell you if you are still on the hook in case they mess up.
A broker I know says so far as you get a lawyer to draft up a letter stating that so far they qualify, you are free of anything after that and ensure the banks agrees to it.

Any incite on that?

Thanks.

Yes, the persons wanting to assume your property and mortgage will be responsible for the mortgage (from the current lender).

The assumption process has changed over the years and an assumption is considered a sale, which means a transfer of ownership.

Question: Was the mortgage originally insured? Less than 20% down payment? Who is the current lender?

If insured, then you may still be on the hook from CMHC, Genworth or Canada Guarantee. To remove any responsibility in case the new owners default is you MUST request in writing to be released of responsibility from the insurer.

They may wait 12 months to see 12 consistent payments on the mortgage before releasing responsibility.

These again are guidelines and therefore would consult a Real Estate lawyer to be sure of pros and cons of having someone assume your mortgage.

[roopi]

Originally posted by heavyfuel
If you're self employed for 9 years, excellent credit and history, have 10% down, and owe the CRA just under 30k but they're not on you like hyenas cuz you're making solid regular payments, is the CRA gonna cockblock you?

Why don't you use the 10% down payment you have to pay off CRA so you aren't paying them interest. Then start saving for the down payment again.

[Xtrema]

Originally posted by roopi


Why don't you use the 10% down payment you have to pay off CRA so you aren't paying them interest. Then start saving for the down payment again.

Was wondering the same thing. Is interest owe to CRA tax deductible? lol.

10% on a $350K means you have $35K on hand which will definitely covers it. But I would have to assume that $35K is there for business operation to cover AR shortfalls.

[heavyfuel]

Originally posted by roopi


Why don't you use the 10% down payment you have to pay off CRA so you aren't paying them interest. Then start saving for the down payment again.

I don't have a 10% down payment at the moment lol CRA gets my money first for sure. I was just asking if owing taxes is a 100% cockblock.

[afrotl]

Originally posted by TimLacroix


Yes, the persons wanting to assume your property and mortgage will be responsible for the mortgage (from the current lender).

The assumption process has changed over the years and an assumption is considered a sale, which means a transfer of ownership.

Question: Was the mortgage originally insured? Less than 20% down payment? Who is the current lender?

If insured, then you may still be on the hook from CMHC, Genworth or Canada Guarantee. To remove any responsibility in case the new owners default is you MUST request in writing to be released of responsibility from the insurer.

They may wait 12 months to see 12 consistent payments on the mortgage before releasing responsibility.

These again are guidelines and therefore would consult a Real Estate lawyer to be sure of pros and cons of having someone assume your mortgage.

Thanks for the response.

Question:
Was the mortgage originally insured? Yes it was
Less than 20% down payment? Yes 5% down payment
Who is the current lender? TD Bank

[TimLacroix]

Originally posted by afrotl


Thanks for the response.

Question:
Was the mortgage originally insured? Yes it was
Less than 20% down payment? Yes 5% down payment
Who is the current lender? TD Bank

Since it is insured you will have a 2 step process to remove responsibility.
1. Have clients qualify to assume your mortgage... TD will make changes once approved.
2. Must request release to the insurer once the new applicants are approved.
OR wait the 12 months and request to be released.

[Sugarphreak]

....

[TimLacroix]

Originally posted by Sugarphreak
If I am selling my current home and going with a different lender, what are my obligations when it comes to closing out an existing mortgage or line of credit? Do I just show up at my branch with a briefcase full of money, or do I have to notify them somehow that my home is sold… or is this tasked to the real estate lawyer to handle?

The real estate lawyer will handle the funds on the sale and payout all charges registered on title (mortgage, heloc, etc...). Then the extra funds are provided to you.

[roopi]

Originally posted by Sugarphreak
If I am selling my current home and going with a different lender, what are my obligations when it comes to closing out an existing mortgage or line of credit? Do I just show up at my branch with a briefcase full of money, or do I have to notify them somehow that my home is sold… or is this tasked to the real estate lawyer to handle?

Rolling in with a briefcase is the baller way of doing it.

[lilmira]

They'll give you a deal if you have "cash in hand" of course lol.

[EG STyLeZ]

What are the pros and cons of taking out your RRSPs for down payment under the first time home owner plan? Especially if this additional contribution will allow you to make the 20% down.

[TimLacroix]

Originally posted by EG STyLeZ
What are the pros and cons of taking out your RRSPs for down payment under the first time home owner plan? Especially if this additional contribution will allow you to make the 20% down.

Pro is that you will avoid CMHC (insurer) premiums. You also take it out without paying taxes and have 15 years to pay it back, interest free.

Con is that your investment stops growing, if you do not contribute back the minimum per year it becomes taxable income.

[sabad66]

Another con is that you have to pay yourself back... So if you take out the max (25k), budget an extra 1666 extra to pay every year.

[Neil4Speed]

Originally posted by EG STyLeZ
What are the pros and cons of taking out your RRSPs for down payment under the first time home owner plan? Especially if this additional contribution will allow you to make the 20% down.

I had a similar question. Other Pros are that you will save on interest costs by contributing funds that otherwise you would not have.

It could be argued that your home is an investment vehicle.

