First time homebuyers, many of them
millennials, are entering the market during a time when housing prices are
high, which can be a barrier. However, interest rates remain low, which works
in their favour. Although the process of financing the purchase of a home can
appear complex, it’s important to know that there are many resources available
to help you get the funding you need.
Getting Started
First, check your credit rating. If it is
less than stellar, work on improving it before embarking on the process of
getting a mortgage. Sometimes credit histories are downgraded in error, other
times people have made mistakes that have negatively impacted their credit
ratings. Do whatever you need to do to make sure that your (and your spouse’s,
if applicable) credit rating is as high as possible. 900 is the highest rating,
but any score under about 700 means that you may have trouble obtaining a
standard loan.
Before visiting your financial institution,
have a look at some of the online resources available to you. A government of
Ontario site, for example, has a section dedicated to "What
You Should Know Before Buying a Home.” The Canada
Mortgage and Housing Corporation website has several sections dedicated to
homebuying, including a clear guide titled "Homebuying
Step by Step” that includes interactive
tools that help you to calculate your family budget. Doing a thorough
self-analysis helps you to be able to ask and answer questions when you’re
talking to a lender.
Talking to Lenders
Visit your own bank or credit union first.
The advisors there will be the most familiar with your whole financial picture,
and they may already know you, so they are a natural first stop. Tell the
advisor that you’re in the market for a pre-approved mortgage. This type of
mortgage calculates the amount of money you can be expected to receive once you
submit the paperwork, and has several advantages. The amount on it will give
you the upper limit of your price range, and that will inform your home search.
Perhaps you intend to live in downtown Toronto, for example. The amount on your
pre-approved mortgage may tell you that you can afford a mid-size condo in that
area. However, that very same amount might buy you a detached home in downtown
Brampton. A pre-approved mortgage gives you the parameters of your search.
In Canada, most often a down payment of 5%
- 20% is required. However, it is sometimes possible for first time buyers to
purchase a home with a small, or even no down payment. Talking to a financial
advisor or a mortgage broker can help you to ascertain if you qualify for this
opportunity.
Feel free to approach several different
lending agencies. There are various products available to those who can take
advantage of them.
Finally, in the fall of 2016, the Canadian
government made some changes to mortgage regulations, including a so-called
"Stress Test” that helps to ensure that, should interest rates rise, your
financial situation will not be stretched too thin. Read this Globe and Mail article to see how these changes might affect you.
After speaking to the lending institutions
and once you have financing in place, team up with a real estate broker, and
begin the journey to find your dream home!