Family moving into their new house

Tips on buying a home and dealing with mortgage lenders

Buying a home is one of the single most significant purchases many people will ever make. To put it in some context, a home can easily be 10 times pricier than a new car. Needless to say, it’s not something that should be taken lightly.

With that in mind, here are some tips on buying a home to help you make a better decision.

  • Make sure you’re ready for homeownership

Owning your own home may seem like a dream, but there are many responsibilities that come along with it. You will be responsible for property taxes, home insurance, and maintenance, among other large expenses. Some responsibilities (such as cleaning a yard) can involve a serious time commitment.

  • Observe the real estate market to make sure there isn’t a bubble waiting to pop

Over the last decade and a half, many markets have seen home prices skyrocket and then crash. For buyers who got in near the top, the results have often been painful. Doing a bit of research on whether your city is in the midst of a bubble is never a bad idea. Although the housing experts may not even be on the same page, doing the research can at least help you identify red flags and make an informed decision. It may be that continuing to rent is the better bet.

  • Research various neighbourhoods

The more you look around, the better a choice you can make. You may find that there’s an area of your town or city you hadn’t considered, but that has some beautiful and “better value” homes for sale.

  • Always insist on an inspection

Even if you’re ready to put in an offer on a place you love, you’ll want to make it conditional on a successful inspection prior to closing if possible. There are some surprises in life that will put a smile on your face; however, buying a home and realizing there’s faulty wiring and dangerous amounts of mould are not among them.

Dealing with mortgage lenders

In a perfect world, everyone looking to buy a home would have enough money on their own to do so. Alas, for most people, a mortgage is required. What this means is that in addition to finding the right home, there also needs to be a search for the right lender.

Here are some tips on finding and dealing with a mortgage lender.

  • Shop around

We shop around for clothes, food and cellphones and countless other items. Given how large a purchase of a house is, it only makes sense to shop around for a mortgage lender. With the internet, it’s easier than ever to compare competing lenders with each other.

  • Know that a lender’s posted rate is often not their best rate

Banks and other lenders often advertise what’s known as a “posted” mortgage rate. This is their official rate. However, it’s often much higher than the actual rate you can get from them.  Always try to negotiate a better lending rate.

  • Give some thought to what sort of mortgage term you’re looking for

The mortgage term is the number of years for which the terms of your loan are valid. Once the term is up, you either need to refinance the mortgage or repay it. An advantage of a short-term mortgage is that the interest rate is generally lower.  If you’re okay with potential fluctuations and renegotiating more frequently, you might be able to get lower monthly payments and realize long-term savings. On the other hand, an advantage of a long-term mortgage is that the payments and interest rate are locked in for a longer period of time. You can ask a mortgage broker for his/her advice to help you select the mortgage term that best fits your financial needs.

  • Consider whether you want a fixed or variable mortgage

With a fixed rate, the interest rate on your loan is locked in for the term of the mortgage. However, with a variable rate, your interest payments can increase or decrease based upon some other benchmark rate. Long story short, people with variable rate mortgages suffer when interest rates rise and benefit when they fall. If you are thinking of going the variable route, you’ll want to make sure you can still afford your mortgage payments in the event that rates rise significantly.

  • Think about your down payment

The more money you put down, the less of an outstanding mortgage balance you’ll have. Lots of homeowners only have a 10% down payment, but if possible, you should consider putting down more. You will pay less in interest over the years and be able to fully own your home sooner.

Sources:

1) https://globalnews.ca/news/3728748/6-things-every-home-buyer-should-know-before-buying-a-house

2) https://www.firstfoundation.ca/mortgage-glossary/mortgage-term

Disclaimer:

The information provided in this article is for information purposes only and does not constitute professional advice to be relied upon. Foresters Financial does not provide investment, tax or legal advice. Please consult with financial and legal advisors before engaging in any transactions. Although reasonable effort is made to ensure the information is accurate, Foresters Financial shall accept no responsibility for its accuracy, reliability or validity.

416469 CAN/US/UK (06/18)

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Andrew Hepburn is a freelance writer based in Toronto who specializes in financial issues. He's written for Maclean's, Canadian Business, MoneySense, Morningstar and T.E. Wealth, among others.