Financing Requirements When Purchasing a Home

There are four main areas that lenders search for when considering an application to supply financing on a home purchase.

The first one is employment. You must prove that you have full time permanent employment. If you work part-time, we need to make a pattern over two years showing that you are a permanent part-time employee. Therefore, so salaried people, proving employment is relatively easy. You must ask your boss to supply you with a letter of employment on a business letter head showing such information as your employment status, your title, your earnings and how long you have worked there. The lender will result up and call your boss to verify to authenticity of the letter. Lenders go through great lengths to avoid fraudulent applications.

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Where things get a bit blurry is if person is self-employed. Generally speaking, lenders will not entertain your application if you have been self-employed for less than two years. The type of documentation requirements are, any one of the following: business License, Gst/Hst Return Summary, T1 Generals with statement of business activities attached for a minimum 2 years ready by an arm's length third-party or Audited Financial Statements for the last 2 years, ready and signed by a Ca. In increasing to the above, a modern consideration of estimate or a signed affidavit by the borrower(s) to confirm no earnings tax arrears.

The second area is Income. We use gross every year earnings to qualify deals so other than the regular pay stub for salaried people, we can use other sources such as pensions and child credits. For salaried people, things are pretty straight forward and again, things are more involved with self-employed people. We can use an mean of the last two years of consideration of assessments (Noa) from Canada earnings department (Cra) or we can use we call "Stated Income". That is, we basically make up a amount that we feel is uncostly for the type of work some one does. This is then scrutinized by the lender to make sure that it all makes sense. For example, if I say that I make 0,000 per annum washing windows, it likely will not fly but if I was to say that I make ,000 per annum for the same employment type, it would probably work. There are countless checks and balances in the approval process that lenders will search for before granting a loan to self-employed population especially when stating income.

Besides regular income, rental earnings can be used when applicable. Lenders have dissimilar rules on how this type of earnings is used. For example, some lenders will use an 80% rental offset policy which reduces or offsets the principal, interest and tax quantum of the monthly payments on the branch property. Others will add 50 or 80% of the rental earnings to the client's gross income. The rental offset strategy is the best to use so it becomes important to visit a mortgage broker who has way to many lenders and knows which lenders use rental offsets and those who do not.

The third area is the Down Payment. In most cases, a 5% down payment is required however if your reputation is impeccable, we can still look at no down payment options. Gifted down payments may be thorough and a three month history of your savings is required to show and prove that the money is undoubtedly yours and not borrowed.

The last item is end costs. These are costs related with the purchase and consist of legal fees, property tax adjustments, appraisals, property inspection, home insurance and property replacement tax.

Legal fees ordinarily range in the 0 mark for a purchase. Appraisals are required for accepted deals and cost approximately 0. They are not required for high ratio deals as they are covered under the Cmhc, Genworth or Aig premiums. Home inspections are approximately 0 and home insurance range between 0 and 0. The most costly item is the property replacement tax which is calculated like this: 1% of the 1st 0,000 and 2% of the equilibrium of the purchase price. All together, this is amounts to approximately 1.85% of the purchase price.

There is one important irregularity to the property replacement tax however and it is if you are a first time buyer. In this case, you are exempt from this tax if you never owned a home any where and if the purchase price is less than 5,000. If the purchase price is over the 5,000 mark, there is a scale from 5,000 to 0,000 that applies where you will pay a division of the tax and when you reach the 0,000 mark, the full tax amount is payable, first time buyer or not.

There are many variables that apply to the above but this overview gives you the just of what is required. All things must be analyzed on an individual basis as no two population have the same circumstances.

Financing Requirements When Purchasing a Home