I’m excited today to post an interview I recently did with Michael Anthony Lloyd about mortgages in Canada. Michael is a Mortgage Expert and he is based in beautiful Vancouver, British Columbia. He is also the Team Leader of DLC Canadian Mortgage Experts, a high volume Mortgage Brokerage Company based in Vancouver. I had several questions about mortgages as it has been about 8 years since I last applied for one, and when it comes to mortgages in Canada things change quite quickly. Below Michael brings us up-to-date and tells us what we need to know before applying for a mortgage.
1. When it comes to buying a home and applying for a mortgage in Canada how much of a down payment is required?
You can still buy a home in Canada with as little as 5% of the purchase price down, though it must be insured (with High Ratio Insurance from CMHC, Genworth or Canada Guaranty) with a one-time premium of 2.75% of the mortgage amount, this premium can be included into your mortgage.
So for example, if you bought a home for $300,000 with 5% down ($15,000), your total mortgage would be $285,000 + the premium of $7,838 = $292,838.
In order to not pay the High Ratio Insurance, one must come up with 20% down, so in this example, $60,000.
2. Are there any incentives to first time home buyers when they apply for a mortgage? I ask that because I remember something years ago about a first time home buyer qualifying for a 10% down payment.
There have been a few programs over the years for first time buyers, but they tend to be run provincially.
For example, first time buyers here in BC are exempt from our Property Purchase tax up to $425,000 (Purchase Price) & partially exempt up to $450,000 (more info here).
Ontario has something similar called the Land Transfer tax refund, where you can save up to $2000.
The Federal Government offers first time buyers the option to access their RSP savings with no tax consequences (up to $25k each) as long as they pay it back over the next 15 years. First timers are allowed to buy with as little as 5% down, as per the previous question.
3. What if I have poor credit or have been discharged from bankruptcy within the last several years? Can I still qualify for a mortgage in Canada?
Bankruptcy will make things more difficult to buy a home, but it is not impossible!
Lenders & Insurers (CMHC etc.) will look for some form of re-established credit after your discharge, and that credit account will need to be significant (more than $1000 borrowed) and paid perfectly.
We have some lenders who will look at financing clients with only a discharge, but you will pay much higher rates and will need a significant down payment (30% or more).
I would usually specify a plan with my clients to rebuild a new credit record and save a downpayment of at least 10 – 20%, and once they have been discharged for 1 – 2 years, we could then look at getting them approved for a mortgage.
4. How can a Canadian mortgage broker get a better rate for me than my own bank?
Mortgage Brokers deal with many of the lenders you have heard of, and many you may not have heard of.
They bring mortgages to these lender’s “wholesale” departments without the lender having to have a bricks and mortar branch network (in some circumstances this is in addition to their branch network) or paid staff.
They simply pay the Brokers for bringing them business, and the Broker’s client’s get the lender’s best discounted rate right up front.
Volume also comes into play, the larger the volume the Broker or Brokerage brings to the lenders, the better the rate the Lender is sometimes able to offer.
A word of caution though, there is a great deal more to a great mortgage plan than just the rate, and a good mortgage broker will show you those important features such as Prepayment allowance, Portability, Assumability, and many more ingredients that go into a great mortgage.
5. If I am self-employed and earning a modest income are there specific qualifications that I need to meet to be able to obtain a mortgage in Canada?
This is the area the Government of Canada has made the most significant changes to in the mortgage market over the past few years.
We previously had programs that, like a pendulum, went too far in making it easy for self-employed people to get a mortgage, though it was never as crazy here as it was in the US.
Today virtually all lenders will require any self-employed individual to show their Tax returns including their Notice of Assessments (the forms CCRA mails back to you after you have sent in your tax return, confirming they received it and stating what you owe or will receive in a refund), and work from those numbers when qualifying you for your mortgage.
This will likely impact the amount you qualify for negatively compared to even a few years ago. For more information on how to qualify, click to see another one of our educational videos here.
6. How long does it typically take for a financial institution to arrange financing for a client once they have made an offer on a house?
Once you have made an offer, a lender generally can get an answer back in 24 – 48 hours, however, they may need more information to make the final call.
For example, if a property appraisal is required that may add a few days to get the report back to the lender and signed off.
Also, the lender may approve the mortgage subject to verification of income, downpayment and anything else they may require to finalize the mortgage…so until they receive that paperwork back and sign off on it, the deal is still up in the air.
We recommend making any offer with a “subject to financing” clause of at least 5 business days, and if your situation is complicated, maybe 10. Here is another video on the overall mortgage process…click here.
7. If I am pre-approved for a mortgage and I am still looking for a place to buy, do I need to rush out and buy a place, or do I have some time?
Most of the pre-approvals we see are setup for 120 days…so that means as long as the purchase completes before the 120 days are up, you know your rate is guaranteed.
However, in this low rate environment, that really isn’t as important, so what we do for our clients is “roll over” the pre-approval after 120 days into another 120 days, if they haven’t found what they are looking for. This rate hold is a lot more important when rates are going up.
If you would like, click on my new website built for First Time Buyers and sign up for my free education series of videos and ebooks.
I hope this information helps, please feel free to ask anything else you may want to know…I am here to help!
Michael, thank you so much for taking time out of your busy schedule to work on this interview.
Readers, if you have any questions about mortgages in Canada, please ask away in the comments.