Although there is no sign of spring in sight, the real estate market is picking up as if it was just around the corner. If you’re thinking of buying a house or a condo, getting pre-approval for a mortgage is the very first step in the process to avoid disappointment and surprises. After all, how can you know what to look for if you don’t know what you can afford. Pre-approval should be in writing and will usually guarantee the interest rate for 90 to 120 days, so if rates suddenly increase, you’re protected. Finding the right lender (bank or mortgage broker) is crucial, and although you might be wrapped up in the excitement of looking at properties, it’s important to meet with your mortgage advisor first and ask all the right questions. A mortgage is a huge commitment, so before you sign on the dotted line, ask these important questions:
Is that your best rate? Banks have their official “posted interest rates” but there’s almost always a better rate out there. Banks want your business so often asking the question might get you a better rate, or you might have to shop around to negotiate a better rate.
Can you guarantee this rate in writing? If you’re in the early stages of your search for a home, you’ll want to be pre-approved for a mortgage. As I mentioned, formal pre-approvals are generally valid for 90 days, so get it in writing in case interest rates go up. Also, if you’re shopping around for a better rate, a written rate guarantee from one lender might help you negotiate with another.
What is my best option – fixed rate mortgage or variable rate mortgage? Everyone has an opinion on the fixed vs variable debate, and while your mortgage advisor can’t predict the future, they do have a lot more experience than you and can explain the advantages as well as disadvantages of either option.
I’m using my RRSP’s for the downpayment – how can I provide a deposit? Within 24 hours of your offer to purchase being accepted, you will need to provide a deposit to the listing brokerage. If your money isn’t readily accessible, your bank may be able to grant you a temporary line of credit, but you will need to assure that this is possible BEFORE you submit an offer, so when the right property comes along you have all your ducks in a row.
Are there any additional fees I should know about? There are almost always hidden fees, so make sure you understand what your bank or broker will be charging you for and what they will be paying for, and remember that you can always negotiate.
Will there be an appraisal and if so, who pays for it? Lenders want to make sure that they are lending you what the property is worth, not more. In today’s market where bidding wars are common, the “sold” price maybe more than the actual value of the property, so lenders will send in a formal appraiser to determine the value of the house or condo you bought before giving you the money. It’s important to have the conversation about appraisals and ask who’s picking up the tab.
Can I get a line of credit with my mortgage? You may be able to get a line of credit at the same time as your mortgage depending on your down payment, credit history and your qualifications. If you’re buying a house and thinking of renovating right away, a line of credit can help with those costs or provide a cushion in the event of emergency. You may be able to qualify for a better LOC interest rate so it’s worth asking about.
Can I pre-pay my mortgage? In the first few years of your mortgage you’re only paying down the interest rate, so making extra payments on your mortgage is a great way to save interest costs not to mention shorten the amount of time you have a mortgage. Having the flexibility to pre-pay can be a big advantage. Pre-payment options vary from the ability to double your payments every month to making an annual lump sum pre-payment to no pre-payment options. Make sure you know what you’re getting into before you agree to a long time commitment.
What if I sell my house before the end of my mortgage? Mortgages are generally for a set period of time and amortized over a set number of years (generally 20 or 25). So what if you decide to sell your home in year 3 and move to a bigger house? Can you take your existing mortgage with you? What if you decide to sell your condo and rent for a while? Better to know the facts because you might face penalties.
What if my condo doesn’t sell before I get possession of my new house? If you already own a home and are looking to buy another, it’s important to fully understand what happens in this scenario. Do you need an agreement of purchase in place on your current home in order to get the new mortgage? Do you qualify for bridge financing, and how much will that be? What is the worst case scenario? It’s never ease to determine whether it’s best to buy or sell first. It depends on the market – location, time of year, type of property. You do have options so arm yourself with the right information before you dive in.
Are there questions you have about mortgages that aren’t on this list? I’d love to know so feel free to chime in.