So, you are ready to take the next step in life and are officially “adulting” by saving up for a mortgage! That’s awesome. Before diving deep into searching for your “dream house” which is a mansion on a private island, take a step back and look to see what you need to prepare for a mortgage first. While you are thinking about the kitchen of your dreams or the spa oasis you can’t wait to call your own, stop to contemplate these questions.
Is it the right time to buy and are you looking in the right area?
Deciding where and when to live is not a decision that can be made overnight. You and your family must think about your future and long-term goals to determine if you want to live in a condo or house, in the city or country, and what town you want to call home. The answer will depend upon your job location, lifestyle, and school zones. Create a list of things you want your “dream house” to be. But, be realistic. That way when looking into houses, you know what you want to look for to narrow down your search.
Working with a local real estate agent will give you the most up-to-date information about neighbourhoods and properties that match your budget and needs. Take your time house shopping and remember that you don’t need to purchase a house at the top of your budget or the maximum of what you got pre-approved for. You will have additional costs on top of your mortgage to worry about as well. That’s why holding back a little extra in cash is a smart call.
How are your finances? Is your credit score up to par? Do you have enough of a downpayment?
Before diving into getting pre-approved for a mortgage, it’s best to pay off any existing debt and loans first when possible. Doing so will automatically increase your credit score rating which will get you a lower mortgage rate. Aside from your credit score have you been saving up for a downpayment? To secure a home, you need to put down a certain amount of money for a down payment depending on the house price, plus your monthly mortgage payments. If you want to know more about what you will require in terms of a downpayment click here.
Can you actually afford a mortgage?
Now that you have reviewed your finances, can you realistically afford to pay monthly mortgage payments on top of everything else you have to pay in a month? To decide how much you can afford you will first need to review how much you are currently spending throughout a typical month and how much debt you have. I have a mortgage calculator on my website that you can simply enter a few details and click calculate to see what you can expect in terms of regular payments. Beyond this calculator you will need to know:
- What your annual income is before taxes
- What your co-applicants annual income is before taxes
- What your current living costs are (condo fees, monthly payments, rent payments, bill payments, etc.)
- How much debt do you have (credit, current mortgage, car payments, school loans, etc.)
- How much you have saved for a down payment
These details will help you visually see how much you can afford so you can create a budget that includes all the costs that you need to save up for and will have to pay when you have a mortgage.
Have you factored in the additional costs of buying a house?
It’s not just your downpayment and the monthly mortgage payments that you must factor in. There are many hidden costs you must also budget for before buying a home. You will need to think about your upfront costs, continuing costs, and closing costs. This includes examples like your house inspection, property appraisal, title insurance, property insurance, land transfer tax, legal fees, property taxes, utilities, moving costs, and so on.
Do you qualify for the “First-Time Home Buyers Incentive” or “Affordable Homeownership Program?”
The government of Canada has financial help for people looking to purchase a home whether it’s their first home or not. If you are eligible for any of these programs, a mortgage broker can answer any questions and help you apply for the incentives.
The “First Time Home Buyers Incentive” was launched to encourage more young people to buy their first home. The program offers 5 – 10% of the home’s purchase price to put towards a down payment on your first home. This helps lower your mortgage rate which makes it easier for first-time homebuyers to afford a home.
The “Affordable Homeownership Program” is similar but is used to help low-to-moderate income renter households to become homeowners by providing a 10% down payment. To qualify for the program, you must be a resident in the County of Simcoe and can only use one government incentive program at a time.
Will you get pre-approved for your mortgage?
SPOILER ALERT: You should get pre-approved for your mortgage before you start house hunting. By getting pre-approved by a reputable and trusted mortgage broker, you have a better idea of how much of a mortgage you can afford and can shop with confidence. Plus, it provides you with a mortgage rate guarantee for a certain amount of time. It’s valid anywhere between 60-130 days (depending on which lender you use) and during that period, the mortgage rate will not change so long as you purchase a house in that time frame. This is very important in our current market because interest rates are steadily increasing.
What are a few things you should consider before getting preapproved?
- Make sure you are not adding to your debt and loan pile. You want to reduce and pay off as much debt as you can… not add more to it. So refrain from buying that dirtbike that you have always wanted.
- You should keep your job consistent leading up to your pre-approval to secure financial stability and to show your lenders that you aren’t a risk if they lend you money.
- Make sure you get all your documents in line to get pre-approved. This includes your identification, employment history, proof of income, proof of assets, credit score verification, and other documentation.
What happens if you break your mortgage?
This is something you never want to deal with if possible but, happens more often than you might think for one reason or another. It’s important to have a professional mortgage broker review your specific contract ahead of breaking your mortgage agreement and to always read the fine print before signing a mortgage agreement. If you skip this step, it can lead to a big financial mess.
Now it is normal to review your mortgage and “break up” with your current mortgage lender and find a new one to take advantage of lower interest rates long-term. But again, make sure you are working with a professional to guarantee that you are doing it for the right reasons with minimal long-term impact on your savings.
How are you going to get approved for a mortgage?
It’s never too early to start preparing to apply for and secure a mortgage. By working with a mortgage broker, like myself, Darren Robinson, I can help you get the best possible mortgage rate while ensuring your mortgage includes the options you need long-term. I will act as a coach along the way to help guide you in choosing the best possible plan ahead. Preparing to buy a home takes planning and being in good hands will help you feel confident when making those large financial decisions. I’m always happy to answer any questions that you may have so don’t hesitate to give me a call at 705-315-0516.