LEARN ABOUT BUYING A HOME
LEARN ABOUT BUYING A HOME
Doing anything for the first time can be scary—especially when it's something as big as buying a house! But don't worry. Your Mortgage Evolution Specialist will provide you with all the information, advice, assistance and reassurance you need, every step of the way.
To help you feel prepared and informed, here are some of the steps involved in buying a house. If there's anything you're unsure about, please don't hesitate to talk to your local Mortgage Specialist. We're prepared to do everything we can to make things proceed smoothly, quickly and effortlessly.
Finding and Purchasing the Right Home
When you're about to make one of the largest purchases of your life, be sure to shop around.
Next, find a real estate agent whose attitude and availability inspire your trust. Start by seeing who's most active in your neighbourhood. An agent who makes regular sales calls and keeps you informed of listings and sales in your area probably pursues business aggressively.
Set up appointments with a few agents from different companies and assess their presentations. Are they prepared? Have they done some homework in advance? Do they have any special affiliations or packaged discount programs with other corporations that can save you money on your mortgage, on moving costs or on purchases for your new home? Work with someone you relate to, with whom you have some chemistry, and who offers excellent service and value. Be sure to ask if the realtor is acting for a vendor or for you.
To take the guesswork out of shopping for a home, take advantage of all the professional resources available to guide you through the many choices available when purchasing your first home.
Choosing a Realtor
Choosing the right realtor can help ensure you get the right house at the right price. Here's a checklist of questions to ask potential realtors before deciding to work with one.
Ask to see a personal brochure or resume. Look for experience in your area, in your price range, and letters of reference.
Ask if this is their full-time career and whether they're committed to it in the long term.
How many properties have they sold in the last 3 months? How do they rank among peers? How many current listings do they have? What has their ranking been over the last 5 years? Where does their company rank in sales and market share?
Ask how they'll approach your home search. Simply rely on MLS listings? Or do they have other sources of homes to show you? Are they willing to change their strategy to adapt to market conditions, or are they inflexible?
Length of time for search
How long do they think it'll take? What's the average length of time in your area and in the current market?
What's the current selling price versus asking price in your area and in the current market? Is their personal sell vs. ask price better or worse than average?
Ask whether they have support people to assist in the process. This also gives you an additional contact when you need it.
Do they prefer to pre-book viewing excursions or are they flexible enough to show you listings as they become available?
Affordability and Financing
Thoroughly review your current income and expenses. How much will your new mortgage add to your monthly expenses? Before you embark on your housing search, get a pre-approved mortgage, especially if you're a first time buyer. A pre-approved mortgage lets you know how much money you qualify for, so you can shop in comfort.
A Mortgage Specialist from The Mortgage Evolution can help you do a complete analysis based on net income and projected budgets to determine what you can afford.
This pre-qualifying stage is also the time to find out about the differences between conventional mortgages and high-ratio insured mortgages. Ask about assistance for first-time homebuyers such as the 0% down payment allowed sponsored by CMHC/Genworth and the federal government's "RRSP Homebuyer's Plan", which lets you use funds from your RRSP to purchase a home.
A Mortgage Evolution Specialist will also go over closing costs with you, like land transfer taxes, legal fees and other disbursements. A good rule of thumb is to budget about 3% of the purchase price for closing costs. Before you're pre-qualified, your Mortgage Specialist will run a credit bureau report on you and ask for written confirmation of income and how much you plan to put down on your purchase.
Once you're pre-qualified, the interest rate is guaranteed for 60 to 120 days from the time of your application. If rates drop, you'll get the lower rate; if they rise, you're covered. And just because you pre-qualified by a certain financial institution, you're by no means committed to that lender. We'll shop the market to get you the best possible deal!
