24 Oct

Questions To Ask Your Mortgage Broker

Mortgage Tips

Posted by: Chanele Langevin

Choosing a Mortgage Broker/Mortgage Agent is a critical first step when you are planning to purchase and finance a home. A mortgage broker is an intermediary between the borrower and the pool of lenders. Using a mortgage agent eliminates the need for you to shop around trying to find the best rate and mortgage product to suit your short-term and long-term needs and goals. Why not leave it up to a professional that deals with lenders daily and is educated in every aspects of the mortgage industry? Most people looking to purchase a home do not know all the details that go into applying for a mortgage & securing financing; therefore it is important to be confident and trust your mortgage broker. Many questions will come to mind throughout the process.  Some of the most common questions are as follows:

What is the best price range for me when looking for a home?

Your mortgage broker will be able to do a pre-approval for you.  A true pre-approval requires the borrower to provide specific income documents. Additionally, a credit bureau will be pulled to evaluate what the debt situation is and what the credit score is sitting at.  These elements are better to be evaluated upfront because lenders are specific as to a minimum credit score and debt ratios in relation to income.  The credit bureau will also show debt repayment and utilization. Once a mortgage agent assesses the overall file, a maximum purchase price amount will be released.

How much money should I use for my down payment?

There are a few things to consider when deciding on your down payment amount:

  • The minimum amount you must have for a down payment in Canada is 5% of the purchase price of the property.  The more money you use for a down payment the less your mortgage loan amount will be.  Any amount between 5% and 19.9% is called a High Ratio Mortgage and requires the lender to get approval from a default insurance provider for the mortgage.  For more information on the different types of insurances associated with mortgages stay tuned for an additional blog post I will be doing, specifically on insurances.
  • What can you afford? You do not want to leave yourself “cash poor” as you always need to keep cash on hand for unexpected emergencies. 
  • You will need cash for the closing costs at the end of your transaction.  These would be things such as lawyer fees, possible appraisal fee, home inspection, home insurance, utility hook-up fees, etc.  Be sure to ask your mortgage agent what the approximate costs would be for your particular scenario.  As a mortgage broker in Grande Prairie, I prefer to get a few different quotes from lawyers for my clients so they can choose the best option if they do not already have a specific lawyer in mind.
  • There are options for coming up with the funds for a down payment.  You may have enough cash in a savings account, a family member may give it as a gift (that is not expected to be paid back), proceeds from the sale of a property, RRSP’s…always confirm with your mortgage broker or agent for what would be acceptable for a down payment.

Should I choose a fixed interest rate or a variable interest rate?

Going with a variable interest rate means your rate can fluctuate throughout the term of your mortgage.  The variable rate is based on the Bank of Canada’s prime rate, meaning the payment amount can vary throughout your term.  With a fixed interest rate your rate is just that, fixed.  It means the payment amount will always be the same for the length of your term.  There are pros and cons to both and it does come down to personal situations as to what would be best.  As a mortgage agent, I go through several options with my clients by finding out what their plans are and assess their situations to determine the type of rate that will best suit their needs.

What is a prepayment penalty?

Each lender has their own stipulations when someone wants to pay off their mortgage in full or put a lump sum of money towards their mortgage principal.  This is referred to as prepayment privileges and it will be stipulated in your mortgage commitment.  If prepayments are allowed with your lender they will state a percentage of the loan amount that may be put towards the loan each year that would be considered penalty free.  Once you go over that amount with a lump sum or pay your mortgage off completely, you will be charged a prepayment penalty.  Each lender is a little bit different and it is important for you to understand how your particular amount would be calculated as it can end up costing you thousands of dollars.  It is very beneficial to make lump sum payments on your loan but it is critical to know how much money those payments need to be and when they should be paid.  Make sure you have your mortgage agent break down the different options and possible penalty amounts for you.

Should I use a Realtor for a home purchase?

The answer to this question is simple…absolutely YES, always enlist the services of a trusted realtor when purchasing a home.  A home purchase is a huge investment and can be a very emotional transaction.  Realtors are professionals in home sales the same way that a mortgage broker is a professional with home financing.  Home buyers do not pay a commission to real estate agents, their commission is paid by the seller, so there is really no reason not to use a realtor and have them handle the negotiations, paperwork and legalities of your home purchase.

