I was thinking over night about my last post and thought that I should expand some more on the pre-approval of mortgages.
First off, I wanted to mention that just because you are pre-approved, doesn’t mean you have the mortgage yet. So keep that in mind – most of the work is complete, but again you will have to go in at a later date to sign all of the official paperwork.
The second thing I wanted to mention is, if you are pre-approved for a mortgage, say for $500,000 – if you are not comfortable spending that much on a home, don’t feel obligated to buy a home at that price. The bank is giving you a number that they feel you can afford on your salary, but you know your spending habits better than anyone else. If you only feel comfortable buying a home for $350,000, than I suggest staying within that value.
The third thought I wanted to share is, you are able to get a mortgage with a minimum downpayment of 5% which is helpful for those of us in the GTA who would have a hard time saving up a 20% downpayment on a $500,000 home. Keep in mind, any downpayment under the 20% requires mortgage insurance so this will be added on to your total mortgage owed.
Lastly, don’t forget about closing costs. I think that most first time home buyers are not aware of closing costs, or don’t really understand them. Unless you have budgeted for closing costs, I suggest that you don’t put all your savings into the downpayment if that leaves you with nothing to pay the closing costs. Expect to spend around $4-6,000 in closing costs on top of your downpayment. This $6,000 does not get added to your mortgage, you will have to pay this out of pocket a few days before you take possession of your new home. Keep in mind the more expensive your home is, the more expensive the closing costs are – as certain items, such as the land transfer tax, are a percentage of the sale value. I am going to write another post in the near future that will go over the closing costs in more detail as there is a lot more information to know.
All of these should be kept in mind when you head out to look at the houses that you are interested in. If you are like us and looking in a very competitive price range, be prepared to look at a house and decide that same day that you want to put an offer in. Whether you’ve seen 2, 10 or 20 homes, when you find the right one, prepare to act quickly. We chose to buy our house in the GTA so the need to act fast is a characteristic of the market here, but may not apply to other locations.
To continue learning, follow this!