Choosing a mortgage in Canada can be a daunting task, with a variety of options available and different terms and conditions to consider. Contrary to what some would be first time buyers might think, not all mortgages are created the same.
In this blog post, we will break down the process of choosing a mortgage in Canada, so you can make an informed decision and find the best mortgage for your needs so that you can start the exciting process of buying a Waterloo Region home.
Know More Than Just Your Credit Score
Your credit score is one of the most important factors that lenders will consider when determining your eligibility for a mortgage. It's important to check your credit score before applying for a mortgage, and to work on improving it if necessary.
You can check your credit score for free through Equifax or TransUnion, which are the two major credit bureaus in Canada, you do not have to pay for a special service in order to do so.
One of the most common questions that first time buyers have is just what their credit score 'should' be in order to secure a mortgage. The fact is that there is no magic number, and the requirements vary from lender to lender. Your credit score is not the only factor taken into consideration: your employment status, debt to income ratio and other factors come into play too.
A good credit score to get a mortgage in Canada can vary depending on the lender and the type of mortgage you are applying for. However, generally speaking, a credit score of 600 or higher is considered to be a good credit score and will usually qualify you for a mortgage.
It is important to note that a credit score is not the only factor that lenders will consider when determining your eligibility for a mortgage. Other factors such as income, employment history, and down payment will also be taken into account.
A credit score of 700 or higher is considered to be an excellent credit score, and will typically qualify you for the best mortgage rates and terms. Lenders often use credit scores as a way to assess the risk of lending to you, and a higher credit score is often seen as a lower risk.
It's also important to consider that lenders may have different requirements and some may have stricter or more lenient credit score requirements.
Determine How Much You Can Really Afford
Before you start shopping for a mortgage, it's important to determine how much you can afford to pay in monthly mortgage payments. This will help you to narrow down your options and focus on mortgages that are within your budget. A good basic rule of thumb is that your mortgage payments should not exceed 32% of your gross monthly income.
However, you'll need to review budget a little more than that though to gain a clear picture of what your finances might look like once you have become a Waterloo Region homeowner.
Owning a home comes with many costs beyond the mortgage payment. Here are some additional costs to consider:
Property taxes: Homeowners are responsible for paying property taxes, which are based on the value of the home and are typically paid annually or semi-annually.
Homeowners insurance: Mortgage lenders will typically require homeowners to have insurance to protect the home against damage or loss. Homeowners insurance typically covers damage from fire, storms, and other natural disasters.
Maintenance, repairs and utilities: Once you own a home rather than rent one, the costs of maintaining and repairing the home, which can include things like painting, roof repairs, and appliance replacements are on you. These costs can vary significantly depending on the age and condition of the home. Homeowners are also solely responsible for paying for utilities such as electricity, gas, water, and sewage. These costs can vary depending on usage and the size of the home.
Landscaping:If your new home comes with land attached, you'll be responsible for maintaining the lawn, gardens and other landscaping features, this can include costs for mowing the lawn, trimming bushes and trees, and watering the garden.
Homeowners association fee: In some cases, homeowners are required to pay a fee to a homeowners association (HOA) for common area maintenance and other services.
Closing costs: When buying a home, there are closing costs that need to be paid, such as legal fees, appraisal fees, and title insurance.
It's important to take into account all these additional costs when budgeting for a home purchase, and determining how large a mortgage you can afford. And don't forget, you'll still need to eat too!
Choose the Right Type of Mortgage For You
There are several different types of mortgages available in Canada, including fixed-rate mortgages, adjustable-rate mortgages, and interest-only mortgages. It's important to understand the pros and cons of each type of mortgage and to choose the one that is best suited to your needs and goals.
Once you have a good idea of the type of mortgage you're looking for, it's time to start shopping around. Compare mortgage rates and terms from different lenders, and don't be afraid to negotiate. Remember that a small difference in interest rates can make a big difference in the overall cost of your mortgage.
You can save yourself a lot of work by working with a mortgage broker. If you are not sure how or where to find a good one, a local real estate agent can help, as we work with them all the time and can make a recommendation we feel good about.
Before you sign on the dotted line, it's important to carefully read and understand all of the terms and conditions of your mortgage. Be sure to pay attention to the interest rate, the length of the term, and any penalties for early repayment.
Once you've found a mortgage that you're comfortable with, you should get pre-approved. A pre-approval is a conditional commitment from a lender to provide you with a mortgage, subject to certain conditions, and it's something that most homesellers want to see, as it is a good sign that you will be able to make good on any offer you might make on their home!
When you work with a real estate agent, we can offer a lot more than access to homes for you to view. As local real estate experts we understand the current state of the mortgage market - it is very changeable - and can provide would be Waterloo Region homebuyers with expert advice on how to fund their home purchase. In fact, you can get started right here.
