Find Out How Much Mortgage You Can Borrow
The amount a mortgage provider will lend you will depend on various things, including the size of your deposit, your income and . If youre buying a property with other people, the lender will also take their finances into account.
Remember to budget for the additional costs of buying a property, such as conveyancing, surveys and – depending on the cost of the property and whether youre a first-time buyer – stamp duty.
Chapter : How To Get A Mortgage Step
You’ve got two main options when applying for a mortgage: doing it solo by going direct to the lender, or applying via a broker. Our full First-time buyers’ guide sets out in detail how both options work, though using a broker is often best as they can whittle down the top deals quickly, often have special deals only available via a broker and also know what type of mortgages would best suit your personal circumstances. This chapter includes info on:
- How different brokers work and which deals they search.
- Which brokers are free and what questions to ask them.
- How to compare the widest range of mortgages if going solo.
How Much Does Mortgage Default Insurance Cost
As you can imagine, mortgage default insurance is not free. The cost of mortgage default insurance ranges from 2.8% to 4% of your mortgage amount. The lower your down payment, the more you need to pay in insurance. This fee is usually added to your regular mortgage payments. That said, you can also pay it in a lump sum if you have the funds available.
For example, lets say youre looking to buy a property that costs $500,000 and you have a down payment of 5%. That means you would need a mortgage of $475,000. In this case, your mortgage default insurance would cost you 4% of the mortgage, which works out to $19,000. That means your total mortgage amount is $494,000.
Keep in mind that lenders will factor in mortgage default insurance when determining how much mortgage you can afford. Since your monthly costs will increase, the amount of mortgage youll qualify for will likely decrease.
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Veterans Affairs Funding Fee
If you have a VA Loan, this fee, charged as a percentage of the loan amount, helps offset the programs costs to U.S. taxpayers. The amount of the fee depends on your military service classification and loan amount the fee can be paid at closing or rolled into your mortgage. Some military members are exempt from paying the fee.
Real estate commissions represent one of the highest costs at a typical closing. Buyers dont pay this fee, though sellers do. Typically, the commission is 5% to 6% of the homes purchase price, and it’s split evenly between the seller’s agent and the buyer’s agent.
Read This Before Applying For The First
By Tamar Satov on December 17, 2021
The FTHBI promises to help make real estate more affordable, but theres a big catch: Its a loan you have to repay with a share in your homes growth in value.
In a red-hot real estate market, a little help with the down payment on a home can go a long wayespecially when youre a first-time buyer without the advantage of equity in an existing property. So when the Canadian federal government decided, in 2019, to begin offering first-time home buyers down payment assistance under the First-Time Home Buyer Incentive , it seemed eligible buyers were in for a bargain.
Before you begin a Whatsapp chat with your real estate agent and start browsing available listings, there are a few things you should know about the FTHBI. First, not everyone qualifies, since the program is limited to a specific subset of first-time homebuyers. Second, the incentive is not free money, but a form of loan from the Government of Canada which will eventually need to be paid back, possibly at a large premium.
We break down the specifics of the FTHBI, how accessible it is and, most importantly, the potential pitfalls you should know about.
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How Does Dti Ratio Differ From Debt
Sometimes the debt-to-income ratio is lumped in together with the debt-to-limit ratio. However, the two metrics have distinct differences. The debt-to-limit ratio, which is also called the credit utilization ratio, is the percentage of a borrowers total available credit that is currently being utilized. In other words, lenders want to determine if you’re maxing out your credit cards. The DTI ratio calculates your monthly debt payments as compared to your income, whereby credit utilization measures your debt balances as compared to the amount of existing credit you’ve been approved for by credit card companies.
How To Qualify For Firsttime Home Buyer Grants
The requirements to qualify for a firsttime home buyer grant depend on the down payment assistance programs available where you live.
Every state in the country has a housing finance agency, and all offer special programs for firsttime buyers, says Anna DeSimone, author of Housing Finance 2020.
She explains that firsttime home buyer assistance typically comes in one of two forms:
DeSimone notes that agencies typically offer grants around 4% of the homes purchase price. And many programs also provide additional assistance to cover closing costs.
Of course, whether or not you qualify for a firsttime home buyer grant will depend on local guidelines.
Angel Merritt, mortgage manager with Zeal Credit Union, explains that each of these programs has different qualification requirements.
Typically, youd need a 640 minimum credit score. And income limits may be based on family size and property location, says Merritt.
