Mortgage FAQs

The most-asked questions about getting a mortgage to buy a home, answered by mortgage and leasing experts Jorge & Alisa Aragon.
Jorge and Alisa Aragon
October 16, 2014

What’s the best rate I can get?

Your credit score plays a big part in the interest rate for which you will qualify, as the riskier you appear as a borrower, the higher your rate will be. Rate is definitely not the most important aspect of a mortgage, however, as many rock-bottom rates often come from no-frills mortgage products. In other words, even if you qualify for a mortgage at the lowest rate, you often have to give up other things such as pre-payments and portability privileges when opting for the lowest-rate product.

What’s the maximum mortgage amount for which I can qualify?

To determine the amount for which you will qualify, there are two calculations you will need to complete.

 Gross Debt Service (GDS) ratio: GDS looks at your proposed new housing costs (mortgage payments, taxes, heating costs and strata/condo fees, if applicable). Generally speaking, this amount should be no more than 39 per cent of your gross monthly income. For example, if your gross monthly income is $4,000, you should not be spending more than $1,560 in monthly housing expenses.

Total Debt Service (TDS) ratio: The TDS ratio measures your total debt obligations (including housing costs, loans, car payments and credit card bills). Generally speaking, your TDS ratio should be no more than 42 – 44 per cent of your gross monthly income. The TDS will depend on your credit. Keep in mind that these numbers are prescribed maximums and that you should strive for lower ratios for a more affordable lifestyle. Before falling in love with a potential new home, you may want to get pre-qualified by a mortgage expert. This will help you stay within your price range so you can spend your time looking at homes you can reasonably afford.

How much money do I need for a down payment?

The minimum down payment required is 5 per cent of the purchase price of the home when you are an employee and at least 10 per cent down payment when you are self-employed. And in order to avoid paying mortgage default insurance, you need to have at least a 20 per cent down payment

What happens if I don’t have the full down payment amount?

There are programs available that enable you to use other forms of down payment, such as from your RRSPs, or a gift from a parent, child or siblings. Also, you can borrow the down payment from a line of credit, loan or credit cards. However, in order to qualify you still have to be within the TDS ratios as mentioned above.

What will a lender look at when qualifying me for a mortgage?

Most lenders look at five factors when determining whether you qualify for a mortgage:

  • Income
  • Debts
  • Employment history
  • Credit history
  • Value and marketability of the property you wish to purchase

Should I go with a fixed or variable rate mortgage?

The answer to this question depends on your personal risk tolerance. If, for instance, you are a first-time homebuyer and/or you have a set budget that you can comfortably spend on your mortgage, it’s smart to lock into a fixed mortgage with predictable payments over a specific period of time. If, however, your financial situation can handle the fluctuations of a variable rate mortgage, this may save you some money over the long run.

What credit score do I need to qualify for a mortgage?

Generally speaking, you are a prime candidate for a mortgage if your credit score is 680 and above. The higher you score the better, as you will have more options and advantages. These days almost anyone can obtain a mortgage, but for those with lower credit scores, their options will be more limited and interest rates could be higher. But don’t worry; consult a mortgage expert to see how they can help you in obtaining a mortgage.

What happens if my credit score isn’t great?

There are several things you can do to boost your credit fairly quickly. Following are five steps you can use to help attain a speedy credit score boost:

Pay down credit cards.The number one way to increase your credit score is to pay down your credit cards so they are below 50 per cent of your limits.

Limit the use of credit cards.Racking up a large amount and then paying it off in monthly installments can hurt your credit score. If there is a balance at the end of the month, this affects your score.

Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other lenders view your file.

Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts. Use these cards periodically and then pay them off.

Don’t let mistakes build up. Always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.

How much will I have to pay for closing costs?

It’s recommended that you put aside at least 1.5 per cent of the purchase price (in addition to the down payment) strictly to cover closing costs. You must have this amount but it doesn’t mean you are going to spend it. The following are some of the closing costs:

  • Legal costs
  • Property tax adjustments
  • Strata/condo fee adjustments
  • Cost to register property in land title office, etc.

How much will my mortgage payments be?

Monthly mortgage payments vary based on several factors, including:

  • Size of your mortgage
  • Whether you’re paying mortgage default insurance
  • Mortgage amortization
  • Interest rate
  • Frequency of mortgage payments

To get more details about these and other questions you might have, talk to a mortgage expert and they will be able to analyze your personal situation and provide you with more information so you can make an informed decision on buying your home.

Jorge and Alisa Aragon
Jorge and Alisa Aragon are mortgage and leasing experts with Dominion Lending Centres Mountain View. They are active members of the Greater Vancouver Home Builders Association. Jorge and Alisa focus on the overall needs and plans of their client and then find the best mortgage to suit their needs.