Mortgages: What to Expect and How to Simplify the Process Buying a new home can be daunting, especially if it is your first time. There are so many things to consider: choosing a real estate agent, the type of property, the neighborhood, access to transportation services, proximity of schools, local amenities, moving companies, renovations, etc...not to mention how to qualify for a mortgage, which can be the most stressful part of the whole process. I can't tell you how many hours of sleep I lost over my mortgage. The aim here is to simplify mortgages, provide suggestions for consideration, and identify areas that you should know prior to entering into one. Getting Started
You have identified that you want to purchase a home, require the financial assistance to do so, and have determined that a mortgage is the way to obtain the money you need. Now what? Where do you go? What should you expect? What will help makes things quicker and easier for you?
1. Begin with the End in Mind
When you think of the type of home you want to purchase, what thoughts, feelings, or images immediately come to mind? It is important to consider what your goal is in buying a home, so that the end result is one that will yield maximum satisfaction. Some things to consider: - What type of home do you require? (bungalow, two-storey, one storey, condo, townhouse, ranch, new construction, fixer-upper, etc)
- What neighborhoods in your city would meet your needs, in terms of house type, age of area, access to amenities (schools, shopping, transportation, etc.), distance to work, etc? Other considerations: annual property taxes, crime rates, garbage pick-up, street maintenance (cleaning, snow removal, etc), neighborhood associations, etc.
- Are special considerations needed for children, elderly residents, physically disabled family members, etc.?
- How many bedrooms are needed? On what floors should these bedrooms be located?
- How much sun do you require for plants or a garden? In what direction do you want the front of the house to face? What about sunlight in key rooms such as the living room or kitchen?
- What requirements do you have for a backyard? Do you want a garden? Will space be needed for children's toys, slides, etc.? Should it be fenced or open?
- What parking arrangements are required? How many vehicles will be used by residents of the home? What requirements are needed for these vehicles (ie. restoring a vehicle would require a garage; motorcycles take up less room; etc)? Do you need a garage? What about a driveway or carport? How much street parking is adequate?
- What proximity is needed to the following establishments: transportation, shopping, grocery, schools, religious, leisure, parks, libraries?
2. Visit http://www.point2homes.com/
Neighborhoods are a key purchasing factor for anyone looking for a home, as the neighborhood will dictate your access to necessary amenities, safety, and distance to school or work. Once you have some neighborhoods in mind, or if you need to gain further information, visit Point2 Homes to read more about these neighborhoods, gain access to experts in those neighborhoods, as well as properties that have been listed in that area.
You can also access the websites for a variety of Agents, which can not only include other listings, but further neighborhood information, maps, local events, and more. In viewing homes, make note of the prices, so that you have an idea of what you might need to spend to get the type of home you want.
We'll revisit this later, so ensure you bookmark Point2 Homes, as well as any real estate agent websites you like, as you will be redirected to those sites when viewing full listing information.
3. Compare the Types of Mortgages
There are a variety of mortgages that you can access in today's market. While this is a brief overview, you will want to check with your mortgage professional as to which option is the best for you, as well as the availability of the mortgage type in your market area. Fixed-rate Mortgages - probably what you think about first when hearing the term 'mortgage', this type provides the option for payment over a certain number of years: 10-year, 15-year, 20-year, etc. Payments are amortized, which means that the principal and interest is calculated into equal monthly payments for the duration of the mortgage term.
Variable-rate Mortgages - sometimes called adjustable-rate mortgages. Rather than having equalized payments over a long period of time, these mortgages adjust to the current interest rates. This means that payments may increase or decrease on a monthly, semi-annually, annually, etc. basis, depending on changes in the interest rate.
 Combination Mortgage - this mortgage consists of two loans that can each be either fixed-rate or variable-rate.
FHA Loans - these loan types are insured by the government though mortgage insurance that is calculated into the overall loan. These are helpful for first-time buyers, as the down payment requirements are minimal.
VA Loans - a government loan available to veterans who have served in the US Armed Services, and in some cases to spouses of deceased veterans.
Bridge/Swing Loans - this mortgage is used when the borrower has put their current home on the market (but it has not sold yet), and they are looking to purchase another home in the meantime. The mortgage uses the current home as security for the loan, which will be used to pay for the future home.
