Answers to “What do you need to ask if you are applying for a mortgage?”

For those purchasing a home – requiring the services of a solicitor

Q: How are the fees and closing costs calculated?
A: Fee: The closing cost associated with purchasing a home can vary depending on the fees your solicitor charges – the basic closing costs could range between $1,000 -$1,500. This cost includes the lawyer’s fees to conduct searches and registration fees to register the actual mortgage on the property. The searches are conducted to ensure that there are no liens or issues related to the property that would delay the closing; it does not include land transfer taxes which are also payable on closing.

Q: What are Land Transfer Taxes?
This is a tax charged by the province when ownership of property is changed. It is normally paid by the purchaser when the property is bought. You should check with your lawyer whenever you are considering any changes to the title of real estate property (including adding spouses or children). It is always better to understand all the possible affects prior to making any change.
A: How are Land Transfer Taxes Calculated?
On transfers of residential property in Ontario, Land Transfer Tax (LTT) is calculated on the purchase price (less a GST calculation, if the property purchased is a newly built home). The amount of tax payable is based on the following upward sliding scale:

• 0.5% on the first $55,000 of the purchase price, plus
• 1.0% on the amount exceeding $ 55,000 up to and including $250,000, plus
• 1.5% on the amount exceeding $250,000 up to and including $400,000, plus
• 2.0% on the amount over $400,000.

Q: What is the minimum down payment required for the mortgage?
A: Down payment: Traditionally the minimum down payment required is 25%. When a down payment is less than 25% of the lesser of purchase price or appraisal fee then High Ratio Insurance is required.
To avoid the High Ratio Insurance premium a minimum down payment of 25% is required.

Q: What are the qualifying guidelines for the mortgage?
A: Qualifying Guidelines: A mortgage application is approved based on guidelines which include affordability, good credit history, job stability and proof of down payment.
To determine whether an individual qualifies for a mortgage a percentage guideline referred to as the TDS & GDS is used. These ratios are to determine affordability.

• TDS (Total Debt Service Ratio) is the total amount of all debts payable each month including any mortgage payments versus your monthly gross income. This ratio should not exceed 40% of your monthly gross income.
• GDS (Gross Debt Service Ratio) is the amount of your mortgage payment and also includes property taxes. If you have a High Ratio mortgage, heat and hydro costs are taken into consideration. This amount should not exceed 30% of your monthly gross income.

Credit History is very important as it indicates what type of payment history you have maintained with other creditors.
Job stability – how long you’ve been with one employer.
Proof of down payment is required as a lender wants to ensure that the funds are not being borrowed for the down payment.

Q: What documents will you need to provide?
A: Copy of the Offer to Purchase, MLS listing, confirmation of down payment and verification of income in the form of a letter from your employer. If self employed; a copy of latest tax returns (notice of assessments) and a list of all assets and liabilities.

Q: How long will it take to process the mortgage?
A: Once your mortgage has been approved your financial institution will ask for the name of your lawyer. Solicitors Instructions can be forwarded in the weeks prior to closing. Each lawyer looks after scheduling appointments with clients to sign all documents and requests funds from the Financial Institution who is providing financing. This usually takes 5-10 business days.

Q: What could delay approval of the mortgage?

• Solicitor unable to meet closing date which is unlikely unless there are unresolved issues on property. This is usually known prior to closing and in most cases is resolved in time.
• Necessary documents not submitted by the applicant
• Delay in getting an appraisal.
• Issues revealed by FCT (First Canadian Title Insurance) while conducting a property search. These issues include but are not limited to other mortgages, liens and registration deficiencies.

For existing home owners – looking to use equity in home

Q: How are the fees and closing costs calculated?
A: Fee: $420 (Plus cost of appraisal if applicable) If a discharge is required on an existing mortgage then the fee increases to $490.

Q: What is the minimum down payment required for the mortgage?
A: For the purpose of consolidation an individual can borrow up to 90% of the appraised value of their home.
Again, if the loan to value being borrowed is greater than 75% and not exceeding 90% high ratio insurance is required and a premium payment is added to the amount of the mortgage.

Q: What are the qualifying guidelines for the mortgage?
A: Same as Purchasing a home with the exception of proof of down payment.

Q: What documents will you need to provide?
A: Same as purchasing a home with the exception of proof of down payment, offer to purchase and MLS listing. If home is free and clear a copy of the Deed of Land is required.

Q: How long will it take to process the mortgage?
A: Usually a mortgage can be processed within 5 business days.

Q: What could delay approval of the mortgage?

• Necessary documents not submitted by the applicant
• Delay is getting an appraisal.
• Issues revealed by FCT (First Canadian Title Insurance) while conducting a property search. These issues include but are not limited to other mortgages, liens and registration deficiencies.