Closing Costs on a Home Purchase

“How much are closing costs?”

This is one of the most common questions asked by anyone purchasing a home.  Your lawyer can give you an exact amount a couple days before closing.  You still may wish to have an estimate so I have broken things down a little bit for you so you won’t get the closing costs shock when it is too late.

For this example we will use a home that has a $400,000 purchase price with estimated property taxes at $4,000 with you using 5% as their down payment. 

1.       $800 Lawyer Fee

2.       $300 Title Search (aprox)

3.       $350 Title Insurance

4.       $150 Title Registration

5.       $836 PST on CMHC Premium

6.       $2,475 Land Transfer Tax (add $2,000 if not a 1^st time home buyer)

7.       $1,000 3 Month Property Tax Pre-payment

8.       $450 Disbursements (tax certificates, couriers, faxing and long distance calls)

9.       $333 Reimburse Seller pre-paid property tax

10.     $6,694 Total Closing Costs.

1.  The Lawyer fee can vary between different law firms and lawyers.  The cheapest is not always the best option.  There is a lot of work a lawyer must do to protect your purchase.  Don’t be shopping at Wallmart for a lawyer.

2.  Title search can vary in price, basically the lawyer has to check to make sure there are no liens or judgements against the home and you are taking it over free and clear. 

3.  Title insurance is to protect you and the lender from unforeseen issues such as a fence built in the wrong place your new neighbour is disputing, a previous owner not being properly discharged from title and it also protects you from fraud.  It is best to discuss this insurance with your lawyer.

4.  Title Registration is basically adding you as the new owner and registering any mortgages or rental items on the property.

5.  One fee that fluctuates from deal to deal is the PST (yes PST) on the CMHC (mortgage insurance premium).  On a 400k home with 20k down that premium would be $10,450.  This added to the mortgage balance so $400k - 20k + 10.45k = $390,450 mortgage.  Now the PST calculated at 8% of the $10,450 is $836 which will be added to closing costs.  MortgageInsurance

6. There is also land transfer tax to be calculated.  On a 400k purchase land transfer tax is $4,475, but let’s assume we have a 1^st time home buyer who receives the 2k discount.  Land transfer tax is now $2,475 to be added to the closing costs.  

7.  Most of the time when a home is purchased with 5% down the lender will pay property taxes on the clients’ behalf, added to the mortgage payment.  They will pre-pay these on or just after closing for up to 3 months.  Which in this case will be $333.33 X 3 = $1,000 added to closing costs.

8.   There can also keep disbursements which are basically additional costs the lawyer may have come across and the basics such as tax certificates, couriers, faxing and long distance calls.  Let’s put these at $450 for this deal.

9.  One last thing is the adjustments.  This mainly comes into play when the seller has pre-paid their taxes.  If the seller has pre-paid a month in advance that means the new buyer will have to reimburse the seller $333 which will be added to closing costs as well.  This amount may be adjusted from the three month pre-payment to your lender.

10.  Bringing in the total at $6,694. Keep in mind it is virtually impossible to give an exact quote of what closing costs will be.  Even a lawyer cannot give an exact number until all the paper work is in and ready to complete a day or two before closing.

Regardless of what closing costs actually are the lender will require documents showing that you have 1.5% of the purchase price in your bank account.  On a $400,000 home, that would be $6,000.  Along with the 5% down of $20,000 you would need to show ownership of $26,000.

Feel free to contact me if you have any questions or concerns.  Or need someone to help you with your mortgage needs.

 

Ron Miller
905-667-0699
1-855-684-8326
ron.miller@butlermortgages.com
YouTube Hamilton Broker
@HamiltonBroker

Fixed or Variable? How About a 4 Year Fixed?!

                                                 You can view all my videos on You Tube at HamiltonBroker. Feel free to subscribe.

Currently there are big changes going on in the Canadian mortgage world.  We have discounts on the variable rates disappearing and the 5 year fixed is at an all-time low.  When we look at what is available right now, 2.75% on the variable and 3.39% available on the 5 year fixed, the decision on what to choose in my mind is obvious, the 5 year fixed.  Some people may still be stuck on the variable right now but is it really worth it?

Approximately 83% of the time through Canadian mortgage history the variable rate has proven itself to be the best deal over the fixed.  What I believe may happen in the next couple years is the 17% of the time that fixed is the best deal, is going to happen.

Now let's say you are still stuck on the variable.  There is another choice, it is the 4 year fixed rate.  Currently hanging around 3.09% makes it a really good deal.  You are protecting yourself from variable increases as well you are taking advantage of the low fixed position.  With the lower payment you can also decrease your amortization in order to pay down the mortgage faster, still with a reasonable monthly mortgage payment.

