Compliments of REW.ca
January 2013 marks the start of the first year for home buyers under the federal changes to mortgage lending: in a way buyers now are in the same situation as buyers of 30 years ago before high-ratio mortgage insurance and long amortizations. Buyers, especially first-time buyers who require government-backed mortgage insurance, must take pragmatic steps toward a home purchase.
First, the amortization period has been reduced to a maximum of 25 years, as was common until a decade ago. This means that, to qualify for a mortgage, buyers must prove they can make the slightly higher payments required for a 25 year, versus a 30 year or even 35 year, mortgage. There is a payoff, in that a homewoner will save thousands of dollars in interest payments with a shorter amortization.
Second, the maximum gross debt service ratio to qualify for an insured mortgage is now 39 percent, down from 41 percent, and the maximum total debt service ratio is 44 per cent. This means that, before you apply for a mortgage, make sure that your other debt obligations (like student loans, credit cards or car loan payments) will not skew your debt service ratio above the maximum threshold.
Third, the 5 per cent downpayment is still available, but it is wise to save longer and put down more. This is because you will not only save on the mortgage insurance premium but you will also spend less in interest payments over the life of the mortgage.
Fourth, check your credit score: a score of at least 600 is often required now to qualify for insured mortgages.
Take advantage of the current buyer's market in the Lower Mainland. Mortgage rates are lower than ever. Get pre-approved by a mortgage broker......Michael Friedman and use a good Realtor......Pamela Smith.
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