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How Much Money Do You Need
In order to apply for a mortgage, you will first need to put down a deposit as a percentage of the value of your new home. Normally, you will be expected to pay between 5% to 20% of the value of the property. The more money you can save for your deposit, the lower your loan will be. You will also benefit from more competitive mortgage offers with lower interest rates if you can stump up a larger initial deposit.
There are also further costs involved when buying your first home that might not be obvious at first. They are not cheap and can drive the total costs up by as much as 10% of the property’s value.
What Does That Mean In Real Terms
Assuming that Canadian housing prices increase to the same degree over the next 25 years as they did in the previous 25 , your $500,000 home in 2021 could be worth $2.375 million in 2046. In that case, the repayment on the $50K you borrowed would balloon to $237,500 in 25 years.
Thats just considering normal appreciation of the home as it was when you bought it. What if over the 25 years you made significant renovations, adding to the base value of the home? It could now be worth even moreand so will that 10% slice you owe the government.
That sounds off alarm bells for Martin. Will you have the money somewhere to pay that off? she says to ask yourself. Lots of people choose to stay in their homes and, after 25 years, theyre getting close to retirement. Id be concerned that this repayment would come as a surprise 25 years after you buy your house.
As for the possibility that the property value could go down and youd have to pay back less, Martins not buying it. I would be interested in seeing data on the likelihood of property values going down after 25 years. If theres a house that is worth less on the 25th anniversary of purchase than the day you bought it, thats got to be an outlier.
The federal government has acknowledged that concerns about the shared equity approach might be scaring off prospective participants to the program. So, in its 2021 election campaign, the Liberals pledged to make the FTHBI more flexible.
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Should I Buy A Freehold Or Leasehold For My First Home
When youre looking for a new home, its quite likely that youll come across the terms freehold and leasehold. Freehold means you own the property and the land it sits on, so if you buy a house it will usually be freehold. With a leasehold, you own the property for the length of your lease agreement with the landowner. Most flats and maisonettes are leasehold and youll have to pay fees including ground rent and service charges.
There are pros and cons to both options, but bear in mind that it can be very difficult to resell a property with a short lease and you might struggle to get a mortgage if the lease has less than 70 years remaining.
Us Department Of Veterans Affairs Loans
The U.S. Department of Veterans Affairs guarantees VA loans. The VA does not make loans itself but guarantees mortgages made by qualified lenders. These guarantees allow veterans to obtain home loans with favorable terms .
In most cases, VA loans are easier to qualify for than conventional loans. Lenders generally limit the maximum VA loan to conventional mortgage loan limits. Before applying for a loan, youll need to request your eligibility from the VA. If you are accepted, the VA will issue a certificate of eligibility that you can use to apply for a loan.
In addition to these federal loan types and programs, state and local governments and agencies sponsor assistance programs to increase investment or homeownership in certain areas.
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Types Of Mortgage Loans
There are various mortgage programs available to choose from. Each one offers different benefits and requirements for home buyers.
Here are the four main mortgage loan types, three of which are backed by the federal government:
- Conventional loans Conventional loans are offered by just about every lender, and they have flexible terms and requirements. Conventional mortgages are not backed by the federal government. These loans are typically preferred by borrowers with good credit and moderate or large down payments
- FHA loans FHA loans are backed by the Federal Housing Administration. This mortgage program is generally meant for home buyers with poor or fair credit and low to moderate income, although those with good credit often choose FHA for its low down payment requirement and other flexibilities
- VA loans The VA mortgage program is backed by the Department of Veterans Affairs. These loans make home buying very affordable for veterans and service members. You must have an eligible service history to qualify. But those who do have access to zerodown loans at very low rates
- USDA loans USDA loans are backed by the U.S. Department of Agriculture. This mortgage program offers affordable loans at zero down for low and moderateincome borrowers in rural areas
FHA, VA, and USDA loans are all insured by the federal government. But theyre offered by private lenders. So you can get them from most banks, credit unions, and mortgage companies.
How To Find Firsttime Home Buyer Programs
As a firsttime home buyer, coming up with cash for the down payment and closing costs is one of the biggest hurdles.
Luckily, there are grants and loans available to help home shoppers become homeowners.
The best way to determine if youre eligible for a firsttime home buyer program is to reach out to the housing authority in the town or city where you want to purchase a home.
