Feb 12, 2019

Mortgage Tips for First Time Home Buyers!

Getting your first mortgage can be an intimidating process! We caught up with Chad Wilson, Mortgage Broker and owner of Ideal Mortgage Solutions to get his tips for hopeful buyers who may be apprehensive about starting their home buying journey.  Check out Chad’s tips to get you one step closer to being a home owner.

First, an introduction! Chad Wilson is a 16 year veteran Mortgage Broker and holds an AMP (Accredited Mortage Professional) designation. He is also the principle broker of Ideal Mortgage Solutions, a boutique high service level brokerage, located at 739 Waterloo St. in Winnipeg and also offers a location in Portage La Prairie. 

Q: What is the first step a first time home buyer should take before they start looking for a home or condo?

Chad: Contact a mortgage professional.  Tell them about your goals and answer a few basic questions.  A good professional will assess your current readiness to obtain a mortgage and give you advice on the next steps.  It’s never too early to contact a mortgage professional.  Many times, I have met first time home buyers a year in advance, provided them with a road map to prepare for a purchase, and if they take that advice, they are rewarded.  This is often related to saving for a down-payment. 

Q: Can someone with bad credit and/or a low down payment still get approved for a mortgage?

Chad: Under the current federal guidelines, you are required to have a minimum of 5% of your purchase price for a down-payment.  This has changed over the years and may change again at some point.  Check in with your mortgage professional from time to time to get the up-to-date guidelines and properly prepare.

Depending on the severity of damaged credit, it is still possible to obtain a mortgage, however the down-payment requirement may be as high as 20% down.  If you think your credit is damaged, visit Equifax.ca to obtain a copy of your own credit report and see where it stands.  It may not be as bad as you think – and a mortgage professional may be able to guide you on how to repair it to obtain better financing terms. 

Q: How much should first time home buyers save if they are looking to buy a condominium of approx. $200,000?

Chad: Currently, 5% of the $200,000 ($10,000) + plan for closing costs estimated at 2% of the purchase price ($4,000).  Total for this example would be $14,000. 

Down-payments can be from RRSP’s if you are a first-time home buyer, your own savings, or a gift from immediate family. 

Q: What are some of the different mortgage types and how does someone know which one is best for them?

Chad: The mortgage landscape of products has become complicated in recent years with government changes.  Some of the basic mortgage types are as follows:

CMHC insured mortgages:  These are federally insured mortgages that allow a home buyer to purchase a home with less than 20% down payment.  Amortization maximum 25 years, and optional terms are 1-10 years.  There are both fixed and variable rate options.  A good mortgage pro will run you through all of the options and make some suggestions that fit your needs. 

Conventional mortgages:  These are mortgages where a home buyer has 20% down payment.  Because federal insurance is not required on these types of mortgages, amortization options extend to 30 years to keep your payments even lower.  1-10 year both fixed and variable terms are available. 

Q: What is the difference between going through a mortgage broker vs a financial institution?

Chad: It’s simple, mortgage brokers specialize in mortgages and that’s all they do, and as I mentioned earlier, the mortgage product landscape has become complicated.   Brokers spend their days understanding rate options, where and how to best negotiate, and have a wide variety of lending sources for their clients.  Direct retail banks or Credit Unions are expected to know a lot (bank accounts, GIC’s, RRSP’s, Personal lending, mortgages, TFSA’s to name a few). This is no slight on the banks or credit unions but there is simply no way they can be experts in all of those things.   Your mortgage is the biggest investment that you’ll ever make – I recommend considering a dedicated mortgage broker.

Q:  What are some things first time home buyers need to have ready before they come in for a pre-approval?

Chad: Have a good understanding of what your annual gross (before deductions) income is.  If you have an annual salary guarantee, know what it is.  If you are an hourly employee, know the number of guarantee hours/week you work, or have your past 2 yrs T4’s available for analysis.

A snapshot of your savings to determine where you’re at with savings for a down-payment.  If you are receiving a gift from family, discuss with them how much you’ll be receiving. 

Q: What are some financial tips you can give to someone looking to buy a condo?

Chad: Deal with a reputable condo developer, or if you are buying an existing condominium, ask if you can obtain a copy of the most recent year-end financial statement for the condo corporation, and the current year’s budget.  Present these to your mortgage professional to assess the financial health of the condo corporation as a whole.  Use a knowledgeable realtor that understands condominiums as well. 

Q: Can you explain mortgage insurance?

Chad: There are 3 mortgage default insurers in Canada.  CMHC, Genworth, & Canada Guarantee.  If you have less than 20% down payment, you will have some insurance costs capitalized onto the mortgage up front.   This is federally regulated insurance that allows home ownership with as little as 5% down payment.  The premiums that are paid for this insurance is collected and goes to protect the Canadian financial system as a whole.  In the event that an insured mortgage goes into default, and eventually foreclosure, the insurers will protect the lending institutions from severe loss, ultimately providing protection for the financial system as a whole.  These 3 insurers are a big reason Canada did not fall victim to the housing crisis experienced in the US in 2008. 

Q: What are closing costs, and how much money should be set aside for a condo valued at approx. $200,000?

Chad: Closing costs are generally estimated to be 2% of the purchase price.  $4,000 based on a $200,000 example.  These closing costs should be set aside in addition to your down-payment, however as long as you can qualify to borrow the closing costs, you could carry the closing costs on a line of credit or unsecured loan.  Keep in mind you will have a payment on this debt in addition to the mortgage after possession.    Some lenders do also have a “cash-back” product that can be used for closing costs (not down-payment), however they increase your mortgage rate to substantiate the cash-back. 

Q: In your opinion, why should someone buy instead of rent?

Chad: For many years, real-estate has not only proven to be the best investment you can make, but it provides you with shelter.  It also provides you with pride of ownership.  For many people that are on a tight budget, owning a home is almost a “forced savings” as you are building equity.   Renting, you are simply paying off someone else’s property. 

We'd like to thank Chad Wilson at Ideal Mortgage Solutions for sharing his knowledge on mortgages for first time home buyers. If you have questions related to mortgages, you can get in touch with Chad and his team at Ideal Mortgage Solutions here 

Happy Home Hunting!