Other types - there may be other types of loans that your bank or mortgage broker offers. Be sure and ask what options they provide and if they might be beneficial to you.
4. Seek Out Your Friends
If you have friends who are home owners, they would have already gone through the purchasing process and likely have advice as to what they did that really worked well for them, as well as tips to avoid the obstacles they may have faced. Plus, since they are your friends, they will be open and honest about their experiences, which can end up saving you a lot of time and money.
5. Consider the Different Lenders
Not all lenders are created equal, as they all offer varying options and operate in different ways. When choosing a lender, consider the lender's rates, the type of property you wish to buy, and your personal needs, as these areas will be most affected by your choice. Commercial Banks - offer a wide variety of loans and mortgage services, and you have likely already dealt with one or more banks in your lifetime. Considerations: their primary source of business is not real estate loans; their rates are competitive; your financial 'life' may already be invested in a particular bank that you have dealt with over recent years; maintaining a checking or savings account at that institution may qualify you for special discounts or incentives through them.
Credit Unions - are formed by a group of individuals with like interests and are thus viewed differently than a commercial bank, which provides some tax and benefits that institutions do not see. This provides very competitive interest rates and better chances for their members to be granted mortgages within the credit union. It is important to note, though, that to obtain a mortgage, you will need to meet qualifications to become a member of this group.
Mortgage Bankers - work for commercial banks, but often represent multiple banks all at once. The loans they offer are chosen from the bank that will provide the mortgage that is best for the buyer. Key considerations: fees are generally set by the bank and are not negotiable; available mortgages are limited to those offered by the banks; the mortgage banker does not necessarily have to be licensed to provide this service. It is important to find out if they are licensed and what that means in your market area, what banks they represent, and what mortgage options are available to you.
Mortgage Brokers - work as a middle man between the borrower and lender of the money, sometimes operating with hundreds of lenders who finance mortgages. Considering their network of lenders is large and extensive, there are variances as to how the mortgage broker will work with some of them. It is important to ask what fees are paid by the buyer or the lender or both; if the loan is at 'par', which means the buyer does not pay a fee; if the mortgage broker is acting as an "up-front" broker, which means they charge the buyer a fee for obtaining the lowest interest rate and fees.
Savings and Loan Associations - these Associations take deposits from customers, put them into savings or money market accounts, and then pay interest on them. Their primary source of business is real estate loans in the residential sector through construction, purchase, or home improvement. Obtaining a mortgage through this lender can sometimes be easier than a commercial bank due to this focus on residential real estate.
Stock Brokerages and Online Lenders - companies that handle mutual funds or online savings often also provide mortgages. Online lenders deal strictly through their websites and email, so if you prefer one-on-one contact with your lender, an online option may not be your best choice. Some things to consider for online lenders are also the reputation and recognition of the lender's name. Look for companies with secure sites (they have a privacy policy, confidentiality policy, little locks around information inputs, etc) and be wary of any company that seems 'shady'.
Private Individual Lender - anyone with money can lend it, provided that they follow regulations regarding interest rates, fees, disclosures, confidentiality, etc. Since this is a person-to-person loan, it might be tempting to agree to things verbally: this may cause issues later in the process, so it is advisable to get everything in writing, similar to the other lender processes. Ensure that questions relating to payment processes are outlined and clear, as well as if the interest rate is fixed or variable.
It's All in the Numbers Life is numbers, especially when working through getting and having a mortgage. How much can you afford? What does that translate into payments? What will the interest be? How can you save on lawyer fees? Money may make the world go 'round, but it also can cause a lot of stress. Here are some considerations during the mortgage process:
1. Determine How Much You Can Afford
Prior to speaking with a lender, you would have already gone to www.Point2Homes.com to take a look at the types of homes that interest you and will likely meet your particular lifestyle and family needs. You should already have an approximate price range of those home, having visited a number of real estate Agent websites.
These websites likely also included a mortgage calculator page that provides the opportunity to fill in information regarding your income, expenses, and possible housing prices; the calculator will then provide you with an approximation of what your monthly mortgage payment will be, based on current rates of interest. You can quickly and easily make adjustments to determine monthly payments that are feasible and the pricing of a home that will fit into that target.
