Five years ago, the mortgage industry began to radically change in ways many today aren’t even aware of. These changes need to be brought to the attention of homebuyers as new rules and regulations are making it more difficult to complete mortgage financing. The CMHC (Canada Mortgage and Housing Corporation) has established new rules that are affecting gifted payments, stated income for the self-employed, purchasing a second home, and the documentation requirements.

Many first-time home buyers receive cash gifts to put towards a home from family members or friends. In the past, a simple letter proving the gifted deposit to your account was all that was needed to apply the cash gift against your new home. After the CMHC’s new rules were instigated, homebuyers now need to prove cash gifts via a 90-day bank account history and in some cases a verification from the third-party donor is requested. This change in documentation requirements has also affected self-employed individuals. As of May 30, 2014, CMHC the 10% down-payment option for self-employed persons will be removed. This change affects second home purchases as well. Before this announcement, second homes could be purchased with a 5% down-payment, but due to high risk this allowance has been removed. This also means that if you already purchased a home with a 5% down-payment with CMHC and intend to rent it and move into another home, the 5% down-payment will not be available. If you would like to hold more than one insured property you can still use the stated income program through Canadian Guaranty and Genworth Financial.

In order to prepare yourself for a mortgage, preparing a few key items will ensure your success. First, save for your own down-payment and aim for at least 50% if you plan on receiving a cash gift. These funds should be stored in only a couple accounts so that money isn’t being transferred to and from different places frequently. You should also make sure your credit rating for the past 2 years is in good standing with no late payments. The goal with finances is to prove your stability to the lender. This stability is also reflected through employment. Before applying for a mortgage, a minimum of 3 months at you job is required. In order to guarantee your approval, longer than 3 months is preferred, as well as being in your industry for more than 2 years.

Though these changes have been made and more are to come, it’s not all bad news. The purpose of all this change is to minimize lost funds for lenders from pre-approved candidates choosing a different lending organization. This helps mortgage institutions ensure awareness in their mortgagees, and in turn benefits homebuyers. Too many consumers in the current market react impulsively, resulting in ill prepared commitments being made prematurely. By instigating the new regulations, less exceptions can be made in an attempt to increase vigilance. The key is to go into the mortgage process having done your research and have the necessary documentation prepared. As long as you do your due diligence, the process will not be difficult and you will end up with a mortgage that is appropriate for you.

In an evenly divided call by market analysts, the Bank of Canada maintained its target for the overnight rate at 1/2 percent. The Bank said that inflation prospects are largely as expected and that “the dynamics of the global economy are broadly as anticipated in the Bank’s October Monetary Policy Report (MPR).”

Really?  Oil prices have plummeted to unexpected lows. Stock markets are declining sharply and the Canadian dollar has fallen more than expected and certainly, the output gap will remain wider for longer than suggested in the October MPR.

The Bank called the setback for the Canadian economy from the further decline is oil prices temporary. The Bank now expects the economy’s return to above-potential growth to be delayed until the second quarter of 2016. The Bank projects Canada’s economy will grow by about 1-1/2 percent in 2016 and 2-1/2 per cent in 2017, with the output gap closing around the end of 2017. This is the Bank’s forecast without including the positive impact of fiscal measures expected in the next federal budget. 

Really? I feel like the economic forecasters at the Bank of Canada are living in an parallel universe–where things are a lot rosier than here on planet earth. 

Don’t get me wrong, there are a lot of good reasons for the Bank of Canada to have refrained from cutting rates.  The Canadian dollar has already fallen sharply and a rate cut could have imprudently triggered a currency rout. With so much concern about household debt, another rate cut would run the risk of encouraging excessive borrowing. As well, with interest rates already so low, another cut is likely to have very little macroeconomic benefit and the Bank should keep some powder dry in case things deteriorate further in coming months. Moreover, the feds are going to goose the economy with infrastructure spending, so taking a wait-and-see attitude makes sense. 

But to suggest that the current weakness is due to temporary factors and a rebound is in train without the fiscal stimulus lacks credibility and appears sanguine at best and irresponsible at worst. Oil prices are not falling due to temporary factors. The world is adjusting to an alternate reality where oil supply is well in excess of sustainable demand and more supply is coming on stream from Iran. Canadian oil is among the most expensive in the world to produce and prices received by Canadian oil producers (Western Canada Select (WCS) in the chart below) are well below prices elsewhere. This inevitably continues the painful restructuring in the oil patch. These are not temporary factors.

Norway–another oil giant with expensive production–recognizes its need to accelerate its economic transformation. In its October 2015 budget, the Norwegian government declared that “the economic outlook is different than we have been accustomed to over the past 10-15 years…Oil is no longer the growth engine of the economy.”  Faced with the need to restructure, the government is keen to shift Norway from its dependence on oil towards other industries. Norges Bank, the central bank of Norway, has given forward guidance that interest rates may be cut further in 2016 from record lows despite worries of a house price bubble in Oslo and elsewhere due to increasingly low rates. Norges Bank has warned that house price inflation was higher than expected and that household debt–already at record highs–would continue to outpace income growth.

