Top 34 Mortgage Experts Gives Away Their Best Mortgage Tips!
Recently I had some time to read many great articles by experts who had provided great insights to new home buyers and shared how to avid major pitfalls.
And I said to myself - why not reach out to some of the Top Mortgage Experts in Canada and cherry pick their best tips. So I asked them...
"What is the #1 Mortgage Tip that you would give to a first time home buyer?"
I was blown away by the quality of responses that I got back and by the willingness of these professionals wanting to help.
There is a ton of great information here and just by accepting one of the tips you could save thousands of dollars and make your home ownership dreams to come true.
1. Have Your Team of Experts Assembled
Get your finances in order, and your mortgage and real estate team lined up, before you start looking at places. When it comes to buying a home, you usually have to make quick decisions - especially when you're in a competitive market! In some cities, there's a good chance you'll have to make an offer on the same day you see a place, so there truly is no time to waste.
Start by getting pre-approved for a mortgage, so you know what your budget is and how much a bank will actually give you. Hire an experienced real estate agent who understands what you're looking for and knows how to get it. Get the names of home inspectors and real estate lawyers in your area. And make sure your down payment is saved up and available to be withdrawn. Good luck!
2. Have Funds Available to Enjoy Life
The biggest mortgage tip that I would give First Time Homebuyers is to not purchase a property based on the max they can afford but based on the overall monthly cost (all in, principal+interest payment, heating, taxes and condo fees if applicable). This would prevent them from being house poor and not have funds available to enjoy life as well as being a homeowner. If you go to a bank, they pre-approve based on the very max you can afford as opposed to realistic overall cost that would be comfortable for the client while at the same time allowing them to enjoy themselves.
3. Avoid a Long Term Mortgage
Aside from the fundamental tips that every first time homebuyer should hear (never, ever pay the bank's posted rate, shop around, etc.), I would add an important but less frequently given piece of advice: avoid longer term (generally 3 years or more) fixed rate mortgages if you think you might have to move before your term is up.
Most banks impose huge prepayment penalties on borrowers who pay off, or "break", fixed closed mortgages early, so if the possibility exists that you'll have to sell your house to move for work, school, or because you need more room, you could save yourself tens of thousands of dollars simply by choosing a variable rate mortgage or, better yet, a mortgage with a shorter term. Even though it's hard to resist rock-bottom 5-year fixed rates right now, for young first time buyers on the go, taking a longer fixed mortgage term can be a costly mistake.
4. Avoid Qualifying on a "Maxed Allowance"
Mortgages on the whole have become more intricate than previous years, however one thing is sure: The best rate is typically obtainable (OAC) as it is a fairly tight market space between banks and brokers; we are always competing against each other, so on approved credit, it's fair to say that a very competitive rate will be offered from the start. (As a broker, I will always advise that you surround yourself with a licensed mortgage professional to walk you through the process and paperwork.)
When it comes to pre-qualifying: Avoid qualifying on a "maxed allowance" from a lender. Mortgage qualifying takes into account a mortgage payment, property taxes, heat, your current debt load (credit cards, auto loan, etc.), and CMHC fees (if applicable). What it doesn't take into account is your lifestyle, maintenance fees, emergency fees, and 'other'.
For example, if a buyer has a hankering to cut the fresh powder at the ski hill every weekend, you're going to want to leave enough in the piggy bank at the end of each month, to do so - or, leave enough room to save for an emergency fund (hot water tank or furnace failure... or new roof, etc.)
Falling in love with a home based on a "max allowance" get's old really quickly if you become house poor. Plus, keep in mind that we are still at "historical low rates". We always have to be cognisant of future payment shock for when rates do start to climb.
We advise to approach a payment schedule based on worse case scenario's: ie.: your income does not increase over the course of your first mortgage term. What does a "then" payment look like based on an interest rate that's 1%, 2%, or 3% higher than today's rates?
