As a first time buyer how to get the money and a mortgage can be stressful. Taking the time to ask questions and have a conversation with your mortgage broker can help simplify the process and give you an easy to follow check list.
To start – all buyers need to show proof of a down payment (5% minimum) to purchase an owner occupied home. You also need to show how you make your income from a job, your own business or other sources. Then, we need to look at your credit score and history. Finally you need to show proof you have enough of your own funds to cover the closing costs. These costs include the legal fees charged by your lawyer, your share of the strata and property taxes for the year paid back to the seller. If you are first time buyer you may qualify for an exemption on the purchase property tax (in BC) – see blog post to follow.
To qualify for a mortgage your broker must determine if you can make monthly mortgage payments. This is called debt servicing. A buyer with 5% down will have to meet the guidelines with no more than 35% of gross monthly income to pay the mortgage payment and property taxes. In addition no more than 42% of gross monthly income can be used to pay other debts such as loans and credit cards in addition to the mortgage payment. For example if you earn $5,000 per month a maximum of $1750 per month can be used to pay the mortgage and taxes and no more than $2100 per month can be used to pay all monthly debt payments including the mortgage and taxes.
Once you have provided proof of income, the down payment and closing costs along with good credit and an accepted offer to purchase, your broker will review with the mortgage lender and provide a letter of commmitment with conditions and terms of the mortgage for your acceptance.