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Many people purchase homes in BC every year, and one thing that almost all of them have in common is that they have to take out a loan to pay for most of the purchase price. This involves convincing the lending department at a bank that the buyer is going to make all of the payments on the loan in a timely manner — over the course of the next 20 to 25 years.
It’s true that no loan in Canada can have a term longer than 10 years, but the amortization period for the payments on home loans in BC is usually 20 or 25 years, to make the loans more affordable. The 10-year cap is really there to protect the banks. After all, just because interest rates are historically low now doesn’t mean that they will be in three years, five years or ten years down the road. When the borrower has to renew the loan, the prevailing rates at that time apply. So those 30-year notes that those Americans are locking in at these infinitesimal rates? They aren’t possible in Canada. The longest possible term is 10 years, and those rates are higher than what borrowers will pay for, say, a two- or three-year note. Having that security for the interest rate costs here.
Mortgage Financing BC
In BC, if you want a mortgage, you have to have three things in place. First is a down payment of at least 5 percent of the purchase price. You’ll save a lot of money over time if you can put 20 percent down, because you won’t have to pay mortgage insurance, but 5 percent will get you in the house.
Second is income history. If you’ve been working in the same accounting firm for the past five years and have steadily increasing income levels that are more than enough to manage the mortgage payments, then you’re golden. Fresh out of college with just a few months in at that new firm? Not so much. You might have a nice down payment thanks to a trust fund or that entrepreneurial spirit that helped you make a lot of money during college, but you haven’t built a solid income history yet, and you may hit some snags here.
Third is your credit score. This number reflects your track record of making payments on time, for everything from your credit cards to your utilities to your car note. The better job you do with this, the higher your score. If your score is high enough, the bank approves your loan. If not, Get Pre-Qualified online now through the button below:
Financing Home Purchase BC
A lot of people don’t know that there even is an “elsewhere.” They go to the bank on the corner, where they’ve had their account since Aunt Bertie set up that passbook savings account on their fifth birthday, and because their law firm has only been making profits for the past year, they don’t get approval. They go to the bank across the street, and they hear the same thing, so they sign another two-year lease, planning to throw more money down the rent drain before they try to qualify once they have a little longer income history.
But these are just the “A” lending sources. There are also the “Alt-A” or the “B” sources. These lenders are a little more flexible when it comes to income history a credit history that is a little less consistent. Their interest rates are a little steeper, but the answer with a loan like this is just to sign a shorter term and, when the two or three years are up, renew with an “A” lender for a lower rate. In the meantime, you’re building equity in that house.
If the “B” lenders are declining as well, but you have at least 15 percent to put down on that sharp house in BC, then the “C” lenders (also known as private lenders) may be the way to go. They look at the value of the property and the loan-to-value (LTV) ratio to determine whether or not to lend you money. This is why the down payment is higher; if you go into default, they just want to be sure they can sell the house and get their money back. The terms of the “C” loans are short — usually no more than a couple of years — and the interest rates are higher than the “B” loans, but you are building equity, and working toward a better credit score so you can qualify for an “A” loan when the private one expires.
Curious about financing your new home in BC? Call Amansad Financial to see what the best loan product is going to be for you.