Making the transition from renting or living at home to buying your first home is a big leap, though a rewarding one, it comes with many questions, decisions and a lot of trust in the professionals of the real estate world.
The bank isn’t the only place to get a mortgage and your loyalty to them doesn’t mean much.
Growing up, we learn the connection between the bank and money, and working and money, but we don’t learn much about other important financial topics like RRSPs, TFSAs, loans, or mortgages. So, naturally, when the time comes to get a mortgage most people go to their bank to get that big loan. However, it’s important to do your research, be in the know about current interest rates, and then to consult your friendly mortgage broker. When you go to the bank, you talk to someone who specializes in bank mortgages, but they don’t have many options for you to take a look at. You’ll also likely find, that even though you’ve banked with them for your entire life, that’s not going to get you a better rate than another person who just walked through the doors for the first time.
There is nothing wrong with taking advantage of CMHC/CG/Genworth to get the benefit of more cash flow.
CMHC (Canadian Mortgage Housing Corporation), Canada Guaranty (CG) and Genworth offer mortgage insurance to those who qualify, and that have less than 20% down payment. Not everyone can come up with the full 20% down, and if you take advantage of the mortgage insurance, you can buy a home with a minimum of 5% down. If you get mortgage insurance, and you change your down payment from 20% (which would be about $80,000 down payment on a $400,000 house) to a 5% down payment (which would be about $20,000) now buying that first home looks a lot more realistic. Sure, you do pay a little more in the long run but over your life, if you compare the extra you pay in mortgage insurance with the amount you’ll pay extra if you keep renting, the difference might just make a whole lot more sense.
Getting pre-approved for a mortgage before house hunting saves stress and time.
Next, let’s talk stress! Yes, buying your first home and dealing with the house hunt, negotiating prices, the paperwork, the offer, and so on…it all creates stress. Why? Likely because you’ve never done this before and it is one of if not is the biggest purchase you will make in your life. But, you know what helps eliminate that stress and could save you time? Getting pre-approved for a mortgage. Knowing that the house you are taking the time to look at is, in fact, realistic and in your price range, not only cuts down on time, because you’re not looking at homes you can’t afford but think you might be able to. Being pre-approved you have peace of mind knowing you can afford the place you’re looking at, and that your paperwork is already in order when you want to put that offer in. There’s nothing worse than falling in love with a home, and then being told no by the lender. Aside from finding out you’ve just wasted a lot of time looking at homes and have to start all over, looking at homes in a different price range.
Just because you are pre-approved for a huge mortgage doesn’t mean you should buy something at your maximum.
If you’re new to buying real estate and have been doing your homework, you’ve likely heard the term “house-poor”. What that means is that once you buy a house, you have bigger financial responsibilities beyond the mortgage. You have house insurance, upkeep, utilities, taxes, and other bills that you don’t have currently as a renter. So, even though you might be approved for a mortgage up to $400,000, it’s smart to look at houses that don’t max out that budget so you have the cash flow each month to cover the costs of those bills, while also being able to put food on the table, take your dog to the vet, have an emergency fund and be to afford a few fun extras along the way without feeling the pinch.
You are not a real estate or mortgage expert and that’s ok!
Don’t feel like you need to know everything there is to know before looking for a home or getting pre-approved for a mortgage. The more you ask questions, and listen to the answers, the more you learn. If you want to learn more about the process, or you want to get pre-approved so you can hit the market running give me a call at 780-288-0643.
Tatum Neufeld, BComm
Mortgage Broker • Mortgage Tailors