Down payment grants and closing cost assistance generally are not advertised, so be sure to ask around.
- Your real estate agent could help you find local grant programs. An experienced Realtor has likely worked with other borrowers who need a little help to get into their new home
- Your loan officer can also help you find down payment and closing cost assistance. In particular, they can suggest programs the lender is willing to work with and has used in the past
- If you work in the public sector, ask your employer. In some areas, nonprofits have grant programs to help law enforcement officers, teachers, or emergency medical technicians, for example
Many grant programs are incomebased, and many require borrowers to take a homebuyer education course to learn about homeownership and mortgage borrowing.
You may have to do some digging on your own to locate resources available to you and for which you qualify.
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What Is Mortgage Protection Insurance
Mortgage protection insurance is an optional type of insurance. If you purchased this insurance and you were to suddenly pass away, your insurance would pay the remaining balance on your mortgage. In addition, you can purchase extra options such as:
- Critical illness insurance
- Disability insurance
- Job loss insurance
In each situation, the payout would be specific. For example, some lenders may state the maximum payout if you were to pass away is $750,000 or job loss payments are up to $3,500 a month for up to 6 months.
Mortgage protection insurance can be important for people who have dependents. For example, lets say you bought a home with your spouse. Most families would only be able to afford the payments and their day-to-day expenses while there are two incomes. If one income was lost, it might only be a matter of time before the household finances crumble. Thats why people are interested in mortgage protection insurance.
Does Being A First Time Buyer Put Me In A Better Position Than Someone Who Has Been In The Property Market For Some Time
Estate agents and vendors often dream of receiving offers from first time buyers like you!You have no property to sell, so youre probably going to be the person who completes the chain. Youre likely to be more flexible with move-in dates, too. All these factors combined mean that youre a much more attractive choice to a seller than somebody who is waiting for a buyer of their own and you can often use this unique position to your advantage when putting in an offer.
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How To Find The Best Deal
There are at least 12,000 mortgage deals offered by around 100 lenders in the UK.
As well as thousands of deals, each mortgage has its own conditions that youâll need to meet.
Itâs a good idea to start with an online mortgage comparison tool. It gives you lots of different deals to consider so you can find one with monthly repayments you can afford.
If you need help to find the best deal for your situation, speak to a mortgage broker.
Brokers have a range of deals to choose from. Some lenders only offer their mortgages through brokers.
Trussle deals with 90 lenders with around 12,000 deals.
A broker considers your personal situation and the different conditions that lenders have.
Then theyâll suggest what they think could be a suitable deal for you and explain why.
Register With Estate Agents
Once youve chosen the area where youre interested in buying a home, register with local estate agents in the area. Registering is free and wont create any obligation on your part.
Keeping in touch with local estate agents could increase your chances of finding your ideal home, as agents sometimes contact registered buyers before listing a property online.
- Find out more: tips on finding a property when house-hunting
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Questions To Consider Before You Buy
Your first step is to determine what your long-term goals are and how homeownership fits in with those goals. Perhaps youre simply looking to transform all those wasted rent payments into mortgage payments that give you something tangible: equity. Or maybe you see homeownership as a sign of independence and enjoy the idea of being your own landlord. Also, buying a home can be a good investment. Narrowing down your big-picture homeownership goals will point you in the right direction. Here are six questions to consider:
Compare Firsttime Home Buyer Programs
| Minimum Down Payment |
- Conventional 97 loans 3% down
The main takeaway here is that down payments are flexible.
Yours should depend on your monthly income, what you currently have saved, how expensive the home is, and what your overall home buying goals are.
Briefly, the pros and cons of bigger versus smaller down payments are:
- Bigger down payment Lower interest rate and lower monthly payment
- Smaller down payment Buy a home and start building equity sooner, keep more of your savings intact for emergency expenses
Take a look at your personal finances and home buying goals to figure out the right down payment for you.
Why do people say you need 20% down?
Average down payments are well under 20 percent. You might wonder, then, why so many people think 20 percent down is the minimum.
Its because 20 percent down gets you out of paying for something called mortgage insurance.
Mortgage insurance is an extra charge on your mortgage bill, and it often costs a few hundred dollars per month.
Understandably, most buyers would rather avoid paying for mortgage insurance if possible. Thats why some people aim for 20% down.
But there are benefits to paying mortgage insurance if it puts you in a home sooner. Its just one more cost versus benefit to consider as you put together your home buying budget.
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