First time buyers – how mortgage brokers can help

This article is originally from the Montréal Gazette.

For most Canadians, buying their first home means taking on the largest transaction of their lives, typically in the form of obtaining a mortgage. The world of home financing can be somewhat intimidating for first time buyers, as there are many options available and often no clear path forward. Many buyers are also surprised to learn about all the variables involved beyond the home’s purchase price. But with the right advice, buyers will be able to sift through various products and decide what’s best for their individual situation.

The first step in the process of obtaining a mortgage should be to seek some advice, ideally from a mortgage broker.

“One of the best ways for me to help first-time home buyers is to know as much about them as possible from the beginning,” said Christina Montesano, mortgage broker with Orbis Mortgage Group. “I listen to their mortgage wish list and then I begin working my magic. We crunch numbers, budget plan and look at realistic figures to ensure even if they are pre-approved on paper, the actual monthly payments fit their budget.”

While obtaining preapproval is critical, especially in this market, there are many factors that lenders don’t incorporate into their calculations.

“I always advise my clients to do a pre-approval prior to shopping for their first dream home because it allows them to shop for a home with their realtor with confidence,” Montesano said. “But pre approvals don’t consider things like the cost of groceries, gas, insurance, leisure money, and more, so while it’s important to be preapproved I also ensure that my clients understand their comprehensive budget as well.”

This way once buyers have found their dream home, they can be comfortable and confident making an offer, knowing that the property is within their budget.

Understanding the closing costs of a home purchase is also important as it can impact affordability.

“Closing costs such as taxes owing, notary fees and welcome tax can cause a few surprises budget-wise so it’s very helpful to go over everything with your mortgage broker beforehand to ensure you have a full understanding of the costs and can plan accordingly,” said Alex Apostolakis, a senior project manager withBNP Paribas who recently obtained financing for his first property. “Reading up on debt service ratios is valuable too. Your banker or mortgage broker will explain these ratios to you, but in my opinion it’s good to know about them in advance because you don’t want to find out that you need to pay off your visa or your car debt days before you try to get a mortgage pre approval; this is especially true with the fluidity of the real estate market and the small time frame to close a deal these days.”

Even after affordability has been determined and pre approval has been processed, first time buyers still face the decision of which type of mortgage to choose.

“Many don’t understand some of the differences between a variable or fixed mortgage or an open or closed term,” Montesano said. “Just because their friend got a great rate on their purchase at a different bank, this does not mean that same product is right for them; every buyer is totally unique.”

Rather, the best way to advise clients on which type of mortgage is best for them is by asking open ended questions, she added.

“Then depending on their risk tolerance and time horizon I can guide them on mortgage type and term,” Montesano said. “The goal is to identify a product that’s well suited to their individual needs and allows them to feel comfortable and secure.”

Because of their wealth of knowledge and duty to provide unbiased advice, working with a mortgage broker is arguably the best way to mitigate the stress involved in obtaining financing for your first home.

“My personal experience was very seamless because I used an independent mortgage broker and I would recommend everyone use one because they find you the best rate from all lenders, they help you gather the documents you need, and advise you on the best route to go in terms of product,” Apostolakis said. “Also, their commission is paid by the lender and not the borrower, so it really is a no-brainer.”

They’re also sensitive to the concerns first time buyers often have, and as such are in a good position to facilitate their experience.

“There is always a certain nervousness when someone is purchasing their first home, especially given that it’s most likely the biggest investment they’ll make in their lifetime,” Montesano said. “It truly calls for an experienced mortgage broker to help the client every step of the way, and ultimately make the experience stress free and exciting; at the end of the day buying your first home is a huge step and I’m always honoured to be involved in that aspect of my clients’ lives.”