GETTING A MORTGAGE
Deciding to buy a home is a substantial undertaking, especially for first-time buyers. Aside from the emotional stress of planning to purchase and searching for a home, the financial strain can be overwhelming as well. That’s why if you’re considering buying a home in the near future, proper planning is key — and a big part of that entails exploring your options for a mortgage.
“Buying a home is the biggest purchase most Canadians will ever make, and an important place to get started is to apply for a mortgage preapproval,” said Roy Nakhal, TD Canada Trust’s sales manager for Montreal and Laval and mobile mortgage specialist. “When you are preapproved for a mortgage, you have a much clearer picture of the home you can afford and what you’ll pay each month.
“A preapproval is typically valid for a set period of time,” he said. “At TD, it’s valid for 120 days, and while it usually has a number of conditions that must be met, a preapproval is a great way to know how much mortgage you may be approved for before you begin shopping for a home.”
A preapproval typically confirms three important elements of potential home ownership: the maximum amount you can spend on a home and the associated mortgage loan amount; the amount of your regular mortgage payment associated with your preapproval interest rate; and what your interest rate could be for your first mortgage term.
There are many ways to go about obtaining a mortgage preapproval.
“For those who prefer the faceto-face approach, TD has more than 1,100 branches and 1,100 mobile mortgage specialists across Canada, but increasingly, Canadians are applying for a mortgage preapproval using their smartphones or laptops,” Nakhal said.
No matter how you go about getting it, a mortgage preapproval is an extremely valuable asset for homebuyers. “A preapproval demonstrates that a lender has stated in writing that the customer qualifies for a mortgage loan based on current income and credit history,” Nakhal said.
In many ways, being preapproved has become even more important in recent years, due in large part to the changes to the regulations governing mortgages.
“Governments and regulators have been quite focused on Canada’s housing market over the past few years and have taken a number of policy actions,” Nakhal said. “For example, in 2018, the government introduced a mortgage stress test requiring homebuyers with a down payment of 20 per cent or more to determine their ability to afford their mortgage payments should interest rates increase.”
This stress test uses either the five-year benchmark rate published by the Bank of Canada or the customer’s mortgage interest rate plus two per cent — whichever is higher, he explained.
“These stress test rules only apply to new mortgage loan agreements, which means they would be relevant to first-time homebuyers.”
In addition to obtaining preapproval, it’s important to also understand what type of mortgage best suits your individual situation. This can generally only be accomplished by working with mortgage professionals who can help make sure you are equipped with the knowledge you need to make an informed mortgage decision.
A mortgage broker can help you understand the true financial scope of home ownership, and help you plan ahead.
“Sitting down with a mortgage broker also controls expectations and allows buyers to limit their choices and actually work within their budget,” said Saguy Elbaz, real estate broker with Sotheby’s International Realty Québec. “This also helps real estate brokers tremendously because it allows us to work with qualified buyers who are aware of their financial capabilities.”
It’s also advisable to speak with an accountant about what sorts of options and programs are available to benefit first-time buyers.
“For one thing, you can use up to $25,000 from your RRSPs taxfree for the purchase of your first home,”Elbazsaid.“Therearemany other programs to explore, too, depending on things like household income and the purchase price of your home.”
Buying a home is a huge financial milestone for most Canadians and it’s important to understand all the relevant costs associated with purchasing and owning property, as there’s much more to consider than just the down payment and monthly mortgage payments. These include things like property taxes, maintenance and utilities, and more.
“Many of these costs are onetime expenses at the time of purchase, such as property assessments and surveys, home inspection fees, land transfer taxes, notary, legal and title insurance fees, property tax and utility adjustments and moving costs,”Nakhal said.
On the other hand, other costs are ongoing, such as property taxes and everyday maintenance costs.
“It’s always important to build some buffer into your total budget so you can be prepared in the event that unexpected costs arise that you were not anticipating,” Nakhal said. “At TD, we have a range of in-person and self-serve home-buying tools, which include tools to help at each stage of the process.”