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Steps for First Time Home Buyers in Canada

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Purchasing a home is the biggest financial commitment for so many people. It can be expensive, time consuming and frustrating. To top it all off, horror stories flourish of duff surveys and rogue agents. However do not despair; owning a 1st home is a highly rewarding experience for the majority of the people. Knowing the right information can simplify the process. Below are the steps for owning a house as a 1st home buyer.

Save

Several people get fade up of renting and decide to commit themselves to purchasing their own house. Even though this demonstrates how ready you are to make the leap from renting to owning your first home emotionally, it doesn’t show your capacity to make the transition.

While you won’t be expected make cash payments for the whole amount of your 1st property, you are required to come-up with a down payment. These are in the range of 5% – 20% of the total purchase price. In case your downward payment amounts 20% or even more, you meet the requirements for a conventional mortgage. If you have got anything that is less than that, you’ll be required to pay a one-time payment known as “default insurance” for protecting the lender in case you default on the mortgage. Its cost may range from 1.00% – 3.10% of the loan’s total amount.

When saving, take into account the additional costs which are normally associated with purchasing a home. These may include fees for: surveying, taxes, inspections, insurance, lawyers and many more. These can accumulate to about 1.5%-2.5% of the home’s price.

Look for the money

There are several government grants and programs for Canadian first-time-home-buyers. An example of such is the RRSP Home Buyer’s Plan or the First Time Home Buyers’ Tax Credit of the federal government.

Trim down your debt

Besides making savings for the down payment, you will also need to cut down your debt as much as possible before you can approach a lending institution for the mortgage. Essentially, the less debt you’ve got, the more you will be able to borrow for your mortgage from the bank. You won’t be allowed to carry a debt which is greater than 40 percent of your gross income. Before getting an approval, the lender will wish to see how well you have paid your past bills and debts. Your credit report will be examined by the lender so as to review your credit history.

Getting the mortgage

There aren’t very many people that can afford buying a property without the need to borrow any funds from a lender. Therefore, many Canadians’ home-buying journeys begin with getting a mortgage. A loan which is used to buy a house is one which is referred to as a mortgage. Many lending institutions love giving out mortgages because they earn vast amounts of interest from them (mortgages). Also, since the purchased property is used as the security, the lender will take the property back in case you fail to pay back the loan.

Decide whether to use a mortgage broker, or to go direct to the lending institution

Two options are available to 1st time home buyers when it gets to applying for a mortgage. You may choose to contact a broker to assist you in finding a home loan, or you may individually come-up to a financial institution and speak to the lender’s representative.

Approaching the lending institution directly for a mortgage is a good option for those that have already researched about the home-loan options which are available, in addition to having a good relationship with them (lending institution). The disadvantage with this is that you will only be able to obtain a mortgage product that is from the lender’s specific suite of products.

The 2nd option is to take advantage of the mortgage broker. They have an advantage of having relationships with many different lenders and can assist you find a lender with the mortgage plan that suits you best. Besides that, he or she can also help you to get the required documents ready and guide you throughout the process of buying thus increasing the chances of success. The brokers’ services to you are free since they are paid a commission by the lending institutions. The representative of your lender or your mortgage broker will take you through the alternatives to help you select the mortgage type which suits you best.

Borrowing capacity

The mortgage broker or lender will take a look into your financial situation so as to establish your borrowing capacity. Borrowing capacity is the maximum amount of money that someone is capable of borrowing basing on their income, existing debts, whether they are making the purchase with someone else, and all the other liabilities they have.

Keep in mind that the figure which is presented to you is the maximum amount of the mortgage. It is a great idea that you draw up a budget basing on your income and expenses. This will help you determine how much you can practically pay on the mortgage per month. Don’t forget to take into account the costs which are associated with possessing a home such as strata fees, insurance, council fees, mortgage repayments and maintenance costs. You should incorporate infrequent expenses such as birthday gifts, car repairs, dental visits, travel and others.

Get a pre-approval

After your financial situation has been reviewed with the broker or lender, you can then obtain a letter from the bank which verifies that you have been pre-approved for the mortgage. This letter usually guarantees a rate of interest for 60 to 120 days. It also demonstrates to the seller that one is a serious buyer.

Find a home

This is surely the exciting part. Since you already know how much you are able and willing to spend, you’re ready for shopping. Narrow down your search by drawing up a list of what you are seeking for in a property. Some of the considerations include: the location, size, local amenities, parking, special features, type of home and others. You can use the internet, word of mouth, newspapers, magazines and any other possible means to uncover your dream home.

Take advantage of the professionals in the home-buying business

You may seek for services from professionals such as a realtor, lawyers, home inspector, land surveyor, contractor, and others.

Make an offer

After finding the property, your lawyer or realtor can assist you in preparing “an offer to purchase”. This is a legal document which is presented to the vendor and features:

  • Your legal name.
  • The vender’s name.
  • And the property’s address.

It also includes every item that is in and/or around the home such as wardrobes and appliances.

Complete your application for the mortgage

After the Offer to Purchase has been acknowledged, you head back to the broker or lender. Your financial information will be verified by the lender and then you can complete the process of your mortgage application. The lender may request for a land survey, property appraisal or both. You may also be requested to acquire title insurance.

Be a responsible homeowner

After finalizing the whole process and moving into the home, you may decide to pay your mortgage promptly, or else you may face foreclosure.

