A Comprehensive Guide to the Homebuying Process: Demystifying Mortgages
Are you planning to buy a home but find the mortgage process confusing? Don't worry; the experts at Keith Uthe Demystifying Mortgages are here to help you demystify mortgages and guide you through the homebuying journey. In this comprehensive guide, we will walk you through the critical steps and questions you need to consider when purchasing a home. From understanding income requirements to selecting the right mortgage, we've got you covered.
What's the homebuying process?
Many home buyers believe they should start to look for the home that they want first, and this often leads to disappointment and frustration as their expectations often exceed their financing capacity for a home. Below we will look at critical steps and questions that a home buyer must consider.
1. What is the minimum income required to buy a home?
There are important details home buyers need to know and understand about their income and employer as they decide to enter into the home-buying process. It is now only about what your income is. We also need to consider what you have for other liabilities as well as, together, they determine your debt service ratios, and these ratios are crucial to determining how much mortgage you can qualify for. Debt servicing involves the gross debt service(GDS- mortgage, taxes, heat, condo fee) not exceeding 39% of the usable gross income and total debt service (TDS- GDS plus all other liability payments) not exceeding 44% for standard high ratio mortgages. If you are putting 20% down or more, there are some further options we can consider.
Do you have permanent employment, or are you on probation? Are you an employee or on contract? Are you paid hourly, salary, bonus, and/or commission? How fast can your employer provide a letter of employment, and do you need to provide them with authorization for the lender to complete employment verification?
2. Mortgage Pre-approval
This is the most critical step in the process that absolutely cannot be skipped unless you have enough liquid cash in the bank that you do not need a mortgage. Wouldn't we all wish that was the case? Since this is not the current reality, a mortgage pre-approval is critical. This will inform you of what your maximum mortgage amount should be based on your current income and debts, as well as provide a hold on the rate. Home buyers must know that a pre-approval is not worth the paper it is written on as far as providing any kind of guarantee to receive final approval of financing. No matter if the pre-approval comes from a mortgage broker or your bank, it has the same negligible value for approval. The lenders will not do a final review of your documents and complete confirmations for final credit approval until you have a live deal where they also consider the property you have under contract.
2. Selecting your Realtor
Once you have your pre-approval, you should then begin interviewing realtors to find who is the best fit for you and your family. Many home buyers decide to use a friend or family member, and there are, unfortunately, times when this can cause strain on that relationship if things are not going how you had hoped. Also, consider what types of real estate the realtor typically sells, what communities, and do they have a specialty such as condos, commercial, investment, or single-family homes.
3. House Hunting
This can be the most intensive and frustrating part of the process. However, some good homework can really help home buyers.
Setting out your needs and wants is important and your realtor should go through this with you. Your realistic needs are the most important to look for, as wants are endless.
Drive and walk around neighbourhoods that you are interested in that meet your purchase power. Check out the neighbourhood at rush hour, in the evening on the weekend. This will give you a feel for traffic, the people that live there, their behaviours, and community culture.
If there are schools in the community, find out what time they start and finish and drive by the to see what traffic is like and how it may impact you if you purchase a home on the same street.
4. Making an Offer
Your realtor will help guide you in making a competitive offer. What you need to understand is the purpose and need for a financing condition and home inspection. Both of these help protect you as a buyer from unknowns. The financing condition gives the lender time to review the property and your documents to approve your mortgage. The home inspections allow you to hire a professional to review all the major components of a home to check their current working condition and note any items of concern for deferred maintenance or requiring repairs. This could help you to negotiate a lower price for these items.
5. Appraisal
The lender may require an independent third-party appraisal on the property that you, the buyer, pay for. This will determine the current market value of the property, and the lender uses this as part of the final approval for your loan.
6. Solicitor
The final step in the process is signing the mortgage with your solicitor. Your solicitor will receive a set of mortgage instructions from the lender, and it will have a set of trust conditions that the solicitor must fulfill. You will need to provide items like a photo id, void cheque, and balance owing for a down payment and legal fees. You should obtain a quote from your lawyer ahead of time on what the cost will be for their services. Once the mortgage documents are signed by you, the lawyer has to sign them and send them back with the requested documentation to the lender for review. Once they say it is all okay, then they are ready to fund the mortgage through your lawyer.
Don't forget to get quotes on your property insurance and ask Keith Uthe Demystifying Mortgages, your mortgage broker, for recommendations. The other consideration is setting up your utility services. In my mortgage broker business, I have a utility specialist to whom I introduce clients like Keith Uthe to discuss their utility options.
How to choose a mortgage?
Choosing a mortgage can be a daunting task which is where a licensed and skilled mortgage broker comes in. They have access to multiple A lenders, Alt-A, B, and private lenders and understand the different lender policies, mortgage types, and terms. It is important to remember that rate is not everything. The lowest-rate mortgage may come with special conditions and limitations that could handcuff you in the future should you need or decide to sell or refinance. Terms such as prepayment privileges, payout penalties, portability, freedom to refinance, or having a bonafide-sale clause are all important to consider and understand.
If you find a home that you really like with only a few tweaks to cosmetic items, then a purchase plus improvements mortgage may be an excellent option for you, or you may prefer to work on those items over time. Discuss this possibility with Keith Uthe, your mortgage broker.
Mortgage rates fluctuate constantly, and lenders do often offer unpublished rate specials, so your internet search for rates will only take you so far. Most rate sites only publish the lowest available rates for triple AAA clients, and if your file has any variance to that, you likely will have a different rate. Again, mortgage brokers like Keith Uthe have access to multiple lenders and rates, so they can provide you with the options available to you.
With the proper preparation and a team of professionals at Keith Uthe Demystifying Mortgages around you, the financial process can be done with a limited amount of stress, and be sure to find the best financing opportunity for you.