TOP 5 TIPS FOR SECURING YOUR MORTGAGE

Originally published on SooToday

Check all the boxes as you prepare for what might be the biggest purchase in your lifetime

Buying a new home is an exciting time in your life. Once you place an offer, it can feel like a whirlwind of activity, as you sign this and pay for that. But leading up to that moment, there is a little bit of planning you should do to ensure your mortgage is just as comfortable as the new home. These tips should help you check all the boxes as you prepare for what might be the biggest purchase in your lifetime.

TIP #1: FIGURE OUT HOW MUCH YOU CAN AFFORD

Pretty common sense, right? The first step in your homebuying journey should be determining how much you can afford. It might sound tricky to figure out, but it really isn’t too difficult and there are plenty of online mortgage calculators that can help.

Usually, it’s a matter of figuring out a manageable monthly payment based on how much you’ve saved for a down payment, as well as your income, debt and assets. This amount isn’t the equivalent of a guaranteed loan, but it is a quick way to get a ballpark idea of what you can afford. 

TIP #2: DECIDE WHAT TYPE OF MORTGAGE IS RIGHT FOR YOU

You’ve probably heard the words thrown around like fixed vs. variable, open vs. closed, mortgage term, amortization and so on. Mortgages come in all shapes and sizes and it’s important to choose the options that fit your lifestyle and future goals. Here is a quick guide:

  • Fixed Rate – your interest rate and payments stay the same over your mortgage term. 
  • Variable Rate – your interest rate and payments fluctuate over time.
  • Open Mortgage – gives you the flexibility to pay extra lump sums toward your mortgage at any time but often comes with a higher interest rate compared to closed mortgages.
  • Closed Mortgage – is restrictive in terms of allowing extra lump sums toward your mortgage at any time but often comes with a lower interest rate compared to open mortgages. 
  • Mortgage Term – how long you want to ‘lock-in’ a mortgage with a specific rate or options.
  • Amortization – the entire lifespan of your mortgage, typically 25-30 years. 

It can be a good idea to talk through these options with a mortgage specialist, who can help answer any questions you might have. Also, many financial institutions offer handy tools that can help you decide on your mortgage options.

TIP #3: GET PRE-APPROVED 

Once you have a rough idea of what you can afford, you can start looking at houses in your price range. But before you make an offer, it’s a good idea to get pre-approved. This is a more significant milestone than pre-qualification because now your financial institution is verifying all your information and committing to lend you a certain amount of money. It’s kind of like the ‘now it’s official’ version of what you can afford to spend on your new home.

Sometimes, it’s good to work with a mortgage specialist, who can guide you through the pre-approval process. But applying online is also a great option these days. Either way, you’ll need to confirm your income by providing one of the following: (1) your last two paystubs that include year-to-date earnings, or (2) your T1 General & Notice of Assessment, or (3) your permission to contact your employer to complete an employment confirmation letter. With one of those documents in-hand you should be ready to get started with the pre-approval process. 

TIP #4: DETERMINE A ‘COMFORTABLE’ AMOUNT TO SPEND

Ok, things are moving along – you’ve been pre-approved for a certain mortgage amount. Alright, time to start putting in offers, right? Not so fast! Just because you’ve been pre-approved up to a certain amount, doesn’t necessarily mean that you should spend that much. Usually, your pre-approved amount is a maximum that you will be able to manage based on your current finances. 

You’ve probably heard the term ‘house poor’. It’s when you overextend yourself on your housing costs, so that you have no disposable money left over for children’s school activities, ordering takeout, adding to your savings and so forth. To avoid this, you’re probably going to want to scale back a bit and make a budget that includes a ‘comfortable’ mortgage payment that leaves a little room for the fun stuff in life. 

TIP #5: KEEP YOUR FINANCES IN ORDER

Between the time you get pre-approved and place an offer to buy your dream home, it’s important to keep your finances in order. First off, keep saving – the more you can pull together for your mortgage down payment, the more manageable your monthly payments will be over the long term. You’ll also want to hold off on any other major purchases or applying for new credit. And finally, it’s a good idea to keep your employment situation stable, as changing jobs could affect your mortgage approval. 

If you’ve followed all of these tips, you should be ready to put an offer in on your dream home with confidence. And remember - if you need a little help on your homebuying journey, don’t hesitate to reach out to a mortgage expert. Happy house hunting!