How To Secure Financing When Buying A Home In Vancouver
Aug 30, 2018
Aug 30, 2018
Every buyer needs to take some time by getting their finances in order so you can find the right home at the right price when you start looking. You’ll want to start by getting a clear picture of your current financial situation and go from there.
Here’s the buyer’s guide to securing financing including key steps and milestones:
As a general guideline, total monthly housing costs for your primary home, including mortgage payments, taxes, maintenance fees, insurance, interest charges and utilities, should not exceed 32 percent of your gross monthly household income.
Many financial advisors also suggest that total monthly debt, including mortgage payments, credit card and car payments, should not exceed 40 per cent of your gross monthly income. Those purchasing a real estate investment property should consult their real estate and financial advisor to understand both the tax and financial implications of their purchase.
If your downpayment amount is less than 20 per cent of the total purchase price, you’ll need to purchase mortgage loan insurance that guarantees the debt against default. In most cases this will be added to the mortgage loan.
Your credit report plays an important role in your mortgage approval process and in determining the interest rate and other loan terms that a lender offers you. Before meeting with a potential lender, you may wish to confirm your credit rating so you have time to resolve any issues. Contact Trans Union of Canada: 1-800-663-9980 or Equifax Credit Information Services Canada: 1-800-465-7166 for more information.
Before you sign anything, it’s important you understand a few of the key mortgage terms:
Mortgage interest rates are fixed, variable or adjustable:
There’s two types of mortgages:
Amortization is the length of time the entire mortgage debt will be repaid. Many mortgages are amortized over 25 years, but longer periods are available.The longer the amortization, the lower your scheduled mortgage payments, but the more interest you pay in the long run.
You have two types of mortgages to consider:
The term is the length of time that the mortgage contract conditions, including interest rate, are fixed. The term can be from six months up to ten years.
There are generally several term options for a mortgage and it’s important to weigh the benefits and costs of each. A longer term (five years, for example) may allow you to plan ahead and protect you from interest rate increases, but may not offer you flexibility, should interest rates fall.
Work with your lender to optimize your mortgage payment schedule for your unique situation. Many primary homeowners aim to pay off their mortgages as quickly as possible, which can be achieved with more frequent instalments. Your mortgage may also be structured to allow an increase in payments as cash flow permits, and there may be anniversary lump sum payment opportunities each year to be applied directly to the principal.
If you are purchasing real estate solely for investment purposes, other considerations such as tax implications come into play.
In markets where there is high demand and a low volume of the type of home you wish to purchase, written pre-approval is essential and will give you the competitive edge in securing your desired home. For example, in a scenario where a seller receives two similar offers, one accompanied by a letter that confirms financing pre- approval, and another other without supporting documents, the former offer is frequently considered first.
In the process of preparing to buy a home? We can help, including connecting you to people who can assist with financing.