Mortgages 101: What Hamilton Home Buyers Should Expect

For many first-time buyers, getting a mortgage can feel almost as complicated as buying the home itself.

How much can you afford? What will the lender look at? Should you work with a bank or mortgage broker? What happens after you've been pre-approved?

Understanding the process before you start looking at homes can make the entire buying experience easier to navigate.

Here are some of the basics Hamilton home buyers should understand.

1. Start With What You Can Actually Afford

One of the biggest mistakes a buyer can make is starting with the maximum mortgage amount a lender says they will approve.

Your maximum borrowing capacity isn't necessarily the same thing as a comfortable monthly payment.

Think beyond the mortgage itself.

You'll also need to account for property taxes, home insurance, utilities, maintenance and other costs associated with owning a home.

And don't forget about the upfront costs of buying.

Depending on the property and your circumstances, you may need to budget for things such as your down payment, land transfer tax, legal fees, home inspection and other closing costs.

The goal isn't simply to qualify for a mortgage.

It's to buy a home that fits comfortably within your overall financial situation.

2. Get Pre-Approved Before You Start Seriously House Hunting

A mortgage pre-approval can help you understand your potential borrowing range before you start making offers.

It can also help you identify potential issues early in the process.

But there's an important distinction:

A pre-approval isn't the same as final mortgage approval.

The lender may still need to review your financial information and the specific property you're buying before approving the mortgage.

That's why it's important not to treat a pre-approval as an absolute guarantee that any particular home will receive financing.

3. Understand What Lenders Look At

When you apply for a mortgage, the lender will look at your overall financial situation.

That can include things such as:

• Your income
• Existing debts
• Credit history
• Down payment
• The property you're purchasing
• Your ability to manage the mortgage payments

This is one reason it's worth getting your finances organized before you start shopping seriously.

Know what you owe. Understand your monthly obligations. Review your credit information and make sure the information being used in your application is accurate.

And avoid making major financial changes immediately before or during the home-buying process without first discussing them with your mortgage professional.

4. Understand the Difference Between a Bank and a Mortgage Broker

You don't necessarily have to get your mortgage from the same institution where you do your everyday banking.

A mortgage broker can help you compare mortgage options from lenders they work with, while a bank or other lender will generally offer products from its own institution.

Neither approach is automatically right for everyone.

The important thing is to understand the mortgage you're being offered—not simply the interest rate.

Ask about:

• The interest rate
• Fixed versus variable terms
• The mortgage term
• Amortization
• Prepayment privileges
• Penalties for breaking the mortgage
• Portability
• Fees

The lowest advertised rate isn't necessarily the most appropriate mortgage for your circumstances.

5. Don't Forget About the Stress Test

Qualifying for a mortgage in Canada involves more than simply demonstrating that you can make today's payments.

Federally regulated lenders apply a mortgage stress test to determine whether a borrower could still manage payments if interest rates were higher.

The rules can change, and different lending situations can have different requirements, so your lender or mortgage professional should explain how the current qualification rules apply to you.

6. Keep Your Financial Situation Stable

Once you've been pre-approved, it's tempting to think the financing part of the process is finished.

It isn't.

Until your mortgage is actually finalized, be cautious about taking on significant new debt, making major purchases or making other changes that could affect your financial position.

That new car loan you've been considering? The large credit-card purchase? The new line of credit?

Talk to your mortgage professional before making major financial changes while you're in the process of buying.

7. Your REALTOR® and Mortgage Professional Have Different Jobs

Your REALTOR® and mortgage professional are both important members of your buying team, but they have different responsibilities.

Your mortgage professional helps you understand your financing options and qualification.

Your REALTOR® helps you navigate the real estate side of the transaction—including finding suitable properties, evaluating them, preparing offers and managing the transaction.

Neither should replace the other.

The more clearly everyone understands their role, the smoother the process tends to be.

Buying a Home Is More Than Getting Approved

Getting approved for a mortgage is an important step, but it isn't the finish line.

The real question is whether the home you're buying, the mortgage you're taking on and the costs of ownership all make sense together.

If you're thinking about buying a home in Hamilton, getting your financing organized early can give you a much clearer picture of what you're actually looking for.

And if you aren't sure where to start, that's exactly the kind of conversation worth having before you start booking a dozen showings.

Sincerely,

Mike McCarthy, MBA
REALTOR®