[prae]

Tim, what would you advise here:

We just wrote an offer on a "second" house that we intend to make our primary residence. We have a cash DP good for 5%, but fully intend to sell our "old" house prior to closing on the new place. We have enough equity in our existing loan to cover a 30% DP on the new loan but obviously won't be able to unlock this until selling.

Is there any scenario in which we could avoid paying CMHC insurance on the new loan?

[FraserB]

Is the general rule of thumb still 5 years gross salary for what you can buy? I’ve been told that a few times now and it sounds reasonable to me.

I’ve also been playing around with the mortgage calculators on the bank’s websites. They are showing 5 year fixed at 5.14%, I thought that rates were down at around the 3% mark?

Additional payments. These go right to the principle correct? Is there a general guideline on how much is allowed per year?

[parapara_vince]

Originally posted by prae

Is there any scenario in which we could avoid paying CMHC insurance on the new loan?

Not sure if this is 100% correct, but I was told at one point that you only have to pay CMHC once. You do not need to pay CMHC again for your second house even if it's 5% down as you have already been insured for your first home's purchasing price.

However, if the 2nd house is higher cost than the first home, then you will have to paid the difference in CMHC value.

Can anyone confirm if the above statement is true?

[BananaFob]

Originally posted by parapara_vince


Not sure if this is 100% correct, but I was told at one point that you only have to pay CMHC once. You do not need to pay CMHC again for your second house even if it's 5% down as you have already been insured for your first home's purchasing price.

However, if the 2nd house is higher cost than the first home, then you will have to paid the difference in CMHC value.

Can anyone confirm if the above statement is true?

Not even remotely true unless you're doing a mortgage port. If you're porting to a value of equal property (within a certain timeframe) then you will not incur any additional CMHC premiums.

If you're porting to a place that has a higher value, you can apply for the CMHC top-up and pay the difference in premiums.

[TimLacroix]

Originally posted by FraserB
Is the general rule of thumb still 5 years gross salary for what you can buy? I’ve been told that a few times now and it sounds reasonable to me.

I’ve also been playing around with the mortgage calculators on the bank’s websites. They are showing 5 year fixed at 5.14%, I thought that rates were down at around the 3% mark?

Additional payments. These go right to the principle correct? Is there a general guideline on how much is allowed per year?

Interesting, haven't heard of a rule of thumb for buying a house. I have for buying a wedding ring.

Part of the challenge with the rule of thumb is that it does not take into account any other debts, credit etc.

The 5.14% is bank posted rates... they want you to call so that they can offer you something better. Playing around with mortgage calculators are great for estimates but they do not take into account CMHC premiums, credit etc..

All lenders have some form of pre-payment privileges. Each lender is different too. They can range from 10/10% - 15/15% - 20/20%... some are less but these are general for most.

[TimLacroix]

Originally posted by prae
Tim, what would you advise here:

We just wrote an offer on a "second" house that we intend to make our primary residence. We have a cash DP good for 5%, but fully intend to sell our "old" house prior to closing on the new place. We have enough equity in our existing loan to cover a 30% DP on the new loan but obviously won't be able to unlock this until selling.

Is there any scenario in which we could avoid paying CMHC insurance on the new loan?

There is a way to avoid CMHC... but this is a conversation rather than responding here. Please call me at 403-648-1541 or PM me your contact info?

[TimLacroix]

Originally posted by parapara_vince


Not sure if this is 100% correct, but I was told at one point that you only have to pay CMHC once. You do not need to pay CMHC again for your second house even if it's 5% down as you have already been insured for your first home's purchasing price.

However, if the 2nd house is higher cost than the first home, then you will have to paid the difference in CMHC value.

Can anyone confirm if the above statement is true?

If you are selling an existing home and porting the mortgage to the new property, you will not have to pay new CMHC premium. If you increase funds, you will pay a top up on the extra funds, only!

Typically you pay CMHC on the home and mortgage only. If you do not port, then the new mortgage will have new CMHC premiums added to it (one time for that home & mortgage)...

[dj_rice]

I was just at the lawyers office today finalizing all paperwork when she asked me if I wanted to purchase Title Insurance. My bank, RBC said its not mandatory to purchase so the choice was mine or not. So I purchased it for $275. Was told it protects me against unpaid utility bills and/or appliances, title fraud protection, building permits and etc.

Its TitlePlus Title insurance. Was this a good investment?

[TimLacroix]

Originally posted by dj_rice
I was just at the lawyers office today finalizing all paperwork when she asked me if I wanted to purchase Title Insurance. My bank, RBC said its not mandatory to purchase so the choice was mine or not. So I purchased it for $275. Was told it protects me against unpaid utility bills and/or appliances, title fraud protection, building permits and etc.

Its TitlePlus Title insurance. Was this a good investment?

Thanks for the question... is it a good investment? Like anything it always is a personal choice or preference.

With that said, it is like any type of insurance, you may never need it but if it is there... it should will come in handy. Whether it is life, disability, car, home, etc...

The insurance IMO is fairly cheap to have for peace of mind and for the time you own the house. It will protect you against things you are not aware or that wasn't disclosed to you by the sellers.

So it is a pretty good investment as it is a one time cost. "YOU NEVER KNOW" - If you are happy or comfortable about having it... it is a good investment. As with many things in life, some will agree and some will disagree.

BTW - CONGRATULATIONS on you new home!!