Buying a home is a goal many young Ontarians have on their to-do list and it’s a lofty one at that. With housing prices soaring in the past couple of years and rent prices increasing at a similar pace, how is one to get far enough ahead financially in order to buy a home? That is the question many are asking themselves today. Here are a few other questions they might be asking themselves: How much money do I have to have set aside for a down payment? Do I really need a mortgage pre-approval or can I just get a mortgage after I buy the place I want? I’ve outlined the answers to these questions below for you. If you have others questions, I’m happy to answer those too. Just give me a call at 705-315-0516 or click this link to book a free mortgage consultation with me.
To start, it’s important to understand what a mortgage pre-approval is.
When you buy a home, you need a financial source to pay for that home. That’s obvious. However, with houses costing anywhere from $400k – $1.2M in the Barrie area, that’s a figure you don’t likely have sitting in your bank account, ready to go. That’s normal. When it comes to buying a house, a mortgage is typically taken out from a bank or lender to lend you the money to pay for that house in full. Then, you slowly pay back that mortgage loan over the course of 20 years or so. If you sell the house you bought in that time frame and buy another, you basically pay off one mortgage in a lump sum after the sale of the home closes. Then you take out another mortgage loan for the new home you bought. It might seem like a simple concept but it gets a little more complicated than that. The bank or lender giving you that mortgage loan needs to verify a few things before they will agree to lend you the money to buy your new home.
Specifically, a mortgage lender is going to want to verify:
- whether you have a stable job to make money to pay back the loan
- whether you make enough money to realistically be able to afford to pay back the amount you have borrowed in the time frame outlined in the loan
- whether you have bad credit or good credit – so they are confident you will pay them back
- whether you have any money set aside to cover costs in addition to your mortgage loan like your closing costs, land transfer tax or other monthly expenses
- whether you have any existing loans or loans in the past that you haven’t paid back
All of these things are important to the mortgage lender because they won’t want to loan money to someone who won’t pay them back. It’s not that everyone assumes you aren’t able to pay them back, it’s that the mortgage lender wants to make sure you know how much of a financial commitment you are making and that you can afford to live comfortably after purchasing the dream home you are looking for.
This is where the mortgage pre-approval comes into play.
When you start thinking about buying a home, you might drive down a specific street or through a neighbourhood, you like and think, “I want a home like that one”. Alternatively, you might be thinking of things you want your home to have; like a big back deck for entertaining. Knowing what you want in a home helps you narrow down which one to buy. However, once you start exploring homes, you learn that each of the things on your wanted list comes with a price tag. Sometimes, you might find yourself window shopping as opposed to house shopping once you look at your finances. I mean, there is nothing wrong with having dreams and goals, however, let’s just say it might not be your first home that you buy that has a 30 square foot walk-in closet and 10 acres of well-manicured lawn and gardens for your dog to romp around. What a mortgage pre-approval really boils down to is investigating your finances, making a budget, and finding out how much of a mortgage you can realistically afford to know what price range to start your house hunt in.
What do you need to prepare in advance of your mortgage consultation to get pre-approved for the mortgage you want?
- identification – like a copy of your driver’s license
- employment verification – like a copy of your last 3 paystubs
- proof of income – like a copy of your last income tax return
- proof of assets – like a copy of your RRSP investments or a copy of your bank account statements
- credit score verification – your mortgage specialist will need to run a credit check for the lender
- other documentation – like a copy of existing student loan documents or car loans etc.
Once you have collected the documents above, you’ll be ready to take a look at the numbers with an experienced mortgage broker. You’ll be able to work out the calculation of how much of a mortgage you can afford, what the interest rate on that mortgage will be, and what your next steps are. If that sounds like a plan to you, click the link here to book your free mortgage consultation with me or give me a call at 705-315-0516 and let’s find you the best rate out there and lock it in so you know you have the funding you need to buy ‘the one’ when you see it. Confidence in making an offer on your first home is worth every second of time you invest in preparing to buy it.