Most people think that obtaining a mortgage is the last step in getting the keys to your new home. Despite what seems to be a peripheral awareness, the reality is that most of the time people forget that it should actually be the first.
It is very understandable as the concept of owning the perfect home is the driving factor, so naturally people want to begin the process by looking at homes. However, all of that effort may be a waste if you have not taken into account a few key factors, namely the steps required to getting approved - not to mention what you can ultimately afford.
Indeed, the process involved in obtaining a mortgage should be treated the same way as going back to school: like a completely life-altering decision and commitment -- because frankly it is. What are you expecting? Is this the right time? Can you afford this? How is this going to affect your lifestyle?
The first step in being mortgage ready is to understand your options by researching what is available within your current or future budget. This includes your down payment, your monthly payment, additional costs such as property taxes, hydro, water and even Internet, and other more general "life" costs: your commute to and from work, grocery money and spending money for the month.
All of this may seem a bit overwhelming, so don't be afraid to seek some help in the process. Many people assume that making an appointment with a mortgage broker is something you do when you are ready to purchase a home. However, getting in touch with a mortgage broker before you even start looking for a home can help you get a handle on what you will need to begin the process and lessen the stress of searching for a home.
Once you have a plan of action you can begin the necessary steps starting with saving money - which may seem blatantly obvious, but isn't. Saving up money to buy a home isn't just about a down payment and closing costs. It's about your daily, weekly, and monthly spending habits. You need to learn to monitor how much you spend so that you will be able to build up your savings and budget accordingly in order to afford the home you want.
The next step is to figure out what - and where - you can afford. According to CREAstats, the national average price for homes sold (in Canada) was $470,297 last month, up 17%, with prices in Greater Vancouver and Greater Toronto clearly pulling those figures higher. This is why it is crucial to have an up-front understanding and acceptance of where you can and want to live, based on your budget and what you are approved in advance for.
An additional factor is the federal government's new mortgage rules requiring buyers put down 10% on the portion of a home's price that is above $500,000 - a highly likely scenario for anyone looking in the GTA or Vancouver area.
That being said it is still very possible to find a home -- or at least establish a budget -- you can manage. Once you are confident that you have found that home and/or budget you can dive into the technical process of gathering all of the documents you will need to get a mortgage.
The documents you will need include -- but may not be limited to -- an earning and income statement for the last two years, Federal tax returns for the last two years, recent bank and pay statements, and proof of other income, including investment income.
Once the nuts and bolts are out of the way, you can finally enter the exciting world of house hunting. This is most home buyers' favorite task on the lengthy to-do list that follows the initial decision to purchase a house.
If you are a first-time home buyer, try to tread carefully on your way to finding your dream home. Many people get worked up and/or overexcited and forget about the real-life significance of a budget. Being "house-poor" is a lot more stressful than you may think, and recovery from foreclosure can take years.
To avoid such instances, it is really quite simple: stick to what you can afford. Always plan your budget based on what you can afford on a monthly basis. Affordability is key. With prices high and rates low it's easy to focus just on the bottom-line payment and not the total. Look at the whole expense picture; Houses don't come with maintenance plans or warranties. Getting in debt -- and in trouble -- is a lot easier than getting out.
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