When you take into consideration that the average life of a 5 year term is around 3.6 years it is not necessary to take the long road with the higher rate.  With the Bank of Canada claiming they are not raising Prime until 2013, and remember the World economy is still uncertain, it may be longer.  Taking the 4 year term allows time to see what is going to happen as the Canadian mortgage world changes.  And if you do decide to break a 4 year term, the worst case usually will be a 3 month interest penalty.  If you have to take a small penalty to save thousands it is certainly worth it.

Well why not just take the variable then?  Remember, you usually do not get the banks best discounted rate when you switch from variable to fixed, a common calculation for this switch is Prime plus 1.00% or higher.  Right now that would put you at 4.00%, when the current five year rate is 0.70% below that it is not a good deal.  It is common to refinance when considering switching from variable to fixed, the small penalty saves you a lot of money.

To conclude, while in the middle of change it is best to take the road that will do the least damage if you make the wrong decision and having said that, the 4 year fixed is the best decision because you really can't lose.  It allows you time to wait and observe to see what the next trend will be.

Any questions or you want to talk to me about mortgages, feel free to contact me whichever way works best for you.

Ron Miller
905-667-0699

1-855-684-8326
ron.miller@butlermortgages.com
YouTube Hamilton Broker
@HamiltonBroker

Purchase Plus Improvements

You can view all my videos on You Tube at HamiltonBroker.

This program is excellent if you are looking to do some renovations on your new home purchase.  Purchase plus improvements allows you to renovate the kitchen, install a new furnace or central air system, possibly your dream home is perfect except the roof is in dire need of repair.

It is really important for Realtors to be aware of as well.  Their clients found the perfect home but the kitchen is 25 years old, you can still make the deal work.  In this case it is really important to have a mortgage broker on their side that really knows how to put deals together.

So let's just say that you found the perfect home but you need a new kitchen.  Let your mortgage broker know that you want to do purchase plus improvements.  This does not change your pre-approval as long as you qualify for the extra amount.  Here is a brief step by step of the process.

1. Put in your offer and get it accepted.
2. During your 5 days you have to get financing approved.  Inform your broker that you want purchase plus improvements when you hand him/her your offer.
3. Get a quote ASAP to give to your broker for the work you want done from a licensed contractor. (Some lenders may want 2 or 3 quotes).
4. An appraiser will go to check the work you have requested and send their report to the broker or lender.
5. You get your approval for the purchase plus improvements.
6. On closing your lawyer will hold back the extra funds required for the improvements you want done.
7. Have your contractor complete the work and once it is done the appraiser will return and verify the improvements are completed, then at this point the lawyer will release the extra funds to you.

There is a few things to keep in mind.  Money will NOT be released until verification that the improvements are completed.  If you do not have a contractor who is willing to wait to get paid then this program will not work unless you can pay for everything up front first.  If you tell your broker that you want a new roof, than make sure that is what you fix.  You cannot turn around and say, well we changed our mind we wanted a new bay window instead.  Purchase plus improvements does not include appliances, a new pool or car.  It must be improvements to the home.  You can check out Genworth or CMHC is your want to read up a little more.

This program is really handy if you find your perfect home but just need a couple things updated.  If this is for you feel free to get a hold of me and I will see what we can do.

Ron Miller
905-667-0699

1-855-684-8326
ron.miller@butlermortgages.com    

What Does a Mortgage Broker Do?

A good mortgage broker basically takes your situation and finds a lender who will give you a mortgage at the best terms and rates. From one point of view you are basically hiring your own agent who will go to different lenders and sell your story. And 90% of the time you are not paying for this service.

Rate Shopping

You may have the perfect scenario with credit, income and down payment, so you are basically hiring us to find you the lowest possible rate with terms that meet your needs for a pre-approval on your home purchase. If you already have a mortgage it is a good idea to be signed up with a broker regarding your renewal date. Often banks will not send out your renewal letter untill a week or two before you need to renew which then puts you in a bad spot with not much time to negotiate. Yes you can negotiate with a bank. If you have your mortgage on a watch list with a broker who deals with many different lenders than basically over a 120 day period you are looking to secure a low rate that can save thousands over the course of five years. $40 or $50 a month in savings could go straight to other investments or a child's school fund.

Possibly you did get approved but have no idea if you recieved a competive rate. Find out.

Bank Turned you Down for a Mortgage

Your situation may be a little different with one of the three pillars (credit, income or down payment) a little damaged or insufficient and your banker or another broker has told you no, you cannot get a mortgage. At this point is when you contact a well established brokerage. If you use a brokerage that is filing 50 to 100 mortgages a month you know they have a very broad spectrum of lenders they are using which opens up opportunity for you. A brokerage has to meet a quota at most of the lenders they deal with, so if thier numbers are low, you know they are using a limited number of lenders.