Selecting the Right Mortgage
Your basic choices in selecting a mortgage include:
Conventional vs. high-ratio mortgages
A conventional mortgage equals no more than 80% of the appraised value or purchase price of the property, whichever is less. A high-ratio mortgage is usually for more than 80% of the appraised value or purchase price. It's often referred to as an NHA mortgage because it is granted under the provisions of the National Housing Act and must, by law, be insured through CMHC/Genworth for which the borrower pays the insurance premium as well as application, legal and property appraisal fees.
Closed vs. open mortgages
Closed mortgages gives you the security of a fixed payment.. rather than open mortgages which are generally variable but can be fixed, open mortgages let you pay off as much as you want, any time, without penalty. Closed mortgages have a prepayment penalty if paid out before the end of the term, this can vari with institutions.
Short term vs. long term
The term you select is important, too. Short term mortgages are appropriate if you believe interest rates will be lower at renewal time. Long term mortgages are suitable if you feel current rates are reasonable and you want the security of budgeting for the future.
Fixed rate vs. variable rate
You can choose a fixed or variable interest rate. A fixed rate mortgage allows you to budget precisely for whatever term you select—from one to as many as 35 years. A variable rate mortgage fluctuates with the market.
Specialty mortgages that creatively combine the best of all worlds.
Applying For Your Mortgage - A Checklist
When you apply for a mortgage, you will need:
• A copy of the accepted Offer To Purchase and the land survey
• A salary letter from your employer (self-employed buyers need financial statements for the past three years as well as personal income tax returns)
• Confirmation that your down payment came from your own resources (e.g. bank statements or a gift letter)
• A list of all your assets and debts along with account numbers
• A copy of the Real Estate Listing if buying an existing home
• Condominium financial statements, if applicable
• If you are buying a home to be constructed, bring a picture of the property, a copy of the building plans and specifications, the land survey, plus your agreement with the builder.
Your Mortgage Specialist can help you determine how much you can afford, obtain a pre-qualified approval, and select the mortgage that's right for you. This allows you to act quickly when you find the home you want. After your real estate agent draws up an Offer To Purchase between you and the vendor-an agreement that sets the final price and all the conditions of sale-contact your Mortgage Specialist. Your deal is almost complete!
Before You Sign the Offer
Select a lawyer as you'd select a real estate agent: seek competitive fees, excellent service, knowledge, approachability—in other words, value.
Involve your lawyer before you sign the Offer, which becomes a legal Agreement of Purchase and Sale once you and the seller sign it. Have your lawyer read the document carefully and review it with you. Once it's signed and accepted, your lawyer will order a series of searches from various municipal offices to ensure that the vendors haven't been sued, that they've paid all of their property taxes and water, electric and gas bills, and that there'll be no outstanding mortgages or liens on the property once you become the owner.
Your lawyer will also draft a series of closing documents and review the closing documents drafted by the vendor's lawyer.
Your lender and lawyer will co-ordinate and draft the appropriate documents. Your lawyer will notify the property tax offices as well as the utility offices that you will be the new owner as of the closing day.
A few days before closing, you'll visit your lawyer's office to sign the closing documents. Bring a certified cheque for the balance of the closing funds, because the lawyer pays the relevant parties on your behalf (land transfer to the government, balance owing to the vendor, etc.). Part of that amount covers the lawyer's fee and disbursement costs. The lawyer obtains the mortgage funds directly from the institution that's funding your mortgage.
On Closing Day
On closing day, your lawyer will meet a representative from the vendor's law firm at the land registry office. There, your cheque will be exchanged for the keys to your home and the two sides will trade closing documents. Your legal representative will then register the new deed and mortgage, so anyone doing a search will see that you're the new owner. Finally, you pick up the keys and YOU'RE IN!
After closing, your lawyer will send you a reporting letter and copies of all the documents you signed including the deed, the mortgage and the survey, and a summary of the flow of funds.
Mortgage Life Insurance
Seriously consider mortgage life insurance. The cost is low and can be incorporated into your mortgage payments. In the event of death, terminal illness, or permanent disability, your balance will be paid in full (the maximum varies among financial institutions). Quotes are available with each approved mortgage.
