The Learning Centre:
3 tips for getting ahead of the game in a homebuyer’s market
The key to getting ahead in school and in life is simple really—always do your homework.
That goes extra when it comes to home buying, especially now that the housing market is leaning more towards favouring the buyer (over the seller) for the first time in years.
However, if you truly want the cards to be in your favour, no matter what the housing market dictates (or where you happen to be on the pay grid), here are 3 key things you’ll want to keep in mind:
#1: GET A MORTGAGE PRE-APPROVAL
In any market, the pre-approval is a must as it determines the maximum amount a potential lender will qualify you to borrow for making a home purchase. Once you’re preapproved, you’ll have a more realistic expectation of which homes fall within your budget.
Yet now that we’ve been seeing Bank of Canada (BoC) interest rates slowly creep up in recent months, the pre-approval becomes your best defense against a further rise in interest rates. With a pre-approval, you will be able to lock in the current interest rate just in case the BoC decides to hike rates yet again before you make a purchase.
Some other benefits to getting a pre-approval:
- You’ll get an estimate of your mortgage payment so that you can budget your cash flow accordingly
- You’ll also be in a better position to make an immediate offer—which could be the difference between winning or losing out on the property you’re interest in
The information/documents you’ll need to have handy for your pre-approval interview:
- Identification (usually two pieces of government-issued identification with your photo)
- Current pay stub/proof of employment (bringing a letter from your school board also can help to further substantiate your employment/income)
- Recent financial statements (to show you can cover down payment and closing costs)
- List of assets (such as vehicles, investments, etc.)
- List of liabilities (credit card balances, car/student loans, lines of credit, etc.)
Questions to ask during a pre-approval interview:
- Do I automatically get the lowest rate if interest rates go down while I am pre-approved?
- How long is the pre-approved interest rate guaranteed?
- Can the pre-approval be extended?
Keep in mind that a pre-approval does not guarantee that you will get the mortgage loan. Once you have a specific home in mind, the lender will want to verify that the home or property meets certain standards (such as the condition or market value of the home) before approving your loan. If certain standards aren’t met, the lender could decide to refuse your mortgage application, even though you have a preapproval.
#2: CONSIDER PUTTING LESS THAN 20% DOWN IN ORDER TO GET A BETTER INTEREST RATE
Yes, you read that right.
Borrowers who make a down payment of less than 20% of the purchase price (high-ratio borrowers) actually get a lower interest rate than those who put down 20% or more (conventional borrowers).
You’re probably thinking how is that possible?
It’s simple really and makes total sense when you take into consideration that high-ratio borrowers must also purchase mandatory default insurance (through CMHC, Genworth or Canada Guaranty).
Default insurance pretty much makes the high-ratio borrower risk-free for a mortgage lender (i.e. if a borrower stops making payments and the lender ends up having to seize and sell the property for less than what remains owing on the mortgage, the insurer reimburses the lender for any loss). Once a mortgage is insured, lenders can then fund it more cheaply—passing some of that savings back to borrowers in the form of lower rates.
Did you know? Borrowers putting down exactly 20% of the purchase price of a property pay the highest interest rate. These are the riskiest loans in a lender’s portfolio because they have just enough equity to avoid the default-insurance requirement, but also the least amount of equity to serve as a buffer against loss.
#3: PUT EDUCATOR-SPECIFIC MORTGAGE ADVICE AND EXPERTISE TO WORK FOR YOU
Having served education members since 1975, we have come to know the specific financial challenges and opportunities that come with being an educator.
- Lower on the pay grid? We’ll help you uncover ways to maximize cash flow so your first mortgage doesn’t drain your finances as much
- Established in your career? As you inch closer towards your 85/90 Factor, when is the last time you reviewed your current mortgage to ensure it’s actually the right fit for your financial goals?
- Retired and not yet mortgage-free? We can set you up with a mortgage—and a plan—to get it paid off faster so you can put that pension income towards living the retirement lifestyle you want
Plus our accredited agents specialize in mortgages—a big difference over the ‘bank approach’.
That’s because banks tend to sell mortgages as just another financial product.
Educators Financial Group’s accredited mortgage professionals on the other hand, live and breathe mortgages. This means they know all of the rules, regulations, and features that come with a mortgage—and for you that translates to being educated on all of your options so you can choose a mortgage that’s the right fit for your needs.
Have one of our Agent-Regional Directors contact you about getting the right mortgage for your needs.
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The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting or professional advice. Please ensure to consult your accountant and/or legal advisor for specific advice related to your circumstances. Educators Financial Group will not be held responsible or liable for any losses, costs, damages or expenses incurred by reason of reliance as a result of the aforementioned information. The information presented was obtained from sources that are believed to be reliable. However, Educators Financial Group cannot guarantee their completeness or accuracy.