5. Show Your Real Estate Agent That You Are Serious
From the start of looking for your home to your move-in date, purchasing a home is an exciting time for first-time homebuyers. Canada Mortgage Direct (CMD) understands that the options and decisions you are presented with can be overwhelming and complicated, however, your CMD mortgage broker can help simplify the process, provide information and assist you in finding the mortgage solution that best suits your needs.
While some first-time homebuyers may think the first step to home buying is house shopping itself, it's better to take some preparatory steps before you get deep into the house hunt. One such step for First-Time Home Buyer's is Know how much home you can afford (and don't max out)! Get pre-approved financing before looking at homes to know which homes are within budget and what properties can be considered. Also, your rate will be protected for 120 days even if mortgage rates go up during this time. Getting pre-approved also shows a real estate agent or seller that you are serious about a potential purchase and may give you an advantage over other potential buyers, as well as the power of negotiation.
6. Don't Become House Poor
The #1 advice I'd give to a first-time buyer is not to overbuy. That means purchasing a home you can comfortably afford, with money left over for retirement savings, day-to-day expenses and some fun (vacations, boating, traveling, whatever). There's little worse in life than being house-poor and stressed out about mortgage payments.
And don't rely on a mortgage salesperson's rule of thumb to determine if you can handle your payments. One of lenders' key metrics when qualifying a borrower is the Total debt service (TDS) ratio—i.e., monthly payments divided by monthly gross income. Unfortunately, the TDS ratio leaves out a lot of real-life expenses like taxes, condo expenses, daycare, insurance, gas, electricity, etc. That leaves people sometimes qualifying for a mortgage "on paper" but not comfortably affording the payment, especially if interest rates go up, they get divorced or they take a hit to income for some period of time. When it comes to home financing, always hope for the best and plan for the worst.
7. Never Give Up Until You Exhausted These Options
You might think you don't have a down payment... I may be able to see you come up with one in 90 days.... You might think you have really have bad (or good) credit. This is an integral part of landing a mortgage. If you have some credit challenges, I will advise some tips to improve. You may think you have too much ancillary credit; maybe I can advise ways to re-arrange some credit to increase your qualification amount. And lastly, I'll fill you in on what you qualify for so you don't fall in love with a home you can't qualify for.
8. Don' t Allow Your Broker to Pick a Bank for You - Ask to See Your Choices
Find a mortgage broker that is willing to show the client their entire rate sheet (most brokers are afraid to do this) and help guide the buyer through the decision making process rather than choosing a mortgage on behalf of them. Furthermore, the broker should be willing to compare all of the lenders available on the market including the ones that don't deal with mortgage brokers.
This type of process ensures the client that they have seen everything, aren't paying too much, and won't get caught with any surprises down the road. It creates transparency and clarity for the homebuyer.
9. Rely on Professionals
I would say to find professionals you can trust and to USE THEM! These professionals (lawyer, mortgage professional and realtor) are there to help...they shouldn't make you feel pressured or be too busy to answer questions! Relying on Google or 'Uncle Joe' can leave your head spinning, that's why they need to be relying on us professional who have experience and the passion for helping/guiding them through the process.
10. Verify Your Rate Hold & Pre-Approval
Make sure they are pre-approved before they go shopping for a house and to make sure that they are not just pre-qualified. What's the difference?
In the past year, or so, I have noticed a trend where the larger banks are telling people they are pre-approved when they haven't done the proper due diligence to ensure the clients could actually qualify... many times they don't even pull the person's credit and the credit history/score is one of the largest factors in mortgage qualifying. What we are seeing is that the banks will enter some rough numbers for income and some rough numbers for debt and if the qualifying ratios are inline they tell the clients they are pre-approved –this is what many of us refer to as being pre-qualified.
If a first time buyer wanted to ensure that they are actually pre-approved they should make sure they ask their banker/broker what their credit score is and they should go over any debts/payments they have. They should start sending in their supporting documents like their letter of employment, pay stub, and proof of down payment (to name a few.) And, they should make sure that they have a rate hold in place in case mortgage rates rise while they are out shopping for their first home.
