by Todd Lewys
Verico One Link Mortgage & Financial’s Darryl Harris, an accredited mortgage professional, is succinct when it comes to summing up the lot of first-time home buyers.
“I know the thought of owning your first home is an exciting one,” said Harris, who also serves as chair for the Canadian Association of Accredited Mortgage Professionals. “But first-time buyers have to realize there’s more to buying a home than just making a down payment.”
Crosstown Civic Credit Union’s Lewis Penner (Henderson Highway branch) concurs.
“The first question we most often get is, ‘What’s the maximum mortgage I/we can get,’” said Penner. “The answer to that question isn’t a simple one.”
Indeed, there is more — much more — for first-time home buyers to consider than just a down payment. That’s where mortgage professionals come in, said Harris.
“Our job is to educate people,” he said. “A big part of that education is notify them of all the costs associated with buying a home. Not only is there a down payment, but there are closing costs — legal fees, property taxes, land transfer taxes (which are a significant cost — on a $250,000 home, its $2,720) and surveys that are expenses over and above the down payment.
“You have to set out a plan,” Harris added. “That means getting educated so you know all the costs that come with buying a home. We’re here to educate first-time buyers so they have enough money for the down payment, closing costs and miscellaneous expenses.”
Penner said part of that education involves making first-time buyers aware of all the financial responsibilities that come with buying a home. Beyond that, it’s critical that first-time buyers are cognizant of how other financial responsibilities will also impact their ability to make that monthly mortgage payment.
“Not only do you have your mortgage to pay, but you also have to pay for property taxes, utilities and home maintenance,” he said. “In many cases, people have to make payments for car loans, student loans and credit card balances. Things like day care, which can be a big expense, and vacations also enter into figuring out how much you can afford to pay on a mortgage.”
In some instances — roughly five to 10 per cent of the time — it’s necessary to advise couples that they aren’t financially ready to buy their first home.
“That situation is usually credit-related,” said Harris. “When that happens, it might take a plan that lasts one to three years to bring people to a point where they are ready to buy. Usually, the warning signs are there. If we see that people are barely scraping up a down payment and have debt issues, we have to advise them to wait. We don’t want to put someone into a home just for the sake of it.”
That’s where couples need to be honest with themselves, advises Penner.
“I tell people to ask themselves this question: ‘How much can we spend monthly on a mortgage, and still maintain our lifestyle?’
“For example, if they’re homebodies and don’t have a lot of peripheral expenses, a mortgage might not be a big issue. However, if a couple likes to go on a couple of all-inclusive vacations per year, even a modest mortgage might stretch them too much financially. With that in mind, we have to talk about every factor.”
He added there’s another issue to consider: a potential increase in mortgage rates.
“Right now mortgage rates are outstanding,” said Penner. “We’re offering five-year fixed mortgages for 2.94 per cent. While that’s great, that interest rate won’t last forever. If it goes up to four per cent, that’s a 33 per cent increase. If rates go even higher and a couple is touch and go with their finances, they might not be able to afford the home when it comes time to get a new mortgage.”
Harris said the key to getting a manageable mortgage is a deceptively simple one.
“Get as much professional advice as you can,” he said. “Find a mortgage professional who will give you honest advice; no pre-approvals are the same, so make sure you’ve been qualified properly. Beyond that, when looking at homes, take someone with you who knows what to look for. If you’re properly educated on the ins and outs of buying a home and understand the process, hopefully, there won’t be any surprises during the process, or after.”