- Income Qualifications and Supporting Documentation required; when you are obtaining a mortgage for the first time, you will need to provide specific documentation in regards to your employment situation. For salaried individuals, typically an employment letter, recent pay stub, and 2 years notice of assessments are usually enough. If you are self-employed, the lender will require 2 years notice of assessments, 2 years T1 GENERALS (tax returns), and company financial statements for the last 2 years if incorporated. Typically some documents are asked for such as: 2 years statements of business account, articles of incorporation, and business license.
- Appraisal; An appraisal is performed by an appraiser who is a licensed, regulated professional who will come and evaluate the price of your new home. Most lenders that you go with will request this as they want to confirm the purchase offer price is in line with what the property is actually worth. This is not a cost that is covered by your lender and it must come out of pocket. The typical appraisal ranges from $300-$500 dollars, depending on the size of the property and what is being assessed. We [the mortgage brokers] contact the appraisal company on your behalf to schedule a time. Typically from there, the appraiser will contact the real estate agent who is the listing agent for that property to schedule a time to appraise the property.
In regards to determining what usually dictates the need for an appraisal are the following: If your mortgage is high ratio [down payment is less than 20%], then no appraisal is typically required. If your mortgage is conventional [20% down payment or more], then typically it is required. Self-employed individuals and properties bought as rentals always typically require an appraisal as well.
- Real Estate Lawyer; every real estate transaction in the province of Ontario requires a real estate lawyer to handle the legal paperwork. Typical fees you will need for a real estate lawyer ranges between $1,000-$2,000 dollars per transaction. Sometimes more, sometimes less, depending on what is being done. For a first time home purchase however, as long as there are no extenuating circumstances, it should not exceed $2,000 dollars. The lawyer typically gets fully involved after the mortgage is broker complete [all documents for the lender are collected and approved]. From there, the lender will send detailed instructions to your lawyer for the legal documentation you must sign before closing. You do not have to worry about this, as your lawyer will be in contact with you as soon as the lender documents are received. If you do not have a recommended real estate lawyer, we would be more than happy to recommend an efficient and competitively priced firm.
- Insured mortgage; with all mortgages that have less than a 20% down payment have a required insurance premium. This is because, if less than 20% is put down on the mortgage, it is considered high risk. Since the mortgage would be considered high risk, there is a mandatory insurance premium charged on top of the mortgage amount (included into the mortgage borrowed amount). This premium ranges from 1.75%-2.75% of the overall mortgage. For example, if your mortgage amount was $300,000, the insurance premium [if assumed at 2.75%] would be $8,250.00. Therefore the new mortgage amount would be $308,250.00.
- Home Insurance; for every mortgage, you need to obtain home owners insurance. You can get this insurance from any source whether it is a bank or insurance broker. It is crucial to have this insurance in place before your mortgage closes so you can forward the information to your lawyer. We have options to refer you to our trusted partners if you are in need.
- Down payment; When sending over the down payment, lenders always need to see 90 days’ worth of transactions in your account regardless of what account it is coming from. If you have transferred funds from one account to another, you will need to show 90 days transactions from each account that was used. If your down payment is coming from several different accounts/mutual funds, again, you will need to show 90 days transaction history for each. Please ensure that the documents sent in, your name is clearly on the statements, along with the account number, to confirm it is in your name.
In regards to Gifted Down Payment; if your down payment is a gift, in all cases a gift letter is required. The funds will need to be transferred/deposited into your own account with a gift letter stating the amount and from who it was from (ie. Parents or Grandparents)
- Closing Costs; the closing costs of your mortgage are typically 1.5% of the purchase price of your property. You need these funds on top of your down payment. So down payment PLUS 1.5% of the purchase price extra. The lawyers’ fees, appraisal, land transfer tax, title insurance, and PST on the insurance premium charged are all part of these closing costs.