Buying your first home can be a pretty exciting and emotional time, and hopefully, an enjoyable memory for many years to come. Once you have your heart set on first place that you want to call your own the last thing you want to hear is that you don't qualify for the mortgage that you had been "Pre-Approved" for. By doing a little extra work upfront you can go shopping with confidence.
11. Be Clear of What Your Monthly Budget is
A first time home buyer needs to feel comfortable with not just their monthly mortgage payment but all cost associated with being a homeowner. There is a large advantage to seeing a mortgage broker before your first home purchase as a broker works for you at no cost and not a specific lender. He/she will go over closing costs, annual expenses, any options available regarding government programs available and last but not least, the affordability of the mortgage payment. Nine times out of ten, a first time buyer doesn't have much equity in the property, wants to be clear on what their monthly budget will be, is risk adverse and therefore should be placed in a five year fixed rate product.
12. Think Long Term
It is important that a first time home buyer be well prepared to own a home. Owning a home or condo comes with much more responsibility and obligation than renting. Income stability is a big part of being prepared. If you are still jumping between jobs trying to figure out what you want to do with your life, perhaps the flexibility of renting is more suited to you. Home ownership is a long term commitment - even if your plan is to sell in a year or two that may not always be feasible - so having stable income is a key component to being ready for home ownership. Typically having two years of experience (or schooling) in a particular field will prove to yourself and the lender that your income source is stable.
13. Purchase Within Your Means
As a mortgage broker that has been in the industry for almost a decade, if there is one thing that I can advise first time home buyers, have a plan, and stick to it. Often times, first time home buyers don't fully understand the concept of home ownership, and as such, under-estimate the responsibility of owning a home. First off, start off with a budget - Budgeting is something that, if you can turn into a habit, will severe a purpose in the future. Making sure that you've budgeted for unexpected events, as well as budgeting for fun, is important. Although the thrill of home ownership can be alluring, be sure that you are purchasing within your means. The pull of low rates often encourages buying more house than you can afford. Remember, home ownership will come with more expenses than renting and you do not want to be house rich and cash poor. That will make for a poor first time buying experience.
On the contrary, if you purchase within your means, you'll be able to not only enjoy your home and purchase but also still have the wherewithal to still enjoy an evening out and not be afraid to spend some money on entertainment which is important in order to balance work/life scenarios.
The key to successful home ownership, is try not to keep up with the Jones' - The Jones' are in debt! Live comfortably within your means, and love the home ownership experience!
14. You Need to Know What Questions to Ask
Find someone who can help you understand and guide you through the home buying process, get you a great rate and give you all the questions you should be asking when mortgage shopping (hopefully they can answer all of them).
15. Seek Understanding Before you Sign
It's a fact that low interest rates can have conditions that could surprise you. Mortgage rates are highly competitive these days and it's a great thing for the home owner. But you need to ask these three questions when you see a low mortgage rate so that you don't get tricked.
1. Can you get the advertised interest rate for the term that you're looking for?
For example, if you are looking for a fixed 5 year term make sure that the interest rate you are considering is for a fixed 5 year term and not a variable 1 year term. Seems obvious but this mistake gets made all the time.
2. How much time do I have to buy my home before the quoted rate expires?
Many interest rates are quoted using a "30 day close" criteria meaning that the interest rate you are seeing is only good if the mortgage is funded within 30 days. If your mortgage does not fund within 30 days then you will end up with a higher interest rate.
3. Is there anything unusual in the fine print that will cost me extra?
Most new first-time home buyers never consider asking this question. A good example of inexperienced property buyers getting the short end of the stick would be signing a mortgage that cannot be paid out unless the home is sold to someone else. What it means is that if you wanted to refinance your home for any reason, then you are prevented of your freedom to do so. Unless you pay a hefty penalty to the bank.
