Planning for your first home purchase

If you are thinking of buying a house soon, here are some good tips to help you get started:

1.  Begin saving cash for your downpayment.  The higher your downpayment, The lower your mortgage obligation will be.  You can also place saved funds into an RRSP, and then cash them out to use towards your downpayment.  Remember that an RRSP will also give you some tax benefits each year, as you save.  Seek out the assistance of a good financial planner to help you towards that goal.

2.  All applicants on the mortgage should be using credit and be working towards building a credit history.  Use credit, pay it off.   Some examples of items that will develop your credit history are credit cards, line of credit, a car loan, a personal loan.

3.  Always pay your credit card bills, utility bills and anyone who provides you services ON TIME.  Remember that if you do not pay other companies, that may have provided services to you, and you owe money to them, those same companies could file “collections” against you for those monies owed and these collections are listed on your credit report.  Removing collection items from a credit report is a lengthy and tedious process.

4.  Avoid running up too many balances on cards or too much debt:  A common one I see is car loans.    Car loans are relatively easy to obtain, however, when it comes time to apply for a mortgage, and you have monthly payment obligations of $800 a month, it may greatly reduce your ability to qualify for a higher mortgage amount especially if you are carrying other debt obligations.  I always tell first-time buyer clients, to go out and buy the least expensive well-maintained used car they can find, pay cash for it, and drive it around until after they buy and move into their house.  After purchasing a house, they can then go out and take on a car loan and see what they can comfortably afford with the new mortgage obligation.

5.  Do not sign up as a co-signer or guarantor for anyone else.  If you do, you could be disqualified for a mortgage if you have a financial obligation to someone else’s debt.   Even though you may only have co-signed, that debt obligation would have to be disclosed on your mortgage application and depending on what that amount is, you may not be able to qualify for the amount you need on your mortgage application.

6.  Don’t switch jobs just before you apply for a mortgage unless you can wait out the probation period on the new job.  If your new position does not have a probationary period, that would be fine with most lenders reviewing your mortgage application.

7.  Be sure you understand the whole financing process when purchasing from a builder.  Often qualifications are given by the ‘in-house’ lender at the builder’s office, but clients often walk away without ever really understanding what happens with their mortgage qualification in the long-term (18 months away or whenever their new home is built).  I recently received a phone call from someone who made a deposit with a builder, over a year ago and was about to lose their deposit on closing date, because they could not qualify for their mortgage.  The lender could not approve the mortgage loan since the client’s financial status had changed.  Remember that a lender reserves the right to review all applicant’s financial status and if there is some substantial change in their financial status, right before closing date, the lender could refuse to fund the mortgage.  Read the fine print of any contract you sign and understand that while you may have put down a deposit with a builder, the house is really not yours until your financing is affirmed.

This article was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario.  Elizabeth services clients in Mississauga and all over the Greater Toronto area.

 

You can contact Elizabeth directly by phone at (905) 510-5785,  by email at eblair@mortgageedge.ca  or you can visit her website at:    www.missmortgage.ca 

 

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) http://www.imba.ca