Mortgages for First-Time Home Buyers
Purchasing your First Home
With mortgage rates hovering at historic lows there’s never been a better time to buy your first home.
At Ontario Lending Solutions we can help you understand the options available to you at this important stage in your life.
Take comfort knowing that Ontario Lending Solutions will provide you with all the information, sound advice, and assistance you need, every step of the way.
Here is a list of topics you’ll want to read over as you plan what may be your largest purchase ever. If there’s anything you’re unsure about, please don’t hesitate to talk to one of our specialists. We’re prepared to do what we can to help make things proceed smoothly, quickly and effortlessly.
- Choosing a realtor
- Affordability & financing
- Selecting the right mortgage
- Applying for your mortgage
- On closing day
- Mortgage life insurance
- Prepayment privileges
Choosing a realtor
If you’re not already working with a Professional Real Estate Agent, Ontario Lending Solutions works with a very exclusive elite group of realtors that we like to call Key Partners. In other words, they are partners in our business because the expectation is that they look after the needs of our clients with the utmost care and professionalism. For example, no stone is left unturned to make sure all your real estate needs have been looked after.
Choosing the right realtor can help ensure you get the right house at the right price. You want a real estate agent, therefore, whose attitude and availability inspire your trust.
Affordability and financing
Talk with your Ontario Lending Solutions specialist to review your current income and expenses. We’ll help you consider how your new mortgage may change your monthly expenses. Securing a pre-approved mortgage with a lender that checks your credit rating will allow you to get an idea about how much mortgage you may qualify for. As a result, you will have a price range in mind when you look at different properties.
Lenders determine affordability by looking at your Gross Debt Service ratio (GDS) and your Total Debt Service ratio (TDS). The GDS ratio is based on what you can afford to pay each month; it includes mortgage payments, taxes and utilities. The TDS ratio includes everything covered under GDS plus all your other financial obligations.
We can help you do a complete analysis based on net income and projected budgets to determine what you can comfortably afford.
The pre-qualifying stage is also the time to find out about the difference between conventional mortgages and high-ratio insured mortgages. Ask about assistance programs for first time home buyers.
We will also discuss closing costs with you, such as land transfer taxes, legal fees, and other disbursements. Before you’re pre-qualified, our specialist will run your credit bureau report and ask for written confirmation of income. We will also discuss how much you plan to put down on your purchase.
Once you’re pre-qualified, the interest rate may be guaranteed for 60 to 90 days from the time of your application. If rates drop, you’ll get the lower rate; if they rise, you’re covered. And just because you pre-qualified by a certain financial institution, you’re by no means committed to that lender. We’ll continue to shop the market to get you the deal that we believe will suit your needs!
Selecting the Right Mortgage
Choices in selecting a mortgage include:
- Conventional vs High ratio Mortgage
A conventional mortgage is a mortgage that has a principal amount that is no more than 80% of the appraised value or purchase price of the property, whichever is less. The principal amount of a high-ratio or insured mortgage is usually more than 80% of the appraised value or purchase price. An insured or high-ratio mortgage may also be referred to as an NHA mortgage because it may be entered under the provisions of the National Housing Act and in many cases must, by law, be insured. In general, the borrower pays the insurance premium as well as application, legal, and property appraisal fees.
- Closed vs Open Mortgages
Closed mortgages generally offer lower interest rates than open mortgages of the same term, but open mortgages let you pay off as much as you want, any time, without paying a prepayment charge.
- Short term vs. long term
The term you select is important, too. Short term mortgages are appropriate if you believe interest rates will be lower at renewal time. Long term mortgages are suitable if you feel current rates are reasonable and you want the security of budgeting for the future. This may be especially important for first time home buyers.
- Fixed rate vs. variable rate
You can choose a fixed or variable interest rate. A fixed rate mortgage makes it easier for you to budget for whatever term you select. A variable rate mortgage fluctuates with the market.
When applying for a mortgage, you will need:
- A copy of the accepted Offer to Purchase and MLS
- A salary letter from your employer (self-employed buyers may require financial statements for the past three years as well as personal income tax returns).
- Confirmation that your down payment came from your own resources (e.g. bank statements or a gift letter).
- A list of all your assets and debts.
On Closing Day
Your lawyer will close the transaction with the vendor’s lawyer. At this time, the balance of the purchase price will be exchanged for the keys to your home and closing documents will be exchanged. Next, your lawyer will register the deed or title transfer and the mortgage. Finally, you pick up the keys to your new home!
After closing, your lawyer will send you a reporting letter and copies of all the documents you signed including the deed, the mortgage, and the survey, as well as a summary of the flow of funds. Be sure to keep these important records in a secure location.
Mortgage Life Insurance
It’s a sound idea to seriously consider mortgage life insurance. Generally, the cost is low and can be incorporated into your mortgage payments. More importantly, in the event of death, terminal illness, or permanent disability, your balance will be paid in full (because details vary among financial institutions, it’s a good idea to read the policy carefully). Quotes are available with each approved mortgage.
Financial institutions vary in their prepayment privileges, which let you pay down your mortgage faster. We can discuss your prepayment options with you, based on the mortgage you select. Also, be aware that the longer the amortization period (the time it takes to pay off a mortgage), the more interest you’ll end up paying. Amortization periods usually range from 5 to 25 years.
Weekly or biweekly instead of monthly payments could shave a considerable amount on your overall mortgage interest payments, depending on current interest rates.
If you are getting ready to buy your first home and would like to speak with a qualified mortgage specialist about getting a mortgage, call us today at 1-866-841-2551.
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