With mortgage rules changing so often in the past few years it is difficult to keep on top of them all.
Even though the new guidelines have come from the government, banks and mortgage lenders also change their programs and product offerings and as of most recently, they have changed their pricing structure as well. In here I provide some basic factual information to simplify all of the noise that is in the market which is often misunderstood or incorrect.
Down Payment for home purchases: in Canada you require 5% down payment to purchase an owner occupied home. Most people come up with the down payment traditionally, meaning from their own savings, RRSPs or a family member gifting the funds. There are a couple of alternative options currently still available, such as borrowed down payment, meaning you can borrow (if affordable) from your line of credit, obtain a new loan as well – say from employer, bank, family OR obtain a cash back mortgage (more commonly known as zero down, since the lender provides the down payment to the lawyer). The alternative loans come with more stringent guidelines for qualifying, and again, there have been no announcements with regards to how long the cash back mortgage will be available as there is only one provincial lender that is offering the program.
Down payment for revenue purchases: to purchase revenue properties you will require a minimum down payment of 20%. These days though, many lenders require 25% or in some cases even up to 35%.
Down payment for second homes: you may still buy a second home or vacation property with only 5% down payment and will be subject to all the mortgage insurer rules.
Purchase plus improvement: this is a really cool program that is often not utilized enough. Let’s say you found the perfect home for you, but it’s missing the garage you always wanted or a finished basement or needs some renovations. Well this program may just be for you. Depending on the lender, you can finance up to an additional 20% above the value of the home for the work that needs to be done. For example, you found a home valued at $300,000 and wanted to finish the basement and add a detached garage. The quoted work comes to $45,000, making the end financeable value at $345,000. You will need a minimum of 5% down from the new value, and then begin the work from there. You will need to obtain quotes and typically you’ll need to finance the project yourself, find a renovation company that will carry the costs for minimum up front down payment or borrow the funds from a source until the lender inspects the property to release the funds from the lawyers. Just another solution to make your dreams come true!
Proof of the down payment: since the down payment is one of the most essential components of your mortgage, the banks and lenders need to prove where these funds come from. Often the most difficult part is the verification of these funds, especially if they are coming from other sources, such as gifts, borrowed funds OR even more surprisingly is that people still have cash in their ‘mattresses’. Unfortunately, ‘mattress funds’ cannot be utilized right away, they need to be seasoned in your bank account for 90 days or longer to satisfy the mortgage insurers/lenders’ mortgage stipulations.
Length of amortizations: amortizations with less than 20% down payment cannot be longer than 25 years as they require mortgage insurance through one of the mortgage insurers such as CMHC, Genworth or Canada Guaranty. There are a couple of lenders that offer 30 or even 35 years, but require minimum of 20% down and often times more.
Qualifying for a mortgage: with everyone’s situation completely different than another, this topic can go on for 20 pages. So to keep this simple, no matter what you think your credit looks like, no matter what your employment situation looks like, it’s best to speak to me about what can be achieved and when.
The mortgage rules are always going to be changing, but to stay on top of the mortgage market the best way is to contact a mortgage professional that is knowledgeable and will provide you with the best non-biased information possible. Rates are one thing and are easily matched, but advice will never be. If you are going to use a mortgage professional, make sure you get a good one!
Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres –Regional Mortgage Group and can be contacted for more information or appointments at 403-343-1125 or emailed to firstname.lastname@example.org. or visit www.jeanguyturcotte.ca.