Young couple sitting in front of a new house.(Photos.com)
You’ve paid off your debts, socked away enough money for a decent down payment, trolled through open houses and found the perfect place. Your offer has been accepted and you have two months to close the deal.
This is when many first-time home buyers finally get around to arranging their mortgage, according to Larry White, a 20-year veteran mortgage broker.
“A lot of people spend more time researching a television purchase than their mortgage,” says Mr. White, a broker with Invis.“I have had a lot of people call me when they’re closing in two or three weeks and they haven’t done any of the background work.”
The good news is that mortgage competition is so fierce right now that you can negotiate better terms on rates, fees and restrictions – provided you go in armed with some knowledge. Mortgage rates are not quite at an all-time low, but they are very attractive in the historical sense and easy to compare online.
One thing to keep in mind is that the rates posted at your bank or blinking at you in online ads are just a starting point. These rates are not only high, they are also likely to come loaded with caveats, including tight restrictions on making lump-sum payments and high fees when leaving the mortgage prior to renewal. (There is a reason why they’re called “sucker rates.”)
Here’s our list of five things to remember as you prepare to wheel and deal:
Start early and be prepared
The bank where you have your chequing account will be more than happy to do a basic mortgage pre-approval document for you, but that won’t be enough to close the deal. You will need an up-to-date personal credit score, tax assessments from the last two years, and a thorough accounting of your income, including non-salaried contracts and debt.
Along with your down payment, you’ll need enough cash on hand to cover pay closing costs – roughly 2 per cent of the purchase price – for legal fees, mortgage insurance, title insurance and land transfer taxes. You should also be prepared to pay utility deposits in your new home. If you’re moving into a condo, don’t forget to budget for maintenance fees.
Have a strategy in place and a product in mind to achieve it
This is where a mortgage broker can really help you. Keep in mind, however, that they are paid by the financial institution to whom they bring your business – not you. Familiarize yourself with the mortgage basics – read up on how a fixed–rate mortgage compares to a variable-rate and the difference between a closed and open mortgage. Don’t automatically take a five-year-fixed mortgage, but research the various terms that are available.