Take for example if your credit was damaged due to a divorce, illness, a tough emotional time in your life or any number of reasons. We will actually look at your credit history over the last six years and go to lenders with a reason this happened and litterally do our best to talk them into giving you a mortgage. It may take some time or we may have to help you with some credit repair, but if you are pro-active you will enjoy home ownership.

Possibly you are on a salary but it is not high enough to purchase what you want, but you have a large amount of investments. Your net worth will get you a mortgage. Maybe you work part time and have had four different jobs over the last two years. Did you know you can still qualify? Maybe you are on a contract and your bank has turned you down. Did you know you can still qualify? Maybe you work at a temp agency? Yep still qualify. Your ex won't give you a seperation agreement? We don't care, you can still qualify. Self-employed? Many different options here.

Every single lender has their own little rules aside from the mortgage insures. Just because one lender does not like your situation do not give up. Someone will want your business.

Often when applying for a mortgage at a bank someone will take your application and send it away for approval at central underwriting. If it comes back declined, they may not even know why and you have no idea why. Find out why.

Get educated and get a game plan, we will help.

If you have any questions please do not hesitate to contact me.

Ron Miller
905-667-0699
ron.miller@butlermortgages.com

Self Employed Mortgages

You can view all my videos on You Tube at HamiltonBroker.

I should have made this post weeks ago, as many people are switching their careers to self-employment to gain more control of their life. Contrary to popular belief getting a mortgage while self-employed is not as hard as you may think. I have heard people thinking they need 20% down, they have to pay higher interest rates and even heard that “B” lending is their only option.

I will explain the easiest way for the self-employed to get a mortgage first. If you have been self-employed long enough to have two years’ worth of taxes completed, owe no taxes and have claimed sufficient income to qualify for what you want to purchase. You will fall into the same category as anyone who is employed with a regular job, you can buy with 5% down. The only difference is the document collection, instead of us asking you for a job letter and paystub, we will want two years NOA’s and your T1 Generals. We do add 15% to your income to offset the amount you have paid in taxes. The same mortgage insurance fees apply if you are putting down less than 20% and you can still get the best rates. Always ask a broker up front if there will be a fee, in this case there shouldn't be.

If you haven’t claimed enough income and do not qualify to purchase a home there is still an option for you. With less than 20% down the mortgage insurers have a self-declared income program. Basically you make up a number for your income, but don’t get too carried away we will have to provide your business financials to back it up. We will still need your NOA’s to show that no taxes are owed. With this program you need a credit score of at least 680 and a minimum of a 10% deposit. You do have to pay a higher CMHC premium, but I guess that offsets the amount of money you have saved in taxes. When clients complain about this premium we basically tell them to redo their taxes and show enough income to qualify without the self-declared program. They always pay the premium, which is just added to the balance of the mortgage. Again there should be no fee for this service.

The third way to get a mortgage as self-employed can have a book written about it. There are many variables that come into play. But basically it is a conventional mortgage or an equity mortgage which is a mortgage with 20% down or more and is uninsured. With these types of mortgages there is more risk to the bank because they are not insured by the default insurers; however, the larger the down payment the less risk there is for the lender. The rate you receive on these mortgages will depend on your credit score and size of deposit. With an equity mortgage almost anyone can qualify if the down payment is large enough, self-employed, bad credit, taxes owed, commission earnings and to be quite honest, you can have no income at all. If you do fall into this category don’t think you are alone, there is plenty of people here. There is an entire industry in the mortgage world based around this type of lending. This type of mortgage often requires a fee from a broker, make sure you ask up front what it will be, do not find out what it is the day you sit to sign the mortgage papers. "B" lenders often do not pay the brokers very well compared to the amount of work required to put one of these mortgages together.

I have just explained the basics, if your situation requires a little special attention feel free to contact me and we can send you in the right direction. If this has been a help to you, please let me know. Be the first to comment.

Ron Miller
Butler Mortgages
905-667-0699
ron.miller@butlermortgages.com

Mortgage Pre-approval

A mortgage pre-approval is the very first step in buying a home. It is also the most important step; it can save you thousands of dollars if you chose the right broker. This is the point where you find out how much purchasing power you have and what it will actually cost you to buy a home. If you decide you want to do this at a bank make it absolutely certain that you receive a pre-approval certificate. Often banks only do a pre-qualification which can cause you a lot of headaches if they are not thorough enough. (Pre-qualification does not include a credit check.)

With a pre-approval certificate it is almost like buying with cash and can give you more bargaining power because your Realtor may present it during an offer presentation to show your ability to purchase the home. Even more so if it is from a reputable mortgage broker such as Butler Mortgages.

First Time Home Buyers

For first timers you want to be certain your broker is really taking the time to explain the process, if you do this in person you want to make sure you are able to spend at least an hour with your broker. It really only takes 10 minutes to do the application, but your broker should take the time to explain the process in detail and answer all your questions.

Buying and Selling, Upgrading?