Acquiring the services of a realtor, mortgage broker and lawyer are very important steps in the process of purchasing a home.  They work solely for you, the client, and will provide you with great advice and guidance throughout the process, eliminating much of the stress and definitely saving you countless hours of time.

12 Oct

Avoid These First Time Home Buyer Mistakes

General

Posted by: Chanele Langevin

As a Mortgage Broker in Grande Prairie, Alberta, I have had the pleasure of helping many people realize their home-ownership dream. Purchasing a home can be stressful if homeowners lack proper professional support throughout the transaction; especially if this is their first home purchase.

There are a few things that are critical to keep in mind when planning to make a purchase. I would like to elaborate on some of the issues that have come up during transactions as a Mortgage Agent. Below are commonly made mistakes to avoid:

  • House shopping before getting Pre-Approved:

    Getting pre-approved means contacting a mortgage broker like myself to find out what property price range is realistic to be looking at. The pre-approval process is not difficult, however, it does require documentation to be provided such as previous 2 years of Notice of Assessments, T4’s or T1’s (if self-employed), letter of employment and recent paystubs. As your mortgage broker, I will request a credit bureau and compile the documents to prepare your application for pre-approval and calculate the pre-qualified amount that you are able to afford based on mortgage rules, regulation and ratios.

  • Not using a recommended Realtor:

    Chances are pretty good that someone you know has used or knows a realtor in your area that they would recommend. As a first time home buyer, it can be beneficial to find one that has a lot of experience in dealing with first time buyers as they will make sure to explain and recommend things that you might not know about off hand. Always make sure your realtor does not start showing you houses that are at the top of your pre-approved price range. Start looking at the lower end or you may end up in a situation where the only homes you like end up being higher than your pre-approved amount.

  • Not being aware that you need separate funds for a Down Payment & Closing Costs:

    The minimum amount you must provide once you find a home and have an accepted offer is 5% of the purchase price. This amount can not be a loan (can be on exception), is typically required to be savings, Investments, RRSP’s (see RRSP programs), proceeds from the sale of another property, sale of an asset or a gift from an immediate family member. Closing costs can amount to a few thousand dollars and are also part of the process to pay for the solicitor, a property inspection, appraisal (if requested by lender/insurer). I always make sure to disclose to my clients the amount to expect for closing costs and additionally, I like to get quotes from lawyers so that you can get the best price out there.

  • Not knowing that Property Taxes are a payment above and beyond your mortgage payment:

    Property taxes are owed to the city or municipality that you live in. They are assessed at a flat amount each year and you have the choice of paying monthly or making the full payment each year.

  •  Not realizing that there are First Time Home Buyer programs through the Government or by utilizing RRSP’s:

    Always look into any first time home buyer programs that may be applicable to you. If there are programs that you do believe would be beneficial, make sure to research them thoroughly as some might end up not being the way to go depending on your circumstances. Click here to see the first time home buyer incentive program.

  •  Saying “NO” to the Life and Disability Insurance offered on your mortgage:

    The life and disability insurance program is critical for anyone that does not have life and disability insurance through other sources. The premiums are minimal and if you end up selling your home and taking on a new mortgage with a different lender at some point, the insurance can be ported to your new mortgage as well assuring coverage at all time. You do not start over and your premiums do not increase on the original loan amount. It can give great comfort to know that your mortgage is covered off if you were to pass away or unable to continue earning income due to a disability.

  •  Purchasing vehicles with credit or big items with credit cards before possession date:

    Once you start the process of a home purchase you do not want to start piling up any debt. Debt is a huge factor with lenders saying yes or no when approving financing. They take any debt you may have into account when the application is in the processing stage but even once funding is approved they may actually pull another credit bureau report before possession to make sure your debts have stayed consistent.

Making your first home purchase is a huge step and can be very overwhelming. The best way to make sure you are not going to end up with undesirable surprises is to enlist the services of a mortgage broker like myself. I take great pride in making sure that the entire process is a positive experience for home buyers and am happy to help anyone with any mortgage financing questions.