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The Advantages of Using Your Local Mortgage Broker

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For first time home buyers and previous home owners alike, getting a mortgage is stressful. Not only are you thinking about the up-front cost of a new home, but prospective home buyers are also plagued with finding the best mortgage rate and the most attractive monthly payments. Wouldn’t it be nice to have someone that can do all of that for you? And better yet, you don’t pay until you’re happy with what they’ve found for you. A mortgage broker isn’t for everyone, but for home buyers that want to avoid the anxiety of finding the best rates and wading through lingo and paperwork that quickly becomes too much to handle, a mortgage broker is essential.

They Can Find the Best Fit for You, Not Everybody Else

Unlike popular mortgage and real estate websites, working through a mortgage broker is a very personalized experience. A mortgage broker can sit down with clients and look at all the factors that may affect the kind of mortgage you get and how much you pay every month. When using a broker, you can express any needs and concerns that would impact what you can afford and the type of mortgage you need. This allows them to find the best possible policy for you. And, the advantage of using a local mortgage broker over someone a thousand kilometers away is that he or she can empathize with your concerns. Cost of living, home repair and utility bills are every day worries, and someone familiar with your area would be better suited to addressing these needs. It helps to know that the person talking to you about money knows just how expensive milk and bread is at the local grocery.

A mortgage broker also doesn’t work for a bank. This is a huge benefit because he or she isn’t getting paid to sell you anything. Rather, they are getting paid simply to represent you to banks and financial institutions. While some banks may try to take advantage of you, a mortgage broker merely wants to find what works best for your budget and needs.

And, most mortgage brokers have the advantage of connections in the financial world. Some programs and loan offers may not be available to you on your own, but a mortgage broker would have access to them. With a mortgage broker, you’ve got the added addition of their experience along with having a representative out there finding you the best deal. Because their goal is to find the best deals, mortgage brokers know about a lot of companies and a lot more policies. Some of these are only available to brokers, so there are opportunities that may be available to you that you couldn’t have found on your own. Plus, in some cases a mortgage broker may beable to waive costly closing fees, saving you hundreds.

They Understand the Language and Can Help You With It

One of the biggest obstacles buyers face is language. A mortgage broker is not dissimilar from an attorney in this regard. Terminology like amortization, porting and shared-appreciation mortgage might require some explanation as these words crop up in a mortgage agreement. The average person doesn’t know a lot of legal terminology because put simply, you don’t have to. Professionals like mortgage brokers or attorneys have a thorough and complete understanding of this, and it is in your best interest to take advantage of that.

A mortgage broker can explain what will be required from you to satisfy the terms of your mortgage and can clearly explain what happens when payments are missed or if you are able to pay off your mortgage early. Most importantly, because of a mortgage broker’s understanding of this particular financial language, he or she can make certain that you aren’t taken advantage of by a bank or financial institution.

Another obstacle that can seem very daunting is paperwork. Some of it goes to the government, but quite a bit of it is returned to the lender. While the paperwork is designed to protect you from unlawful actions by the bank or financial institution that loaned you the money, a lot of it is also agreements and proof of income, credit, and other related material essential to home buying and ownership. With so many deadlines and so much legal talk’, it can be overwhelming to deal with. Mortgage brokers can help organize this tidal wave of information. If your mortgage broker is local, handling the paperwork is considerably easier because you have the benefit of meeting with them in person, going over exactly what you need to sign, and getting it taken care of without the hassle of return dates or lost paperwork. By using a mortgage broker, you can ensure that you get your paperwork in on time and complete in the way it needs to be so that you’ll be in your new home that much quicker.

You Can Establish a Relationship Now and For Later

Mortgage brokers can also help you with an existing loan. There are a lot of reasons why you may need to adjust your loan in the future, and it is important to know that now. By going with a mortgage broker for your first mortgage, you are establishing a relationship that will ultimately be beneficial for you as your family grows, your needs change, or even as you look into another property that can better meet your needs. Your broker will know your history and above all else, they’ll have helped you get a favorable first mortgage, essentially establishing a bond of trust between you and your broker.

When a mortgage broker searches for the best loan to fit your needs, a lot of shopping and browsing is involved, and the same thing occurs with refinancing. Your new mortgage will buy out your old one and a mortgage broker would be able to help find the best options available to you. In the event that you’d like to move but find the current terms of your mortgage so attractive that you don’t want to lose them, you should speak to a mortgage broker. This is called porting and is a good thing to consider if your mortgage rate is better than anything currently being offered. A mortgage broker can help you determine if this is what’s best for your financial future and also navigate any new terms or additions that need to be made to your existing mortgage.

Regardless of your needs, it’s good to have a professional in your corner who is looking after your best interests.

Some people prefer to do the leg work themselves in order to have a better understanding of the financial waters, so to speak. Others prefer a sense of responsibility. For most of us however, it is so much easier to work with a professional when it comes to our money and how it’s spent. And, it’s nice when they personally know your concerns and the beautiful, diverse city you are a part of. A mortgage broker can find you the best rates with the best policies not because they are trying to sell you their policy, but because they are trying to find the policy that benefits you the most. And, not only will they save you money in the years to come, but they can do it right now.

As you browse for a new home and look for how to pay it, ask yourself if a mortgage broker can help.

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