Your Top Mortgage Questions Answered: Rates, Down Payments and What Banks Keep Quiet

Introduction

Welcome to the Wisdom Lifestyle Money Show. I'm your host, Scott Dillingham. The show is designed to help Canadians invest better in Canada and the United States. We are the North America-based mortgage financing lender and provide education to both countries.

Discover how you can become a better investor and access the financing you need. Welcome to today's show. Today, I'm gonna go over the most commonly asked mortgage questions that we receive all the time. And we're always giving out these answers, but people ask, so it's important to know.

So we're gonna dive into exactly what those questions are, as well as the answers to help you on your home buying or selling journey. So a lot of times, one of the most common questions I ask or get asked is, what is the rate? So it's a funny thing because we really cannot accurately quote you your interest rate unless we have done your pre-approval. And the reason is some lenders have credit score minimums.

There's other lenders that depending on your down payment, the rate will be higher or lower. We also need to know your debt to income ratio because depending on the lender we select based on that, your rate can have an impact as well.

The Core Idea

So usually you cannot get a rate. It's just like calling your dentist and say, you know what, something's wrong with my teeth. How much is it gonna be to fix? He's gonna say, or she, you gotta come in, you gotta sit down.

We've got a look in your mouth and then we'll tell you exactly how much it will cost to fix this. The same thing with your mortgage interest rate. It's always best to get your pre-approval done. The last thing you wanna do is be quoted a rate, get excited about the rate, and then move forward with a full application and find out you cannot get that rate.

And it happens all the time. We actually get a lot of clients from other lenders and they say, they told me they get me this rate. We went for the approval and the rate was so much higher, so I'm not going with them. And they come with us and obviously we're more transparent because we explain the scenario and then we're good to go.

So we get a lot of clients from other brokers because of the rate. It's important to know that if you're calling somebody over the phone, the rate that they're giving you, it's just a guideline to really determine you've got to do the pre-approval. Okay, the next common question we get asked is how much is my down payment? So there's so many down payment options in Canada, which is really amazing for you as a buyer because it's incredibly flexible.

Deep Dive

A down payment start as low as 5% down. Now a 5% down payment, there's a bit of confusion because the rules changed not too long ago where you used to be able to put 5% down on up to $1 million of property and it was okay.

But they've changed the rules. So 5% down actually only applies to the first $500,000 of purchase price on the home. Then it's 10% of the difference. So you still do 5% down on the first $500,000 and then it's 10% down of the difference up to $1 million.

Okay. Now it depends on the property type as well for your down payments. Owner occupied homes start at 5% down, but let's say it's a three unit property. So a triplex and you're moving into one of the units.

Anything that's three or four units that you're moving into requires a 10% down payment. And then obviously if it's a full rental, you need 20% down payment. But if you have 20% down, more often than not, you can avoid CMHC. And that leads us to the next question is, what is CMHC?

Practical Steps

CMHC stands for Canada Housing and Mortgage Corporation. What they do is they allow homebuyers in Canada to purchase a home for less than 20% down. Now there's a fee to use this service. And what they do is they add the fee to the mortgage.

So you're not paying it on closing, but there is a fee that's there. Now there are certain programs that they have, such as a new to Canada program. They also have the Flexdown program. So new to Canada, that's self-explanatory.

Flexdown allows you to borrow your down payment, which we'll touch on that in a moment because that's one of the popular questions here. But with CMHC, right? So you might have 35, even 40% down, and you might still actually have your mortgage insured with CMHC. Now how CMHC calculates their fees is every 5% down payment you have, their fee drops.

Okay, so the more you have, the better. But if we need to use one of their special programs, we've got to go through them. Now there's three insurance companies that are like CMHC. So it's Sajin and Canada Guarantee would be the other two.

Key Takeaways

So CMHC is a crown corporation, which means they're owned by the government. And the other two are private companies that insure mortgages. They all have similar rules that follow CMHC most of the time. Whenever CMHC makes a rule, usually the other ones follow.

But sometimes one can be more flexible than the other. Just depends on the client, the application, the property, all that good stuff. So it's hard to say what insurance company the lender will use for you. But ultimately, CMHC is a service that allows you to buy a home for less than 20% down.

So it's very important to know. So you'll see that. But if you ever hear there's a CMHC fee or a Sajin fee or whatever, you'll know where it's coming from because they do add that fee. So at 5% down, the fee is actually 4% of your mortgage.

And they add that to your mortgage. Okay, so keep that in mind. So if you have 10% down instead of 5%, do it because you'll save on the fee. A lot of people try for the bare minimum down payment.

Resources

But if you have the money, I do suggest putting it down. Another common question I get asked all the time is how do I find a good realtor? I would say you could start with referrals from friends and family. The only challenge with that is everybody, you've got to connect with someone the right way.