This is usually when you realize the homes you like may not necessarily fit into your budget. Don't despair: there are great homes to be found everywhere. Sometimes they just take a bit longer to find!
2. Down Payments
Usually mortgages of any type require you to have a certain amount of money that will work as a down payment on the home you are purchasing. The amount depends on your market, your lender, and if there are special considerations (sometimes first-time buyers have a lower down payment). The lender you choose to work with will have full details as to what your down payment will be, but it is usually a certain percentage of the total cost of the home.
3. Get Pre-Approved
It is beneficial to know how much money you have access to through a mortgage prior to setting out and actually 'shopping'. Having done the mortgage calculator exercise, you likely already have an idea of what you can afford and what amount you will need for a mortgage. This information is powerful when going to speak with a lender, as it will save time and provide the lender with information to begin determining your mortgage needs.
Lenders consider your income, your debts (loans, credit cards, alimony, child support), employment history (having a steady job helps, as does a steady employment record - gaps in income could affect you), credit history, and the value of the desired property. They will look at how much you can comfortably afford to pay for a mortgage, based on your current income and debt load. Typically, this is up to 30% of your gross income, although that varies lender to lender.
Adjustments to your mortgage calculator totals will likely occur, as your pre-approval mortgage amount takes everything into consideration, and is also based on the lender's rates, mortgage programs, and payment plans, which sometimes means that you can actually be approved for more than you originally anticipated. You may be closer to that dream home than you thought! As well, once you find a home that you are interested in, the process for acquiring it is now shortened, which means that the potential of losing the home to another buyer is reduced.
4. Choosing an Agent 
While on Point2 Homes, you will notice that for each neighborhood, there
are real estate agents advertising properties they have listed in that area. They will be able to both answer your questions regarding that neighborhood, as well as assist you in finding a home.
You will also find a Neighborhood Expert for that neighborhood, which is a real estate professional advertising their superior knowledge of the neighborhood. This means that they have extensive knowledge about not only the homes and home prices within that neighborhood, but also the schools, parks, shopping centres, local businesses, transportation, tax rates, crime rates, age distribution, etc. in that area.
Working with a real estate agent provides you access to a professional who can use your particular pre-approval mortgage amount to find a home that is suitable not only for your budget, but also family's needs.
5. Fees
 Additional fees will arise as part of the cost of transactions, especially lawyer fees, realtor fees, and broker/bank fees (depending on your lender). Sometimes the seller's lawyer will offer a discount on legal fees if both the buyer and the seller use him or her for the transaction. Personally, when buying my home, I saved almost half of the cost of the legal fees, which meant more money for other expenses and new furniture.
Additional Considerations
There are always things in life that arise and can throw you completely off your game. In obtaining my mortgage and purchasing my home, here are some topics that I experienced and that you may want to think through early in the process, to ensure you have them covered mentally, physically, and financially:
1. Land Taxes and Fees
When a property changes hands, there are a number of searches that must be done to ensure that that the person selling the land (and property on it) is authorized to do so, where the property boundaries are, if there are leans (or outstanding loans or debts) on it, etc. These searches all cost money, so there is often a land title search fee that the buyer must pay to have them completed. Sometimes this cost is covered by the lawyer, and then included in the overall legal fees.
As well, there is also a land transfer tax the buyer must pay to have the ownership (or title) of the land transferred to them from the seller. Again, this is sometimes covered in the legal fees, so check with your lawyer. The costs of both the fees and the taxes will vary depending on your location, so ask your lawyer for an accurate cost assessment.
2. Inspections
Home inspections are sometimes completed by the seller prior to putting the house on the market, but often inspections are done at the request and expense of the buyer. Check with the seller to see if this is something that is already completed; otherwise, it is your decision whether you want to complete a home inspection or not. They can be valuable in determining if there are any significant issues with the home, including structural weakness; foundational damage; evidence of flooding or fire; roof leaks or sagging; heating, cooling, or plumbing issues; furnace and water heater weakness; etc.
Paying for a home inspection can sometimes yield information regarding potential problems that may surface in the near future and cost thousands to fix. Buyers may choose to opt out of getting a home inspection, though, as they often cost hundreds of dollars up-front and can take several days or weeks to have completed, depending on scheduling.
