For first-time homebuyers, mortgages may seem overly complicated, or they may unknowingly fundamentally misunderstand how mortgages work.
One of your REALTORS® many roles is making sure homebuyers are getting the right home, and part of that means ensuring they’re getting a home they can afford.
Because mortgages can impact a homebuyer’s monthly payments for upward of 30 years, it’s imperative that they understand how this could affect their decision.
Your REALTOR® can help you thoroughly understand the mortgage process which will also make the transaction run smoother. If you understand that a prequalification isn’t a guarantee of financing, you’ll run into fewer issues with the loan falling through at the last second.
What you can do
What steps can you take to ensure you understand mortgages fully and accurately?
• Use the right resources: First, your REALTOR® can direct you to the right resources. They have access to information that can be invaluable in making prospective buyers feel comfortable and confident in the homebuying process. Experienced REALTORS® are part of a real estate network that includes lenders who can give you a thorough rundown of the process.
• Ask questions: It’s the REALTORS®’ job to make you feel comfortable asking questions, and answering those questions to the best of their ability. If they don’t know the answer offhand, they can look it up, or direct you to a resource where you can get an answer.
• Answer questions: With many websites about mortgages just a click away, some first-time home buyers may overestimate their own knowledge of how mortgages work; in other words, they think they understand, but they don’t. A REALTOR® will initially ask a few questions of their own to gauge how informed you already are (or aren’t).
Points of confusion
It’s also helpful to understand some of the most common ways new homebuyers misunderstand mortgages and the mortgage process:
• The full monthly costs of the home: To a new homebuyer, it may seem like the monthly cost of the mortgage is the outright cost of owning a home, but your REALTOR® also knows about those little surprise costs that new homeowners might not realize exist. They will help you understand that the total monthly cost of ownership will include things like insurance, property taxes and ongoing maintenance and repairs. That way, first-time buyers can better estimate how much they can spend.
• How prequalification works: To the unacquainted, “prequalification” sounds synonymous with qualification. If you secure prequalification for a mortgage, some people may falsely believe that they’re good to go. If you then open a new account, quit your job or change your financial status in some other way, the deal may fall through at the last moment, creating headaches for both sides.
• Down payment influences: Many new homebuyers don’t fully understand how down payments work — and what they can affect. They may not understand that a larger down payment can minimize their interest rates or spare them from paying
mortgage loan insurance. On the other end of the spectrum, they may believe that a bigger down payment is always the better choice and might put all their savings into a down payment, rather than
holding some back for expenses, fees and initial
repairs and improvements.
•Rates and fees: Some homeowners can be notoriously bad at understanding how rates and fees work. They may not know what fees they’re responsible for and may not understand how fixed rate versus variable rate mortgages work. They may also be unaware that they can negotiate with their lender of choice to reduce those rates and fees to secure a better deal. A REALTOR® will take the time to explain these rates and fees to you to ensure you understand your mortgage.
• Terms and conditions: Finally, a REALTOR® will help you understand how the terms and conditions of your mortgage are going to work. Do you understand the difference between a 15-year mortgage and 30-year mortgage, beyond its duration? Do you understand the potential savings of bi-weekly payments, rather than monthly payments?
Armed with knowledge and these strategies, your REALTOR® can proactively clear up common points of confusion or misunderstanding, long before you get trapped in a mortgage you can’t afford or don’t understand.
It will help ensure the homebuying process goes smoothly and guarantee a more comfortable payment process for you in the future.
The WinnipegREALTORS® website (www.winnipegrealtors.ca) has links to financial institutions as well as a mortgage calculator to assist buyers.
— Inman News