So just because your friend or your mom likes someone, it doesn't mean that you're going to connect with that person the same way. But they're a good start for a referral. Another thing that you could do is you could speak to a mortgage brokerage like Lent City and other places out there and ask, who do you think would be a good realtor for me? And when we make recommendations for realtors, we try to match up personalities and age groups because we find that creates a good bond between the realtor and the buyer or seller and really helps make the home purchasing decision and scenario so much easier, right?

Obviously, if you get along with someone, it's going to be better. So that's what I would do to find a good realtor is look for referrals, whether it's from us or someone. The benefit, again, of asking a lender, though, who they would recommend is that lender is going to match you up by personalities because we know lots of realtors, right? Where your friend or family member, they might only know one.

So their opinion might be a little biased because that's all they know. Where we can ask you and find out about you, ask you questions, and then make sure we're matching you up with the correct realtor. com and you can use that and they'll match you up.

Introduction

It's like you call them. It's a questionnaire. They'll ask you things about you, what you want in your realtor, and then they'll make a recommendation for you. That's a cool service as well.

It's a free service. So that's there for you. Now, another question we get just still related to realtors is, should you buy your home from the listing agent?

My main answer is no. I wouldn't do that. Now, there are cases where it's unavoidable and you might even know the realtor, right? So if you know them and there's some trust there, you're safe to move forward.

But I would always try to have your own realtor and not necessarily go with the listing agent only because the listing agent was hired by the seller to get them top value. So that's what they're trying to do, where if you bring your own agent as a buyer, your agent will try to get you the best pricing. But the listing agent and your agent will negotiate, find that middle ground where it's acceptable, and then you can move forward with your offer. Or if you go just to the listing agent, he's going to try to sell it to you for what he knows his seller will want it for.

The Core Idea

However, again, sometimes if they're practicing the most ethical standards and they're a top notch real estate agent, you can go to the listing agent. But I would research them first before you just dive in and speak to them because you have to remember that they were hired and they're paid for by the seller.

So keep that in mind. Now, I have to take a quick pause, but when we come back, I'm going to touch on the most highly asked questions next.

Welcome back to the show. Okay, I'm going to just start with probably the most important and the top question I'm asked all the time, and that is how to buy a home and not have a bidding war.

So there's a couple of ways. One ties back to working with a good realtor, right? So a lot of times a good realtor, especially if a home got listed, they can send in a preemptive and they can negotiate on your behalf before a seller is having an offer presentation date. And it does depend on your realtor skill to be able to negotiate with the seller's realtor to accept your offer and to view it.

Deep Dive

Because some say, no, we're waiting for the bidding day. And that's what they want.

They want that bidding war. But if you come in with a solid price, even write a letter about yourself and your family and why you should get this house, it helps and it goes a long way.

But say that's not possible. So you're trying and trying, you're getting discouraged.

You can't find anything. You're always losing all the bidding wars. One strategy that I personally use every single time I buy an investment property is I'll look for those properties that have been on the market for a couple of weeks. And just know, in the rare occasion, they're still in the market because there's something wrong with the property.

Practical Steps

More often than not, I find the listing agent, they took dark pictures. They could have marketed the property wrong. A lot of realtors will send out postcards and put on ads and make websites for properties. And a lot of them don't do anything.

They just put on MLS and hope it moves. You just don't know the marketing level and in depth that listing agent went through.

So you can't knock the property. You've got to go check them out. But I find when they're on the market for a couple of weeks and the seller has not received an accepted offer, they start to worry. And they're like, what's going on?

My neighbor's house sold in two days. Mine's been weeks. Am I ever going to sell it?

Key Takeaways

And they start to worry. And because of that worry and that fear that they're never going to sell, when you come in with your offer, first, you're beating the bidding war because there's no other offers. But secondly, you can negotiate the price a little bit, right? Because they're expecting a bidding war.

It didn't happen. It didn't come. So potentially, right, as long as the price is what you're offering is what they'd sell it for. Because I know some sellers list their home well below market value just to attract attention.

So if it's a home that's listed well below, of course, they're not going to accept a low ball offer because they're already below and they were expecting a bidding war. But if you use a little bit of common sense and ask your realtor what they really think the value of that home is, and then you put in your offer, there's no competition, right? That you're going to have a high chance of getting your offer accepted. So that's what I would encourage any buyer that's out there right now that's getting discouraged from the market is look for those that have been up for a couple of weeks and see if you can find some hidden gems there or properties that were not marketed correctly.

So you can use that to your advantage and get a nice deal. Another question we get all the time, which is about documents, is how do I get my notice of assessment?

