Everything You Need to Know, From Pre-Approval to Purchase
As a first-time homebuyer, there’s much to learn about the entire process. One of the biggest decisions you’ll need to make is choosing a mortgage lender. When shopping for your first mortgage, you’ll need to fully understand rates, fees, insurance, lenders, banks, and the role a broker plays in the process.
Getting a letter of pre-approval for a first-time buyer mortgage before you get started is important. It shows sellers you’re a reliable buyer, puts you in a better starting position and helps you in the long run. For instance, if you’re in competition for a house with other buyers, pre-approval gives you leverage. Pre-qualification also makes the buying process go faster and more smoothly.
To be pre-approved in Canada you’ll need to show lenders you’re equipped and able to afford a mortgage. They’ll look at your income (pre-taxes), living expenses, debts, credit score, and how much you’re looking to borrow. Credit scores play a significant role when mortgage shopping. In Canada, anything above 720 is great, 650 good, and 600 low. Lenders carefully look at credit and use it to determine the amount you can borrow and the interest rate of your loan. To simplify the process, a broker will check your credit for you.
Shopping for Mortgages
After checking credit, you can move on to pre-qualification. Here are things you should know when mortgage shopping:
- First-Time Homebuyer Programs. These are local programs offering benefits to first time home buyers. There are also loan options are available to veterans, public servants, and people with student loans. Always ask to see if you qualify for special programs.
- Interest Rates. When comparing loan options, be sure to examine APRs (annual percentage rates), so you know how much you’ll be paying in addition to your home’s purchase because these can greatly vary.
- Research Fees. Other costs associated with buying a home include fees associated with your application, appraisal, title search, and loan origination fees.
- Government-Backed Incentives and Credits. These incentives and credits are offered by the Government of Canada, including the First-Time Home Buyers’ Tax Credit and expanded Home Buyers’ Plan. The tax credit is a non-refundable $5,000 income tax credit amount on a qualifying home, acquired after January 27, 2009. The Home Buyers’ Plan, meanwhile, is a program that lets buyers withdraw up to $25,000 in a calendar year from their RRRSPs to buy or build a qualifying home.
- Poor Credit. Even with a low credit score, there are private mortgage lenders for bad credit willing to help find solutions. Be sure to ask during your search to help you find the best mortgage lenders.
You can get a mortgage directly from a mortgage lender, such as a bank, or work with a mortgage broker. Brokers have access to discounted preferential rates with over 50 lenders including banks, credit unions and mortgage companies. Moreover, if you do not qualify for the best rates and terms, they can help you find the best private mortgage rates as well.
Budgeting for your home is a must. Even if you’re not planning on buying soon, you might want to consider planning ahead. Start saving early, putting aside some money for a home fund, and it’ll make budgeting that much easier when you do decide it’s time to buy.
All home purchases require a mortgage down payment. First-time buyers generally put 5% of the home’s value towards a down payment. This means, if you purchase a $225,000 home, you’ll have to put down $11,250.
Still, it’s important to know, putting less than 20 percent down means you’ll have Canada Mortgage and Housing Corporation (CMHC) fees. This means you’ll have a maximum of 25 years to pay your mortgage in full. If you don’t need CMHC you can stretch your loan to 30 years. Keep in mind though, the longer your loan, the more interest paid over time. Be sure to get some good comparison quotes.
Buying a home is a big commitment and it’s easy to miss important details, especially if it’s your first home purchase. You’ll want to be sure to avoid these costly mistakes.
- Not shopping around for mortgage options. A good mortgage broker can help you examine your options closely to find a mortgage to suit your unique situation..
- Committing to a purchase beyond your financial means. Just because you are approved for a certain amount doesn’t mean you have to buy a house in that price range.
- Not negotiating. It’s common for buyers to negotiate factors such as purchase price, repairs, and appliance replacements with the seller.
- Forgetting to budget for closing costs. These can run between 2% and 5% of your total loan; a substantial amount. Be sure to discuss this with your agent during the negotiation process.
- Neglecting to get a home inspection conducted before buying and knowing what it covers.
- Not leaving enough in your budget for after-purchase costs for updates, repairs, HOA fees, or any other expenditures.
- Purchasing inadequate homeowners’ insurance. Be sure your policy covers what’s needed and be sure to shop around for good rates. To do so, we always recommend you speak with an Insurance Broker, and mortgage brokers will help you get in touch with reliable providers.
Buying your first home is exciting but it can be nerve-wracking too. However, by having a full understanding of the process and hiring good representatives, such as realtors and mortgage brokers, you’ll place yourself in a great position as you begin the search for your first home.
Chris Allard’s experience in the field means he can get you offers with over 50 financial institutions lending in Ottawa. Every lender has many mortgage products they offer, which means Chris and his team will make sure a mortgage caters to your needs while also ensuring you get a competitive rate. Chris Allard is a proud mortgage broker of Dominion Lending Centres, independently owned and operated. Smart Debt broker #12236.