Understanding the Housing Market in Ottawa
Applied knowledge is power. The more you know about your local market conditions the better you can decide on what and where your next move is going to be. In order to accomplish this you will need to understand house price trends, mortgage rate movements, your affordability and the types of mortgages available. In one session, I can provide you with necessary information so that you may make an informed decision on your next real estate purchase.
Home buying costs in Ottawa – Your Affordability in the Ottawa’s Housing Market
1.You may choose to put a 20% down payment on your new home which will enable you to qualify for a conventional mortgage loan which does not require mortgage loan insurance. You may read about the CMHC insurance premium rates at How Much Does CMHC Mortgage Loan Insurance Cost? or look at the table included below:
2.A minimum down payment of 5% is required for a high-ratio mortgage. These types of mortgage loans – for any amount in excess of 80% of the value of the home – are required to be insured against default.
3.Are you eligible for First-Time Home Buyers’ Tax Credit? The maximum amount of the claim is $750.
4.Are you eligible for Land Transfer Tax Refund For First-Time Home Buyers? The maximum amount of the refund is $2,000.
5.How much can you afford? Generally speaking, lenders follow two rules in determining your affordability and the highest allowable monthly payment.
A. The first affordability rule is that your monthly housing costs shouldn’t be more than 32% OF YOUR GROSS HOUSEHOLD OR FAMILY MONTHLY INCOME. These costs include monthly mortgage principal and interest or P+I, taxes (T), heating expenses (H) and 50% of monthly condominium fees (if applicable).
Therefore, Monthly Housing Costs (P.I.T.H.)< 32% of the household monthly income.
The ratio of your housing costs to your gross monthly income is known as Gross Debt Service (GDS) ratio. Lets say that your estimated monthly housing costs are P($370) + I ($460) + T($280) +H($200) = $1,310 and you gross household monthly income is $5,020. (P.I.T.H) $1,310<32% of $5,020 and you qualify for a mortgage since your GDS= 26.1%
B. The second affordability rule is that your entire monthly debt load shouldn’t be more than 40% of your gross household monthly income. This includes P.I.T.H (housing costs) + other debts (such as loans, credit card payments). The ratio of your whole costs to your gross monthly income is known as Total Debt Service (TDS) ratio. P.I.T.H + other debts < 40% of household monthly income.
Therefore, Entire Monthly Debt Load < 40% of the household monthly income.
From previous example, P.I.T.H = $1,310 + car loan ($150 a month) + credit card ($80) = $1,540 entire monthly debt load.
Therefore, Entire Monthly Debt ($1,540) < 40% of household monthly income.
Therefore, Entire Monthly Debt ($1,540) < 40% of $5,020 and you qualify for a mortgage since your TDS=30.7%
For automated GDS and TDS Calculation?
6.Lenders check your personal credit rating is determination for mortgage approval. You can check your own credit rating at Free Credit Reports 360:
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8.Other costs associated with real estate home sale are:
A.7% tax (on new housing),
B.Appraisal fee ($250-$400),
D.Survey fee and/or title insurance fee,
F.Prepaid (by the vendor) taxes or utility bills,
G.Land transfer tax (simple tool to calculate them located at Ontario Land Transfer Tax Calculator, generally this cost is between 1%-4%),
H.Service charges to hook up your utilities,
I.Lawyer fees (takes care of reviewing the offer, searching the title, draw up mortgage documents, tend to closing issues, cost: $500-$700 plus disbursements),
J.Mortgage loan insurance premium and application fee as discussed previously,
K.Mortgage broker fee (usually this fee is covered by your future lender),
L.Moving costs between $50-$150 per hour,
M.Home inspection fee (generally costing $250-$350),
N.Renovation and repairs costs,
O.Water quality and quantity certificate,
P.Estoppel certificate (condominium only),
Q.Monthly condominium fees (condominium only), etc.
Please contact me at Main Page Contact: Tom Witek 613-314-1199 or OttawaPropertyShop@gmail.com to schedule an appointment during a time most convenient to you.