Financial Arrangements

Money borrowed to buy a home is referred to as a mortgage. A mortgage is a document used to pledge property to a financial institution or creditor as security for debt. The document that you sign pledges the home as security until you have repaid the mortgage.

Mortgages - Conventional and High Ratio

All mortgages that are less than 75% (of home value) are considered conventional and do not require C.M.H.C. mortgage insurance. C.M.H.C. insurance insures that in the event that you default on the mortgage and the financial institution incurs losses through foreclosure action, they will recover their losses from the C.M.H.C. insurance. The amount of the premium varies from 1% to 3% of the mortgage amount, depending on the mortgage to purchase price ratio.

Debt Service Ratio

Financial institutions commonly refer to these terms:

  • Gross debt service ratio (GDSR)
  • Total debt service ratio (TDSR)

When determining your ability to qualify for a mortgage, these ratios are used to qualify you for the mortgage and are based on you total household income. 100% of your household income can be used for the qualifying procedure.

Gross Debt Service Ratio (GDSR) is the portion of your income that can be used to service the principal, interest and municipal taxes (P.I.T.). This ratio should not exceed 30% of your gross income.

Total Debt Service Ratio (TDSR) is the portion of your income that can be used to service the principle, interest, taxes, (P.I.T.) of your mortgage, plus all your other credit obligations. This ratio should not exceed 40% of your total household income.

From Acceptance To Possession Date

The possession date, which is the same as the closing date, can be set 30 to 60 days or more ahead of the time the offer is accepted.

How Do We Obtain A Mortgage To Buy a New Home?

You may already have a good relationship with a bank or another financial institution and may have been given verbal assurance that they want you for a mortgage customer. However, we frequently arrange for a mortgage representative to meet with a prospective home purchaser at a place convenient to the customer, to take the application for the new mortgage. This speeds up the approval time and saves the homebuyer a lot of time and running around.

Pre Approved Mortgages

Before you begin shopping for a new home we can also have you meet with a mortgage representative and get pre-approval for a mortgage. You will then know how large a mortgage loan you are qualified for (based on your income) and you will know that the financial institution has done a credit check and verified that you are a good credit risk.

You are then secure to what price range of home you can shop in and make an offer on a home knowing that you qualify and at that point only the home has to qualify. (The mortgage company wants to be sure that the home is worth the price that you are paying for it and that it meets their guidelines so they know that their money is secure.)

The pre-approval process does not require any application fee but when you actually make an offer on a home there will be an application fee.

What You will Need For Your Mortgage Application

  • Copy of the offer to purchase
  • Verification of Employment (letter from Employer)
  • Verification of the existence of down payment
    • Letter from the bank
    • If funds are from the sale of a previous home, a copy of the completed offer to purchase and condition removal forms.
    • If funds are a gift or loan from family members, a letter from the donor saying that they do not have to be repaid.
  • Verification of purchase income (husband and wife)
  • Survey certificate, if one is not available from the previous owner, the financial institution will order one
  • A zoning compliance certificate (usually ordered by the financial institution)

Legal Fees and Disbursements

"Legal Fees" are the actual fees charged by a law firm for their time and expertise required to look after all the details involved in transfer of ownership, registration of the mortgage and all the other many details.

There is a legal fee (tariff) for the purchase of a home and another fee for the setting up and the registration of the mortgage.

Usually the law firm will reduce the fees when they are doing both the purchase and the mortgage compared to what they would charge if they were only doing a portion of the transaction.

In addition to the above fee, there are disbursement costs. These are costs (copying, courier service etc.) that the law firm incurs on your behalf and will pass them on to you.

It is recommended that as soon as you complete an offer on a property, you consult with the law firm to determine legal costs.

Municipal Tax Adjustments

If you take possession of a home during the year you are responsible for paying the taxes for the portion of the year that you live in the home. Taxes are payable by the end of June and are for the current calendar year.

As an example, if you take possession on August 1, you are responsible for 5 months of taxes. If the previous owner has paid them he will receive a credit on his statement of disbursement from the lawyers and you will be required to pay for that 5 month period.

Mortgage Interest Adjustment Date

You start paying interest on your mortgage as soon as it is funded and sent to your lawyer. The date of possession is usually the interest adjustment date and at that time your lawyers will calculate how much interest you have to pay for that extra time that the funds are in their trust account.

Mortgage Life Insurance

Not to be confused with C.M.H.C. insurance. This is a personal life insurance that you buy to ensure that if you or your spouse dies, the mortgage will be paid off. Brochures explaining the cost are available from the financial bramches.