Financial institutions vary in their prepayment privileges, which let you pay down your mortgage faster. Our best advice: research your options! Also be aware that the longer the amortization period (the time it takes to pay off a mortgage), the more interest you'll end up paying. Amortization periods range from five to 35 years.
Weekly or biweekly instead of monthly payments could shave as much as eight years and $38,000 off a $100,000 mortgage, depending on current interest rates.
Another option to consider is portability. If you decide to sell your home and buy another, you should be able to take your mortgage with you or transfer it to the buyer of your home without penalty. This can be a major advantage if your mortgage rate is below current market rates.
Getting a Mortgage Pre-Approval
If you are looking for a new home, be sure you are pre-approved. With a mortgage pre-approval, a licensed mortgage professional can do a more complete verification prior to sending you shopping for a home, and with that done, the dollar figure you are going shopping with is actually what you can spend.
The mortgage professional that you work with to get pre-approved will let you know for certain what you can afford based on lender and insurer criteria, and what your payments on a specific mortgage will be. Dominion Lending Centres mortgage professionals can lock-in an interest rate for you for anywhere from 60 - 120 days while you shop for your perfect home. By locking in an interest rate, you are guaranteed to get a mortgage for at least that rate or better. If interest rates drop, your locked-in rate will drop as well. However, if the interest rates go up, your locked-in interest rate will not, ensuring you get the best rate throughout the mortgage pre-approval process.
In order to get pre-approved for a mortgage, a mortgage professional requires a short list of information that will allow them to determine your buying power. A mortgage professional will explain to you the benefits of shorter or longer mortgage terms, the latest programs available, which mortgage products they believe will most likely meet your needs the best, plus they will review all of the other costs involved with purchasing a home.
Getting pre-approved for a mortgage is something every potential home buyer should do before going shopping for a new home. A pre-approval will give you the confidence of knowing that financing is available, and it can put you in a very positive negotiation position against other home buyers who aren't pre-approved.
Fixed Rate vs. Variable Rate
The decision to choose a fixed or variable rate is not always an easy one. It should depend on your tolerance for risk as well as your ability to withstand increases in mortgage payments. You can sometimes expect a financial reward for going with the variable rate, although the precise magnitude will ebb and flow depending on the economic environment.
Fixed rate mortgages often appeal to clients who want stability in their payments, manage a tight monthly budget, or are generally more conservative. For example, young couples with large mortgages relative to their income might be better off opting for the peace of mind that a fixed-rate brings.
A variable rate mortgage often allows the borrower to take advantage of lower rates - the interest rate is calculated on an ongoing basis at a lenders' prime rate minus or plus a set percentage. For example, if the current prime mortgage rate is 5.5 percent, the holder of a prime minus 0.5 percent mortgage would pay a 5.00 percent variable interest rate.
As a consumer, the best option is to have a candid discussion with your mortgage professional to ensure you have a full understanding of the risks and rewards of each type of mortgage.
Understanding your Credit Report
As credit has become more and more abundant in our society, your credit report, and thus your credit rating, has become more important in your daily life. Your credit rating affects all aspects of your financial activities when it comes to borrowing money. Your credit rating also has the ability to affect the job you get, the apartment you rent, and even the ability to open a bank account.
Your credit report itself is simply a listing of all of your mortgage and consumer debt. Here in Canada, the two main credit reporting agencies are Trans Union and Equifax. Both agencies have a credit history file on anyone who has ever borrowed money. Every time you borrow money, or make a payment on a loan or credit card, the lender then reports the information about the transaction to these two agencies. In addition to credit information, you will also find liens and judgments on your credit report as well as your address and possibly your work history. The accumulation of all of this information is called your credit report.
The information on your credit report varies based on your creditors and what they have reported about you. Potential lenders and others, such as employers, view your credit history as a reflection of your character. Whether we like it or not, our financial habits have a lot to say about the way in which we choose to live our lives.