The Bank of Canada has been behind the curve ever since the decline in oil prices began in 2014, revising down its forecast for the Canadian economy in each quarterly Monetary Policy Report. How long can unanticipated temporary factors be blamed?                                            

Article Source: Dr. Sherry Cooper Chief Economist, Dominion Lending Centres 

A lot can change in a year when it comes to mortgages. These changes can provide great opportunities for mortgagees to refinance their mortgage at the time of renewal in order to save money. Unfortunately, most people are under the impression that once they sign on the dotted line they are locked into their mortgage agreement for the specified term. One study found that a staggering 70% of people simply renew their mortgage every year without even looking into other options! Refinancing can give you the leverage to make your mortgage more affordable. Here are 5 tips to help you prepare for your first mortgage renewal and save thousands of dollars!

1. Plan in Advance

Mortgage renewals are mailed out months before the renewal date. This gives you plenty of time to shop around for the best rate. Many mortgage professionals recommend a 4-6 month window to negotiate because that’s how long a lender may guarantee a discounted rate. By planning ahead you could find yourself a rate significantly lower with another lender or have a nicely discounted rate to fall back on.

2. Do Your Research

Mortgage research isn’t a one-time process you perform when buying you first home, it’s a topic you should revisit each year. The reason for ongoing research relates to the changes that occur in the marketplace. It is important to keep up-to-date with mortgage trends so you don’t get swindled into a higher rate than you deserve. The key thing to avoid when shopping for a new rate is signing with a bank’s posted rate. These rates are usually the highest the bank charges and all that extra interest will accumulate quickly, adding thousands to your mortgage total. Take the time and know what trends are doing so you can recognize a good rate when it comes along.

3. Don’t Avoid the Switch

Some mortgagees are scared to switch lenders because of hidden fees and the paperwork that may be involved with the process. If you do your research and start early enough there is no reason to avoid switching your mortgage lender. When you make a switch at renewal time there is usually no monetary penalty. Switching allows you to take advantage of lower rates and save you money, so take the plunge if you find a better deal with a different lender!

4. Negotiate on Everything

Most people only negotiate the interest rate when they’re applying for or renewing a mortgage, but all variables are open to discussion! Make sure you know the importance of the amortization period, fixed versus variable rates, and payment schedule flexibility so your negotiation power is up to its full potential. All these variables can help reduce your payments, interest rate, and overall payment period.

5. Work with a Professional

Some mortgagees find all this information rather overwhelming and some simply don’t have the time to do the necessary research. If you find yourself fitting into one of these two categories then consider hiring a mortgage professional. These brokers work for you and will handle all the shopping and negotiations required to make your mortgage more manageable.

Whether you decide to work with a professional or not make sure to do some research for yourself. It’s always a good idea to have the basic knowledge fully understood before jumping into one of the biggest purchases of your life. If you are ever unsure of any specifics, call your mortgage broker or professional to clarify. We are always happy to help guide you through the process!

So you have found a great house. The neighborhood is wonderful. Mature trees, lower property taxes, schools within walking distance and easy access to a variety of amenities. But the house, how do we put it, is retro at best. You wonder how you will tolerate the bright pink carpets and the vast array of energy inefficient items has you wondering if you will be able to pay the astronomical heating bills.

What now? Should you look for something newer? No way my friend, there is a mortgage product made just for this situation and this week we are going to take a look.

Purchase Plus Improvements is the name of this product and this is how it works. You head out with your Realtor to choose the best house for your needs. You write up an offer and bargain your way to the best price. In the meantime, you contact a qualified contractor or other service providers, to get quotes for the work you would like to do. These quotes are provided to the lender as a part of the financing process. The lender reviews and provides the thumbs up.

But you before to rush out to do just this you really need to know a few things.

• 1.  The day of possession the funds are transferred for the purchase of the home so you are able to move in and start the renovations. The balance of the funds are held in trust with the lawyer and will not be released until the work is 100% complete. An appraiser will be sent to your home to verify the work is done. You may want to arrange access to a line of credit so you will be able pay for any deposits or other costs in the interim as you will only get the funds upon completion.
• 2.  There is a maximum amount you are allowed. Most lenders will allow you $40,000 or 10% of the home’s value as your renovation budget.
• 3.  You will have to have at least 5% of the improved value to put down. For example, if your new home costs $300,000 and you are going to do $30,000 of improvements, you will need to have $16,500 down instead of $15,000.
• 4.  Not all improvements you propose will be acceptable to the lender. The travertine tile imported from Italy may be gorgeous but it does not necessarily add a dollar for dollar value. Lenders like new kitchens, flooring, bathrooms, siding, windows, furnaces, garages, roofing or other substantial upgrades. They will sometimes allow appliances or landscaping but this is a case by case decision
• 5.  You must do the upgrades you said you would do to get the funds. It has happened that once a homeowner took possession of their home they opted to make different improvements, however the lender is not likely to release the funds for work they did not agree to in the first place.
• 6.  There is a time restriction. Most lenders allow only 90 days for the work to be completed. If some of the work is seasonal you should make sure your lender will allow a relaxation on the restriction.

