About the Talk
May 15, 2014 1:00 AM
A home can be one of the most personally and financially rewarding investments you’ll ever make. But if you’ve never bought a home before, the process may seem a little overwhelming. We have answered the most frequently asked questions of first-time home buyers.
Q: How can a mortgage specialist help me?
A: Working with a mortgage specialist has a number of advantages, especially if you are a first-time homebuyer. Mortgage specialists have access to an entire network of resources to draw from on your behalf. They’ll not only help with your pre-approval but also look at your whole financial picture and provide personalized advice based on your needs. That includes reviewing your mortgage options with you and making sure you get the mortgage that’s right for you.
Once your mortgage specialist says you are preapproved, you are - no last-minute surprises to worry about. This allows you to go shopping with confidence.
Q: Why should I use a real estate agent?
A: A real estate agent makes it easier to find the right home and will offer you advice on what price to offer and any conditions you might want to consider including in your Offer to Purchase. If possible, get referrals from friends, family and co-workers.
It’s important to choose an agent who is familiar with the area where you are searching for a home. You may be spending a lot of time with your agent checking out homes, so be sure to choose someone you feel comfortable working with.
Q: Is my credit good enough for me to be approved for a mortgage?
A: One thing your lender will look at before approving you for a mortgage is your credit score - your record for paying your bills and repaying loans on time.
In Canada, there are two main credit-rating agencies, Equifax and Tran-sUnion. These companies keep records of missed payments and overdrawn credit accounts. If you’ve ever had a credit card or applied for an account with a major utility, chances are your payment history is on record with one or both of these companies.
If you have a good track record - that is, you’ve always paid your bills on time and made at least the minimum payment due on your credit cards - you will have a good credit rating.
If your track record isn’t perfect, that doesn’t mean that you won’t get approved for financing. If your late payments are in the past or date back to your student years but have since been paid on time, then you may not have difficulty in arranging financing. Your lender can help you assess your situation and provide advice as to how to improve your credit rating to get you ready to purchase your first home.
You can get a free copy of your credit file by mail just by asking. For details, visit Equifax.ca or TransUnion.ca.
Q: What is mortgage insurance?
A: If your down payment is less than 20 per cent of the purchase price of your home, you will require a mortgage that’s insured against default. This insurance protects the lender in case you default on your mortgage payments and is required by law. There are two main mortgage insurers in Canada (Canada Mortgage and Housing Corporation and Genworth Canada). The cost will vary from 0.5 per cent to about three per cent of the total amount borrowed. The amount is usually added to your mortgage and the cost added in your regular payment.
Q: What are “closing costs,” and how much money should I set aside for them?
A: Closing costs are those additional expenses that come due when you complete the purchase of your home. They include:
Lawyer’s or notary’s fees. When you buy a home, you need to hire a lawyer to complete a title search (to make sure there are no outstanding liens against the property and that the vendor actually owns the property), ensure all the documentation has been accurately completed, register your mortgage and register you as the new owner of the property.
Disbursements. These are costs that the seller has paid in advance, such as property taxes and utilities. You reimburse the seller for any prepayments that come into effect after you take possession of the home.
The amount of these costs will vary, depending on where you live and what kind of home you’re buying. As a guideline, you can estimate that closing costs will be about 2.5 per cent of the purchase price of your home, though this may vary greatly. In addition to closing costs, remember that you may also need to budget for appliances (if not included with the home), utility hook-up, redecorating and paying a professional mover.