Tips for applying for your first mortgage
We had the pleasure to interview Marko Gelo of The Mortgage Centre in Burnaby, BC, a well-known mortgage broker and the host of the popular podcast, Mortgagemonics. Buying your first home can be overwhelming, but with the right information, and a team of professionals on your side, buying a home in Metro Vancouver can become a reality.
A mortgage is a loan used to purchase a home (condo, house, townhome, etc). In British Columbia and specifically Metro Vancouver, it is getting more expensive to get into the housing market. But with some planning around the financial obligations, you can work towards the goal of home ownership. Most people will need a mortgage from a financial institution or private lender to help pay the balance of the mortgage after the required down-payment. Once you have a mortgage secured, you make payments on an agreed schedule. Every mortgage is different, but they all have similar components that you need to be aware of and understand. It all comes down to some math:
Understand minimum down payment requirements
- 5% up to $500,000, then 10% on the balance thereafter up to $999,999
- 20% for $1M purchases up to $2.5M, then 40% on the balance thereafter
Budget for closing costs
Closing costs are ancillary expenses throughout the process of completing your real estate transaction. In addition to the down payment funds, the lender will also request document verification for closing costs. All of the following costs are out-of-pocket and not included in the overall mortgage:
Pre-closing date costs
- Home Inspection Fee: $200-$400
- Home Appraisal: $300-$400
Closing date costs
Land Transfer Tax: In British Columbia, the property transfer is 1% of the first $200,000, then 2% on the amount over $200,000 up to and including $2M, and 3% thereafter. For example, for a $900,000 property purchase, the land transfer tax would equal $16,000.
- If you are a Temporary Resident in Canada and want to purchase in Vancouver, you will also be subject to an additional Foreign Buyer Tax of up to 20% of the purchase price. The foreign buyer tax does not apply to all Canadian cities.
- Legal Fees and disbursements: starting at $1,200
- Title Insurance: $100 to $300
Potential reimbursement of property taxes to the previous homeowner if they have already paid in full for the prior year.
Seek out all available first-time home buyer programs and rebates.
The following pertains only to BC First Time Homebuyers:
- Government of Canada First Time Homebuyers Program. This helps reduce your overall monthly mortgage payment.
- First-Time Home Buyers’ Tax Credit. Take advantage of a $750 tax rebate.
- Home Buyers Plan. Use up to $35,000 of your RRSP for downpayment without tax being withheld.
- GST New Housing Rebate. Receive GST rebates on newly constructed homes.
- BC First Time Home Buyers Program. Partial or full exemptions on Land Transfer Tax up to $525,000 purchases.
- Newly Built Home Exemption. Reduces or eliminates the amount of property transfer tax for newly built homes up to $800,000.
- Home Owner Grant. Tax relief on annual property taxes.
Do not confuse a “rate hold” with a pre-approval.
Get pre-approved for a mortgage and make sure it is LEGIT!
Do not confuse a “rate hold” with a pre-approval. Rate holds simply reserve an interest rate and are not adjudicated. Your pre-approval is legitimate, if:
- You have provided income documents (pay stub, employment letter, etc).
- You have verified your source of down payment (bank statements, gifts, etc).
- You have provided consent to have your credit checked
Use a Realtor
- An offer on a property is a legal contract. Realtors are certified, trained, and specialized in reading and interpreting Purchase Agreement contracts. Take advantage of their advice and guidance as they have a fiduciary duty to act in your best interests.
- Have your down payment proceeds finalized and ready when you place an offer.
- Upon removing conditions on your offer, prepare to expedite your deposit funds immediately thereafter to secure the deal. Be prepared to deal with all the administrative steps of withdrawing your money ahead of time, not on the day it’s required.
- Request financing conditions in your offer for a minimum of 5 days.
- Submitting an offer on a property without financing conditions is never recommended unless you are purchasing with cash.
- Have an insurance agent lined up to bind an insurance policy on the day you take possession. Most mortgage lenders will require this.
- Pre-approved mortgages are not formally underwritten until an offer on a property is placed at which time your mortgage application (pre-approval) becomes, live. Therefore, do not assume you are 100% bulletproof with a pre-approved mortgage. Pre-approved mortgages are simply a strong precursor to the outcome of formal and successful mortgage approval.
- Once your offer is accepted, the clock starts ticking…be ready, available, and cooperative.
when an offer is presented and accepted with conditions (financing, home inspection, etc) it’s go-time! Be responsive and react to document and information requests as promptly as possible – time is of the essence. With a group of professionals – mortgage broker, realtor, lawyer, and insurance agent, home ownership can be a reality.
Resources for tips to buying your first mortgage
Reliance home insurance