The credit score, or beacon score, is a number which gives mortgage lenders an idea of your lending risk. Credit scores range from 300 to 900, the higher your credit score the better. The mortgage products and interest rate that you will qualify for are often determined by your credit score.
One thing that many people do not know is that you have the legal right to obtain a copy of your credit report. A mortgage professional can help you obtain a copy of this report and go through it with you to verify that all of the information is true and correct.
The good news is that your credit report is a working document. This means that you have the ability over time, to repair any damaged credit and increase your credit score.
Determine the Right Term
Choosing the mortgage term that is right for you can be a challenging proposition for even the savviest of homebuyers. By understanding mortgage terms and what they mean in dollars and sense, you can save the most money and choose the term that is right for you.
There are many factors, either in the financial markets or in your own life, which you will also have to take into consideration when you select your mortgage term length.
If paying your mortgage each month places you close to the financial edge of your comfort zone, you may want to opt for a longer term mortgage, for instance ten years, so that you can ensure that you will be able to afford your mortgage payments should the interest rates increase. By the end of a ten year mortgage term, most buyers are in a better financial situation, have a lower principle balance due, and should interest rates have risen, will be able to afford higher mortgage payments.
If you are shopping for a mortgage for an investment property, you will likely want to consider choosing a longer mortgage term. This will allow you to know that the mortgage payments on the property will be steady for a long time and allow you to more accurately project your future income from the property.
Choosing the right mortgage term is a unique decision for each individual. By understanding your personal financial situation and your tolerance for risk, a mortgage professional can assist you in choosing the mortgage term which will work the best.
Pay Off Your Mortgage Faster
Mortgages in Canada are generally amortized between 25 and 35 year terms. While this seems a long time, it does not have to take anyone that long to pay off their mortgage if they choose to do so in a shorter period of time.
With a little bit of thinking ahead, and a small bit of sacrifice, most people can manage to pay off their mortgage in a much shorter period of time by taking positive steps such as:
- Making mortgage payments each week, or even every other week. Both options lower your interest paid over the term of your mortgage and can result in the equivalent of an extra month's mortgage payment each year. Paying your mortgage in this way can take your mortgage from 25 years down to approximately 21.
- When your income increases, increase the amount of your mortgage payments. Let's say you get a 5% raise each year at work. If you put that extra 5% of your income into your mortgage, your mortgage balance will drop much faster without feeling like you are changing your spending habits.
- Mortgage lenders will also allow you to make extra payments on your mortgage balance each year. Just about everyone finds themselves with money they were not expecting at some point or another. Maybe you inherited some money from a distant relative or you received a nice holiday bonus at work. Apply this money to your mortgage as a lump-sum payment and watch the results.
By applying these strategies consistently over time, you will save money, pay less interest and pay off your mortgage years faster!
While many Canadians take advantage of self-employment opportunities, those who are self-employed sometimes face roadblocks when they are in the market to obtain personal financing, such as a mortgage or vehicle loan. Proving self-employment income, and income stability for the years to come, can be difficult for new business owners.
Many Canadians have successful small business ventures and would not trade the lifestyle for anything in the world. However, many begin to question their lifestyle and business choices when they first attempt to obtain financing for their home, or even something as simple as a new credit card or vehicle. The nature of self-employment income can sometimes leave the self-employed looking like poor credit risks, even though they may actually have a more stable source of income than those who are working 9 to 5 for an employer.
Thankfully, Canadian mortgage lenders are starting to understand the importance of self-employment in our culture, and are making great mortgage programs available to the self-employed to finance their primary residence and even their vacation homes.
Licensed mortgage professionals are experts at assisting self-employed individuals with getting a mortgage, and they will ensure you get the best mortgage available through one of Canada's largest lenders.
Obtaining a mortgage if you're self employed has never been easier, and you will be excited to learn that the mortgage products available today are structured to help you succeed in your business and your personal life.