Make sure that you don't get tricked by a marketing strategy where you are lured in with a very low interest rate and later be convinced that the actual interest rate is much higher than you thought.
16. Prepare Your Documents & Down Payment
Number one tip would be, before committing to finding your dream home, make sure your mortgage professional has seen all of your employment documents and you have your down payment plus the potential 1.5% available for closing costs verified.
17. Banks Don't Provide Proper Pre-qualifications, Mortgage Brokers Do
First time home buyer should confirm their eligibility to purchase through a mortgage pre-approval in conjunction with their real estate agent. Mortgage Brokers ensure FTHB's are pre-approved prior to searching for property so a budget is established and a pre-approval rate hold is tied down. If the client is already working with a realtor, that realtor can rest assured that the client is motivated, and looking in their appropriate price range. It saves all 3 parties involved a lot of time, and headache. A mortgage broker can be considered more valuable in this regard, as banks do not provide proper pre-qualifications based on a full application or review of documents, leaving less room for error.
18. Get Your Proof of Income Ready
Don't just get pre-approved, get pre-qualified. Make sure you have worked with a mortgage agent who asks you to supply proof of income and down payment, that way when you do talk to a real estate agent you will be looking in the right price point and you can confidently write an offer that will go through.
The #1 tip I give first time buyers is this: Breathe.
Yes, this is stressful and yes, You don't know what you are doing. That is why we, the professionals are here for you.
Breathe and know you are in great hands and information will be given to you as needed. All questions will be answered and before you know it, you will be in a home...and the next time you buy, you will have that much more experience behind you.
20. Run the Numbers Before You Do Anything
It happens: you fall in love with a home that seems perfect, but it is way outside your possible price range. Before you go looking at homes, and long before you consider putting an offer on one, you need to run the numbers. Get some professional guidance – there's more to home ownership than a mortgage payment – and determine exactly what you can comfortably afford. Just because the bank says you can afford it, doesn't mean you can do that and feel comfortable with the payments while keeping up with the rest of your lifestyle.
21. Don't Worry About the Interest Rate, Focus on The Cost of The Mortgage
For first time home buyers, make sure you plan your mortgage so that your mortgage program correlates to your current situation and to your future financial, professional, and personal goals. If you don't, the mortgage can end up costing you more than anticipated
Don't worry about getting the lowest interest rate. Instead worry about getting the lowest cost mortgage. The lowest rate doesn't guarantee the lowest cost.
22. Know your Costs of Buying a Home
Prepare a buying plan and write down the cost of the purchase, including down payment, legal costs, property purchase tax (if applicable). We also talk about the ongoing costs including the mortgage payment, strata fees, property taxes, short term renovations, etc.
Some of the most common things that may be overlooked by a first time home buyer.
- How do I know how much I can afford?
- Am I really eligible for use of RRSP's as a down payment?
- What are some of the closing costs for my mortgage?
- How much down payment do I need?
- Will buying a new car affect my ability to buy my home?
- How do property taxes work?
23. Go for Bi-Weekly Payments
Bi-weekly accelerated payments cuts the effective amortization down by few years. That is a huge difference by doing nothing other than paying every time you get a pay check. (It is not worth doing weekly payments as the cash budgeting will always leave you short at least 2 times a year and the $100 NSF fee will put you father behind than ahead.) And paying even a little bit more in the first 5 years of your mortgage will end up saving you 3 times that in the end. So that $5,000 now will end up saving you $15,000 over the life of the mortgage in interest! And remember to take a holiday, not just pay that mortgage down!
24. Understand What it Costs to Own a Home
Owning a home is a big financial step. When a renter has an issue with a hot water tank or a roof, they simply call the landlord. When a homeowner has the same issue it can mean thousands of dollars coming out of their bank account – often times unexpectedly.
First time home buyers have to be cognisant of the costs of owning a home. It's important for first time buyers to purchase under their maximum purchase price. There's no need to break into the market and purchase your dream home. Start off with something affordable; something manageable. Your home shouldn't leave you strapped for cash each month.
