Home buying is a multi-faceted venture. In addition to finding the right real estate professional to partner with, there are finances, lawyers and mortgages to consider, neighbourhood and school preferences to decide on. The list doesn’t end there. Throughout the home-buying journey, you’ll find yourself partnering with key professionals who are there to assist you in making vital decisions that will affect the success of your real estate transaction.
A mortgage broker is one of those key partners in the home-buying process. Recently we sat down with Scotia Bank Home Financing Advisor, Marten Van Dyk, to find answers to key questions and find out what home buyers need to know about purchasing a home.
Greg Schryer: What are the biggest financial mistakes people make when deciding to buy property?
Marten Van Dyk: I believe one of the biggest financial mistakes people make is co-signing for a relative or friend to help them obtain a home. Some people mistakenly believe that co-signing will not affect them, and that banks will simply forgive it as not “their” debt. In actuality, that decision definitely affects their (co-signer) debt ratios and credit if not paid on time.
Greg Schryer: What can one do to be better prepared when ready to buy?
Marten Van Dyk: The best way to prepare yourself to purchase a home is to get preapproved by your financial institute. Preapprovals serve many purposes. First, the credit is checked and we can determine if there is an issue with repayments, credit score or debt service ratios. That will determine what the client’s “maximum” purchase price or “maximum payment” price is. In most cases we can hold your mortgage rate for 90 to 120 days.
Greg Schryer: Are interest rates climbing and what does that mean for me?
Marten Van Dyk: Interest rates have recently increased for the first time in over 5 years, but the good news is that most economists believe that rates are now on a “hold” pattern for the time being. There are two reasons for this. First, the housing market has cooled to a point that the Bank of Canada is now satisfied and, second, the new “stress test” will be soon implemented on January 1st 2018. I would strongly recommend that homebuyers be preapproved by their financial institute to ‘hold’ current rates, which will protect them for 90-120 days if they are in the market to buy.
Greg Schryer: What are these new “stress tests” that we keep hearing about? How will that affect me?
Marten Van Dyk: The new “stress test” affects anyone putting 20% or more down as a down payment. On January 1st 2018, we will now add 200 basis points (BPS – 2%) or use the bench mark of 4.89% – whichever is higher – to qualify conventional mortgage customers. This will definitely affect you by reducing your “buying power” by as much as $100,000 (or more in some cases). If you are in the market to buy, then I would strongly recommend that you do so sooner than later. This is also a good reason to get preapproved early to see what your preapproval is at this moment and what it will be after the new “stress test”. Then we can compare the numbers.
Greg Schryer: When should we engage a mortgage broker in the buying process? Will the broker be with us throughout the home-buying journey?
Marten Van Dyk: Seeking the assistance of a mortgage professional should be the first step in the buying process for any potential buyer. We determine what your buying power is, the rate (which we can hold for 90-120 days) and we can identify any credit issues. The first step is the “preapproval”, in which we pull your credit, verify income and discuss rates/payments. We work with you for the entire during of the process.