Resources

And what is that? So the notice of assessment, a lot of the lenders are asking for now because they want to make sure that you don't owe CRA any money. Plus, it actually does confirm your income is correct because you wouldn't file to the government a fake income and pay taxes when you didn't need to. Do you know what I mean?

So a lot of lenders, they want to see that notice of assessment to, again, prove you have no taxes and to confirm your income is what you're presenting on the application. So a lot of clients don't know what that is. So after you file your taxes, the government mails you out a letter and it's that's your notice of assessment. And it says how much your refund was, how much you owe that type of thing.

And it summarizes your income on six to eight pages instead of your full tax return. And that comes a few weeks after you file your taxes with that document approves everything.

Okay. So to get that, if you're missing it, you have to either use your online login so you can synchronize it to your bank account. You log into the portal online and you can retrieve it from there. If you don't have online access, you can call Canada Revenue Agent and they'll be able to help guide you and they'll mail you your notice of assessment.

Introduction

Okay. So that would be how you'd get that. If you don't have your mortgage or your notice of assessment and you want to apply for a mortgage, I actually encourage you to call and just get it ready because there's been many clients and buyers that I've worked with that they're stressed because they've purchased a property but the lender needs this and they're waiting for it in the mail. And it just creates undue stress.

If you want to buy and you don't have your notice of assessment, call the government, just get it. You'll be glad you did save it and you'll be stress-free when you purchase. Another top question we get is how to repair or improve your credit. So we actually had a full episode on that.

If you didn't listen to it, you can check it out on our podcast. com. And right there you can view how to improve your credit. But the one thing that I would encourage everybody to do is to get your own credit reports.

I recommend Equifax. Most lenders prefer and use Equifax. And once you have that report, you can scan through it, see if anything's on there that's not yours because sometimes that does happen. People with the same name as you, their stuff will show up on yours.

The Core Idea

Actually, that happened to me. My father, we have the same name. He doesn't even live in Canada. He came down for a visit and he's like, you know what?

I want a prepaid cell phone. So he got it activated. And then a month or two later, it showed up on my credit report. And I was like, what the heck is this?

So I started this fraud thing and I was trying to get it all found out. And then they found out the exact person.

Somebody activated the phone. So they checked the security cameras and all this stuff. And they actually found out it was my dad. I'm like, my God, I can't believe I just went through all of this to track down this fraudster.

Deep Dive

I thought someone was stealing my identity, but really just because we had the same name showed up different birthdays. Everything's different, obviously, but the name and it just, his cell phone showed up under me.

So these things happen. So you want to get your credit report.

You want to check it. And if something there is there, that's not yours, you have to dispute it. And if you go to Equifax under their contact us section, they have a dispute. You fill out the form, accident, mail it in, and then they'll work on it with you to get that.

And then the last major question that I get asked all the time is how do I get my down payment if I do not have one? So there's a couple of programs for this. I mentioned one of them earlier when I was speaking about CMHC and that's called the CMHC Flex Down. With this program, if you have good credit, you can borrow your down payment from a credit card, line of credit, whatever.

Practical Steps

Now what happens is when you borrow your down payment, it does lower your purchasing power a little bit because we have to factor in a minimum payment against that debt. Okay. It can impact you a little bit on your purchase price.

However, you're good to go. If your credit score is good, you've got to be above 680. You should be able to qualify for the program. Another way is through an RSP loan.

So when I worked at the bank, I did this all the time. What I would do is I would give the client a loan for their RSPs. And these usually always get approved because the loan is secured to the RSP. So because it's a secured loan, like a car loan, car loans, they're secured via the car.

So it makes it easier for you to qualify for. So you get the RSP loan, you keep it for 90 days, right? And then you can redeem your RSPs once they've been in your account for 90 days. So now that they're redeemed, you can then use them for down payment.

Key Takeaways

Now you still have a loan in this program as well. So it will shrink your purchasing power, but not as much. I find the RSP loans are smaller debts than if you borrowed from the credit card for your down payment or a line of credit based on how the lenders calculate your debts. So I think the RSP loan will get you a larger mortgage than using your line of credit or credit card.

Alternatively, you could get a gift for the down payment. A lot of lenders allow the gift. It depends on the program, right? If you're new to Canada, gifts might not be accepted.

It just depends on the threshold of how much you have versus how much is a gift. So you have to check all it out and speak to your lender and make sure. It's obviously a gift is a great way to move forward and purchase a house today. I thank you for tuning in today.

If you want to hear more, check us out next week. We'll be back again. But if you're ready to move forward with the pre-approval and you want to work with a top notch lender, give us a call.

Resources

My office line is 519-960-0370. Take care. Thank you so much for tuning into the show today. If you found value, please follow the show and rate it five stars.

It would mean the world to me. And lastly, all the resources that we spoke about are at the bottom of the show notes. Looking forward to seeing you in the next episode.

Thank you.