When buyers start out being mortgage poor, they soon realize that they're surviving on credit to stay afloat. I've seen clients 20 years after they bought their home owing more than the original purchase price – they have literally gone backwards. It's a matter of setting a budget to get the clients back on track... so to all of the first time home buyers out there – I say start comfortable, and build up to the dream home.
25. Meet With a Mortgage Broker ASAP
My #1 tip for first time home buyers: Meet with a mortgage broker and start the financing process earlier than you think!
Get a mortgage broker working for you sooner than you think you should. There is nothing but good to be gained by starting the process early. And as a mortgage broker I can tell you the earlier I can start the process the more it helps me to help you!
Our job is to coach, advise and guide... avoid pitfalls, hiccups and slow downs...
Getting in touch early and starting the pre approval process is NOT a hassle or inconvenience to a mortgage broker. It in fact it is the exact opposite. Any good mortgage broker is thrilled to get a plan in place for a buyer wether that means they are buying in 2 weeks or 6 months!
26. Ask The Right Questions
When you speak to your mortgage professional make sure to ask them the right questions and understand what you are getting into. Here are my top questions that you need to know the answers to.
- What are Mortgage interest rates based on?
- How will rising interest rates in the coming years effect me if I take a fixed rate product?
- What strategy are you recommending and why?
- What commitment are you giving me to personally manage my mortgage over the long term?
27. Build a Mortgage Strategy to Support Your Plans
As for my #1 Mortgage Tip, I would begin by asking this question:
If interest rates were the same, what other factors would you be considering when choosing who gets the privilege of managing your mortgage?
Rate alone is one small, but important part, of a much large picture. My office believes that proper mortgage planning consists of 4 parts: Needs Assessment, Strategy and Planning, Product and Placement, Proactive Management. When looking for a mortgage, it's critical to your overall financial wellness to properly plan, build a strategy to support the plan, select the best product to support the strategy at a competitive rate, and in that exact order. Notice where 'rate' is in that order...one of the last pieces to consider.
I liken the mortgage planning process to that of a financial planner. When choosing which stock, mutual fund, etc... to place your money, do you base your decision on the rate of that particular investment today or the overall plan and strategy you and your financial planner spoke about? Chasing the best price is not a strategy.
A working plan supported by a solid strategy and followed up with proactive planning to pull it all together is where the real savings happen. History has proven the markets NEVER sit stagnant, so do you have someone in your corner helping you to take advantage of the peaks and valleys while optimizing your mortgage?
28. Think Outside the Box, Forget the Local Bank
"First Time Home Buyers need to think outside the box. There is no such thing as a "conventional mortgage solution" for first time home-buyers.
In the this generation, down payments are nearly impossible to scrounge. And there are very creative and unique programs available to those with very little or no down payment. It is important to have the research and wisdom to pick the most appropriate program according to your needs.
Do not seek out your "local bank". Remember; it is valuable to make sure your eggs are not all in one basket!"
29. Determine the Prepayment Penalty Before you Commit
You're in the market for a home and, let's face it your NEW HOME is the exciting part, not your new mortgage. But for the sake of your financial health First Time Homebuyers need to understand that a mortgage decision is all about SAVING MONEY. So it's critical to cut through the carefully crafted big budget national marketing campaigns and get to the critical issues that are important for you to understand BEFORE you make your decision.
Here is one simple example of a money saving strategy:
If you are like most Canadians you will probably be interested in a 5 Year fixed mortgage. But did you know that according to the last major CMHC study, the majority of Canadians terminate their mortgage contract early? So what does that mean? It means that you must factor in the prepayment penalties associated with your mortgage when you are making your decision. After all, what is the point of negotiating a great rate and saving $50 per month if you are hit with a massive $30,000 penalty upon an early exit from your mortgage contract. Every lender has a different policy on prepayment penalties. Some are drastically different, with potential savings of tens of thousands of dollars available to you. Ask a licensed mortgage broker to help you navigate through the marketing messages, and show you how you to protect your equity.