3. Moving Costs
 There are many ways to move: hiring a moving company, renting a moving truck, or getting your buddy to help. Whichever method you choose, there will be costs associated that usually differ depending on the extent of the assistance. For instance, some companies will come into your home and pack for you, whereas others just move your possessions to and from the houses and truck.
If you are moving everything yourself, keep in mind that you will need to obtain a large quantity of moving boxes and supplies for your possessions, and may need to also rent moving blankets to prevent scratches or damage to larger pieces of furniture.
4. Home Insurance
To protect your new investment, you'll want to consider purchasing home insurance, which can cover fire, water, environmental, break-in, and other damages. You should also consider insurance for the valuables and possessions within the home, in the event of vandalism or theft. Insurance providers offer a variety of policies and packages that can provide specific coverage or combination protection.
5. Appliances
Usually the original listing information will indicate if the seller is including
any of the appliances, such as fridge, stove, washer, dryer, dishwasher, microwave, hot tub, barbeque, etc. If this information is not indicated, be sure and ask, whether or not you actually want the appliances in the home.
 If you are wanting to keep the appliances, sometimes sellers don't think that anyone would want "this old thing?" and don't think to offer it in the sale. Keep in mind that including the appliances in the sale may mean an increase in the price, so clarify if this will be the case. You might also want to ask how old the appliances are, if any difficulties have been encountered with them, if there is any warranty remaining on them, the last time they were serviced, and if they have any special 'quirks' to operate efficiently.
If you already own appliances and will be moving them into your new home, ensuring that the sellers are taking their appliances is important. If they really don't want to move them, consider selling them in a garage sale, giving them to a friend or relative, placing a classified ad in the local newsletter, or posting an ad on a free online classified site. There are likely others who are looking for appliances for their homes who would be glad to take them off your hands. As well, an extra fridge in the basement can come in handy for beverages or extra space during the holidays.
6. Utilities
In moving into a new home, you will need to communicate with the utility companies (power, water, telephone, cable/satellite, internet) to have your old address disconnected and your new one connected. There are often fees associated with starting up new accounts or transferring old ones, so ensure you ask what those fees are.
In speaking with the sellers, ascertain what their monthly costs were for the home during their tenure there, as that will give you an approximation of what to expect on a monthly basis for your budget. Keep in mind that preferences on home temperature, appliance usage, and lifestyle will affect the costs of utilities.
7. Changing Your Address
When moving, this is usually one of the key areas forgotten! You will want to change your address with any companies who send you information, magazines, and bills. You will also want to change your address for your insurance policies, banking and saving, driver's license, auto insurance, schools, family, friends, employment information, income tax information providers, etc.
Also provide your new address to the buyers of your previous home, so that they can forward any mail that is erroneously sent to your previous address. This can easily be done by sending postcards to everyone.
8. Community Associations and Fees
Depending on where you purchased a home, there may be a neighborhood or community association that hosts regular community events, has a governing body with set guidelines, does neighborhood watches, or promotes local businesses. These associations often will contact you once you move into the community, although it is helpful to know of the association's existence prior to moving into the house.
You may want to contact the head of the association to answer questions, provide information on the neighborhood, share information about any rules or guidelines for residents, send you a copy of the recent newsletter or bulletin, as well as introduce yourself. This will provide you with an easier transition into a new community.
9. Renovations
 It is not uncommon for a 'new' home to need renovations prior to you moving in, which can be as simple as repainting to as complex as knocking down walls. When shopping for a new home, consider what you will want to change about it prior to moving in, and then research the costs that will be associated with doing these reno's.
Depending on the expense and type of work, you may want to get it done prior to moving into the home. It is not uncommon to think "we'll do those reno's later", only to discover that several years have gone by and they still aren't done! In other cases, there may be things you want to change, but they are not pressing and can be done in stages. Determine what will be the best for you, but do think about setting aside a bit of money now for any renovations that you may want to do, no matter how small.
Owning your own home is an enriching and rewarding experience, but the process in finding one and acquiring it can sometimes be a little daunting and time-consuming. Armed with more knowledge, though, you can begin to simplify this process, plan for what will work the best for you, and begin your journey to owning your dream home. Good luck! ~ Tanya Spilchak, Education Coordinator |