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Your first home: Tips so that your dream does not turn into a nightmare
By: Cintia Brumer* | Sotaque Brasileiro, # 4, Spring 2004
In Brazil or Canada purchasing property is not an easy task. Often, finding the dream home can take months. This is when little tips may be very valuable..
Before, during and after
Before searching for your home, get pre-approval of funding. The pre-approval ensures that funding has been approved by a financial institution or mortgage company. This free document gives you a maximum purchase value for which you qualify, in addition to guaranteeing an interest rate for up to 120 days. This rate is fixed and will not increase (even if market rates increase), but can be reduced if the fees decrease. There is nothing more frustrating than starting the search, finding the right home and then discover that you have not been approved by the bank or mortgage company.
Pre-approval in hand, it's time to look for a good realtor (real estate agent). The broker, being reliable and experienced in the market, will be essential if you need advice on neighbourhoods, or tips about the property prices in a given area.
After choosing the property and having your offer accepted by the seller, it's time to hire a lawyer. In Canada it is necessary to have a lawyer to complete the purchase of a property. The lawyer is also important to advise you about the sale contract and other explanations.
Financing the home (Mortgages)
There are two types of mortgage interest rates: fixed (does not change for the length of your mortgage term) and variable (rises or falls with the market). The best way to check the fee is calling, going to the institution, or by visiting the company's website for the rates.
Not everyone will qualify for a low rate and in addition, many institutions advertise very low variable rates to get customers. There are websites that update their rates daily and can serve as a source of comparison.
New immigrants, legal immigrants and with a social security number in hand, usually face problems in obtaining financing. However, with increased immigration, new immigrants with good jobs and good credit in the market can have their mortgage approved provided they have 5% to 10% down and have been at least one year in Canada. It is worth checking the options in your case! Remember that the higher the input value, the greater your chances of being approved.
If you have not legalized your immigration status, check with a trusted lawyer before entering into a purchase agreement. Be wary if the deal is too easy. Look for more reviews than a professional.
With less than 25% down, no institution will give you loan if you are not approved for "mortgage insurance". Since the entry value is low, the insurance institution needs to guarantee that you will make your payments. The most commonly used are the CMHC (Canada Mortgage and Housing Corporation) and GE Mortgage Insurance.
Do not forget that 5% down is not enough. You still have to pay taxes, account adjustments, gas and electricity, fire insurance, land transfer tax and lawyers (the so-called closing costs). Make sure you have extra money for these costs, which depend on the value of the property and the province.
Even though some rare programs where banks have no required down payment (0% down, announced by some banks), they require that the approved have excellent credit, a history of employment established by several government documents, and the amount required to pay the extra costs. Such costs are not included in the purchase price of the property.
Another option when you start looking for a mortgage is to have a mortgage specialist (or specialist mortgage broker). The advantage of this is that this person has access to almost all banks and financial institutions, being able to compare rates between them, getting their approval at the chosen institution, coordinating the closing of the mortgage and give you the best market options. In addition, this person will check your credit history once and send the same report to all banks and companies of your choice, making sure your credit score does not change.
If your mortgage is approved, the specialist will not charge for the service, since the financial institution will pay a commission. However, they can ask for a small fee if your case is complicated, rejected by banks and institutions, or if you have credit problems, bankruptcy, personal, etc… The specialist facilitates the search for a mortgage!
The importance of personal credit
To obtain a loan with low interest rates it is essential to have good credit and a good job. In Canada a credit report contains information about your entire financial life: bank accounts, credit cards, loans, etc.. This report, generated from personal information (such as your social security number, name and address), has a scoring system, called "beacon score". It is used by financial institutions to measure their credit and decide whether the loan will be granted.
$ - To get a high score, you need to pay your bills without delay and take credit in the market. It is preferable that you pay the minimum balance of your card every month, for example, than miss a payment or do it later.
$ $ - Have a reasonable credit score of 610 on average, below that almost no financial institution will give you a loan. Your score is affected when financial institutions check their credit, when bills are paid late, etc… So do not neglect your payments!
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* Cynthia Brumer is a mortgage assistant.
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