It is just as important to get a pre-approval in this case. Imagine if you sold your home and went and put in an offer on another home and your lender has told you there is a problem with your credit. Now what? Basically you are screwed!!! Your credit could be damaged from something you had nothing to do with, you could have a common name and something was accidently put on your bureau that should have gone on someone else’s. Creditors do make mistakes and quite often. We are known to save deals like this if you are currently experiencing this problem.

The Pre-approval Advantage

When you find a home and put in an offer, you usually have 5 business days to secure your financing. That does not give you a lot of time to shop around and decide which type of mortgage you want. If you are pre-approved ahead of time, you have already secured the best financing with the terms you want. Remember one lender may have the best fixed rate but their variable may not be that good. So a broker will find which lender suites your needs and offers the best terms for you. Keep in mind if you have a pre-approval, the 5 business days to secure financing is usually to secure financing against the home, the property is being approved not you. However, if your down payment is less than 20% and you need default insurance. CMHC and Genworth (mortgage default insurers) do not do pre-approvals, only the lenders do. This is another reason you make your offer conditional on financing especially if your credit is fairly new or a little rough.

Finding a Realtor

Once you have your pre-approval it is time to find your Realtor. If you do not have a Realtor we can definitely help you find one or refer one to you. It is a good idea to use one who is very familiar with the area you are planning to move to. Also the type of property you are looking at buying. Some Realtors concentrate on condos and know everything about them; others are more into the single family homes or investment properties. Maybe you want a farm? You may not want to use a condo Realtor for a farm purchase. The knowledge of a Realtor in a specific area and/or type of property can be a huge benefit to you.

Basically a pre-approval by a good broker gives you the edge as well as knowledge. Knowledge gives you confidence and piece of mind. If you would like to recieve a pre-approval certificate or need help finding a Realtor, feel confident in calling us.

You can fill out the application online by clicking here and request it be sent to me by selecting my name at the bottom of the application. Still, it is best to come into one of our offices and discuss it further.

Ron Miller
Butler Mortgages
905-667-0699
ron.miller@butlermortgages.com

First Time Home Buyers

Hello:

This post is set up to try and make the first home buying experience fun and exciting.  The more knowledge you have and the more paperwork you have in order will make the whole process a lot more fun and exciting.

The very first step is to speak with your local mortgage broker.  Sure it is fine to use online applications and do the process through email and phone, but when it comes right down to it, you want to make sure you can actually meet with your broker.  Chose a broker who will take the time to explain the process and is available to answer your questions.

Once you have chosen a broker you will take part in the pre-approval process.  It is always best to do this in person because online many items can be missed.  People often forget to disclose many parts of their income such as child tax credits, overtime they work, other incomes from non traditional sources.  It is a good idea to bring in a recent pay stub, this ensures that the amount your pre-approved for is accurate.

We will ask you the source of your down payment.  Acceptable forms are savings, investments, gifted from immediate family member and of course RRSP's up to 25k for each purchaser as long as it has been in the account for at least 90 days.  Also income will be asked and a credit check will be done.

Once you have received your pre-approval certificate it is time to go home shopping.  Time to find your Realtor.  If you do not know of one I can definitely refer a few good ones, it does make a big difference on the Realtor you chose.  When you find the home you want it is time to put in an offer.  The Realtor will instruct you to make the offer conditional on financing and home inspection.  If it is an older home you may wish to also add conditional on insurance, as well if it is a condo you will add a condition for the status certificate which is the financial condition of the condo corporation.

Once you have an accepted offer the realtor will ask you for a deposit.  This will count as part of your down payment.  Then the Realtor will send us your offer and we will submit it to the lender that best suites your needs.  Even though you have been pre-approved we still have to get the property approved by the lender and or the mortgage insurer, usually GENWORTH or CMHC.

Once we receive the approval from the lender you can waive your financing condition and if you meet the other conditions you have the offer will be firm, which means you are well on your way to home ownership.  At this point we will start the document collection process.  Required forms of documents depends on your form of income and the lender that is providing the mortgage.  I will go into more detail about this in a later post but generally it will be two pay stubs and a job letter, three months worth of statements showing where the down payment came from, a void cheque and lawyer info.

Once all documents are collected your file is complete and you then get in contact with your lawyer who will instruct you further.  Usually lawyers will set up a preliminary meeting with you to discuss the costs and process.  Then one or two days prior to closing you will get a certified cheque for down payment and closing costs meet with your lawyer and sign the official documents and wait for the magic moment.  You may also want to do a final walk through the day before closing or the day of to make sure the home and or the appliances are as viewed when you put in your original offer. 

On closing day once all monies have been transferred and the home is officially put in your name, you will receive the keys.

Any questions feel free to email or call me.

Thanks,

Ron Miller
Butler Mortgages
905-667-0699
ron.miller@butlermortgages.com