- How are pre-qualifying and pre-approval different?
A pre-qualification is an informal process that takes place before the home buyer applies for a loan to determine how much money they would be eligible to borrow. Based on your general information, the lender, broker, or bank can look at your income and debt to give you a rough idea on how much you can borrow. They will calculate your affordability by doing a Gross Debt Service ratio (GDS) and a Total Debt Service ratio (TDS).
While a pre-qualification is better than nothing at all, pre-approvals are more powerful. However, even pre-approvals do not guarantee you the loan. In short, a pre-approval is just that: a preliminary approval by the lender of the borrower’s application for a mortgage to a certain maximum amount and rate. Moreover, it will make realtors take you seriously when you show up for the viewing, and allows everyone involved to know how much you can afford so you don’t be wasting time looking at homes out of your price range. The best way to think of it is as an early green light on a loan, plus it puts you in a good negotiation position when you do find the home that’s right for you.
At the same time, unless the lender gives you a hard pre-approval by reviewing your application, looking at your credit history, employment documentation, credit check, etc. to ensure that your information is accurate, you are sitting in the dark. In fact, without a professional’s due diligence, you can do a soft pre-approval online by yourself. At Auxilium we don’t just do pre-approvals, we do hard pre-approvals. Contact us to learn more. - How do I make an offer?
You’ve finally found the home of your dreams and you want to make an offer to buy. How exactly do you go about doing so? Your licenced realtor will assist you in making an offer as they are well versed in doing so. Since an offer is a formal, legal proposal, it’s important to also speak with a lawyer or notary to review your offer before submitting anything in writing if you are purchasing privately (a property that is not listed for sale with a realtor).
Offers to purchase a home can also be made conditional, which means that the offer is conditional on certain subjects, for example, you being approved for a mortgage, or having a home inspection done on the home. If these subjects are not removed, meaning conditions are not met, you can change or cancel your offer, even if the seller has already accepted it.
An offer typically includes:
- Your name, the name of the person selling the home, and the address of the home
- The price you are offering, which may be lower than the asking price
- Any items in the home that you want to have included in the purchase price (i.e. light fixtures, blinds, etc.)
- Financial details such as the deposit amount (if required), details of your mortgage financing, etc.
- The closing date for the sale and the date you want to take possession of the home (usually 30 to 90 days from the date of the agreement)
- A request to the seller for a copy of a current land survey if available
- The expiry date (the date the offer ends), which is usually 48 to 72 hours from the time the offer is made
- Any conditions you want to make on the offer, such as making sure the house passes an inspection, or your being approved for financing
Remember that an offer must be an agreeable contract with the seller, and is more than just throwing a number their way. It’s also important to not get discouraged if your first offer isn’t accepted.
- How much do I need for a down payment?
A lot of people are confused about how much cash they need for a down payment. In Canada, the minimum down payment required for an insured mortgage is five percent of the purchase price on the first $500,000 and 10% of the purchase price beyond that. Even if you’ve owned a house before, you can get in with this down payment as long as it’s your principal residence.
All or part of the down payment can come from several different places, including:
- Savings: Doing a trial run of your budget is a great way to bulk up your savings account
- RRSPs and The Home Buyer’s Plan: The federal government allows each person purchasing the property to use up to $25,000 of their RRSPs, tax free.
- Gifts: If your family wants to give you money to use for your down payment, that’s perfectly fine, even if it’s the full five percent
- Flex equity: This allows you to borrow the down payment from a line of credit, credit card, or a personal loan.
- Vendor take backs: The vendor is willing to finance the property, which means the seller is willing to help with the down payment.
- What is a mortgage?
A mortgage is a loan obtained to purchase real estate. The "mortgage" itself is a legal claim on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest. - Are there special mortgages for first time home buyers?
There are several affordable mortgage options that can help first-time homebuyers overcome the obstacles that come with buying a home. At Auxilium Mortgage we’re able to help borrowers who don't have the money saved for the down payment, are missing a portion of the five percent, have a poor credit history, have quite a bit of long-term debt, or have experienced income irregularities. If you’re a first time home buyer looking for more information, download our free First Time Home Buyer’s Handbook and contact us to setup an appointment. - What are fixed, variable, and blended rates, and which one is right for me?
Fixed rates never change over the life of the term, so this might be good for those who enjoy the security of knowing that their rate is guaranteed not to change for the term of the mortgage, but are willing to pay a slightly higher interest rate. If you have a fixed rate loan and interest rates drop significantly, then you may want to look into refinancing.
Variable rates are best suited to those who are comfortable with rate fluctuations. You may have the flexibility to accept possible increases in your amortization should the interest rate increase. Payments will stay the same if the prime rate changes, but more will be paid towards interest, thus lengthening your amortization period. You can also opt to have the payments increase interest to avoid an increase in amortization.
A blended, or half and half rate mortgage gives you the best of both worlds – a fixed and variable mortgage rate. Now if the prime rate changes, only your variable portion will change; your fixed portion will remain the same. So, if you are someone who prefers calculated risks – this may be is the one for you.
The Auxilium Team offers a complimentary consultation to start your home buying process; contact us today at 250-590-6520 (toll-free 1-855-590-6520). You can also visit us at 307 Goldstream Avenue during regular business hours. We can arrange an appointment at our Fort Street office, or evenings or weekends, to work with you.
Auxilium Mortgage Corporation is based in Victoria, BC and works with clients locally and across Canada. The Auxilium team has over 100 years of combined financial experience and access to dozens of lenders to help you meet your goals.
This post reflects the best available information at the time of writing/last update. In order to ensure that you have the most up-to-date information, contact us to confirm the details for your specific situation.
Updated March 2018
This list originally appeared as part of 35 Questions to Ask When Buying a Home. See the entire updated list:
3 Questions to Ask When Buying a Home
7 Questions to Ask About House Hunting When Buying a Home
4 Questions to Ask About Your Credit When Buying a Home
3 Questions to Ask About Mortgage Payments When Buying a Home
5 Questions to Ask About Working With a Mortgage Broker
2 Questions to Ask About Insurance When Buying a Home
5 Questions to Ask About Closing Details When Buying a Home