30. Be Aware of Mortgage Rates Possibly Going Up
The most important thing for first home buyers is not to over leverage themselves and understand the concept of future payment shock. We are currently experiencing record low rates that will very likely in ease in the future. At renewal this will cause the mortgage payment to increase for the next term. In some cases substantially higher. For all buyers and especially first time buyers we practice True Qualification in addition to Maximum Qualification.
31. Plan Ahead & Lock in the Interest Rate
Before you actually start searching for home, sit down and discuss your goals, plans and needs with your Mortgage Broker and get yourself pre-approved.
You need to figure out one key piece of information: How much you can afford? Sometimes, buyers believe they can afford a particular price and they start home shopping before they are pre-approved for a mortgage, only to later discover that they can't get financing for that amount. To avoid this, make sure you get pre-approved (pre-qualified) for your mortgage. This process should involve looking at your budget for home ownership. With a pre-approval you will also be able to secure an interest rate for 120 days, protecting you from rising rates in the marketplace. This process will prepare you for the final approval once you find a home. You should end up with a clear idea of your future payments as well as a list of all the paperwork and documentation that will be required to ultimately get your deal approved and funded.
Spending some time early in the process to sort through and prepare the financing not only equips buyers with knowledge BUT it also makes the entire home buying process flow much smoother and with less stress!
32. Find Out What is a Standard Charge vs Collateral
Make sure you have set a realistic monthly housing budget that allows you to continue living the life you desire, even after purchasing. Make sure when starting the home shopping process to touch base with your banker/broker to make sure you are qualified for the purchase amount you desire. Be careful to consider all the other important factors in the mortgage product (standard charge vs collateral, pre-payment privileges and pay out penalties) these factors are just as important in future savings as getting a good rate is.
33. Don't Change Jobs or Go on a Shopping Spree Until You Have the Keys
The lender always reserves the right to check the clients credit bureau and employment again just before closing and not approve the mortgage if they don't meet the conditions anymore.
- Between waiving conditions and possession they go out and buy a truck and furniture with a loan and now don't debt service anymore. Even worse if they don't make their payments and now their credit has slipped below the requirement.
- If they go out and get a new job and are on probation that can post a problem if the probation is past the possession or worse now commission base. It is up to the discretion of lender to allow it. I've had them grant an exception with an overall strong file.
Basically I tell my clients don't change jobs until possession if you don't have to. Also wait until you are in your home to take on any other loans or debts that could jeopardize your debt-servicing.
It is hugely important to have that conversation so there are no surprises and they know what to expect
34. Practice Your New Mortgage
What exactly do I mean by that? Well, if you're a first time buyer and just beginning to explore the housing market, chances are you're currently renting or living with your family. Wither way, I strongly suggest you start getting used to your new mortgage payment right away.
Let's suppose you're paying $1,600 monthly rent and planning on buying a home for $500,000. With a 10% down payment, plus typical maintenance fees and taxes, your new monthly payment would be be $2,600. I'd encourage you to start paying yourself the difference between your current rent and your new mortgage payment, then deposit that $1,000 into an on-line savings account.
Why? For starters, you'll get used to the amount that will eventually be your real housing payment. If that isn't compelling enough in itself, consider that you'll also be putting away extra money to help with your new purchase, pay your closing costs or treat yourself to something special as a housewarming gift. The sooner you "practice your new mortgage", the better... the choice is yours.
I am a licensed member of the Real Estate Council of Alberta since 2005 - proudly representing CIR REALTY, Calgary’s largest real estate brokerage. I enjoy keeping my readers up to date with real estate related information that they can easily understand and use for their own benefit. I welcome feedbacks and comments equally from first-time visitors to my blog, past clients and also from my fellow REALTOR® colleagues. Thanks for stopping by!