This product can also be great for people purchasing a brand new home. This is a easy way to get the funds you need to finish the basement or the fencing.

There is also a similar program for homeowners looking to upgrade their existing home. In this case, the value of the home is determined via an appraisal as is and as is complete system. The current mortgage is paid out and the balance of the funds is held in trust with the lawyer until the work is complete. The same restrictions as the Purchase plus Improvements apply.

The really nice part of this program is that you are able to borrow the funds to complete your renovations at today’s very low rates and your mortgage payment will be only slightly higher.

So there you have it. A simple way to get the funds you need to turn your house into your dream home. Your mortgage professional can answer the questions you may have about this program.

  Join Dominion Lending Centres- Val Thibault and Big Brothers Big Sisters of Lloydminster in making Christmas a little brighter for some of the kids in our community with the largest bike donation in Canada!

 Go online to order a bike by November 24, 2015 www.bikesforkids.com

 If you order bike(s) or donate online please type VAL THIBAULT or LLOYDMINSTER in the notes section to ensure the bikes/donation stay local to our Lloydminster children.

 OR if you’d rather, you can purchase a bike or donate financially towards the purchase of a bike and we can do the shopping for you!

 Call or text Val @ 780.214.3800 for bike or donation pick up.

 Deadline for pick up /drop off is anytime between now and December 16, 2015. Please remember online bike orders must be in by November 24, 2015 to be delivered to our local suppliers in time for Christmas.

 See Dominion Lending Centres – Val Thibault and Big Brothers Big Sisters at the Bobcats games on November 27, 2015 and December 2nd, 2015 and bring your bike or donation to the game.

 Powered by Dominion Lending Centres- Val Thibault, in partnership with Big Brothers Big Sisters of Lloydminster.

            So here in the province of Alberta there are some amazing opportunities for very lucrative positions. You find yourself a great opportunity and know that you are bringing in some very good income so you decide to purchase a home. But then something horrible happens. Your mortgage professional takes a look at your income documents and regretfully informs you that you do not in fact qualify for a mortgage and your dreams of home ownership are blown to smithereens. Before all of this happens, let’s take a look at different types of income structures and exactly what the mortgage lenders will consider acceptable.

Salary

This is by far the most loved form of income for all of the lenders. Your letter of employment will state exactly how much you will make in no uncertain terms.

Hourly

In a close second is a nicely worded letter of employment for the hourly employee. The employers generally clearly lay out how many hours you are guaranteed per day and the rate of pay

The lenders will require a letter of employment, a recent pay stub and likely your last 2 years of Notice of Assessments from the Canada Revenue Agency or your T4’s.

And now we get into the grey area of income types.

Part Time Employment

This can apply to you whether you are a health care professional or a fast food cook. If you are not guaranteed a minimum numbers of hours on your letter of employment we will have to wait until you have a 2 year history in your position before we can proceed.

Shift Rate Differential/Bonuses/Overtime

This one is the one that most often snags the oilfield workers here in Alberta. Lenders love the 2 year history. It allows them to determine that the extra income you have received from bonuses or overtime are consistent and are likely to continue. Without the 2 year history we are forced to rely on your base salary or hourly income and often this is significantly lower then what you are actually earning.

Vehicle Allowance

Many of our clients earn a vehicle allowance. This can be in the form of per km or a flat day rate or sometimes both. But you should know that unless that amount is taxed you cannot use it as part of your income.

Child Support or Alimony

These can hurt you or help you. If you are paying these out then we have to add them in a monthly liability. If you are receiving them we are able to use them as part of your income but this amount cannot make up more than 30% of your income. You will be required to provide proof of these amounts through a banking history as well as your separation/divorce agreement.

Self-Employment

Recent changes by the government have affected this type of borrower the most. Again, you will be required to have the 2 year history and we will need more paperwork then you can imagine. The guidelines for self-employed borrowers are tricky and extensive so having a qualified mortgage professional can help immensely.

Commissioned Employees

A 2 year history is the only way you will be able to proceed as a 100% commissioned employee unless you have at least 15% to put down on your home.

            So there you have it my friends. The different types of employment pay structures and just how they may affect you personally. Your best plan is to have your documents reviewed well in advance of placing an offer so that you can mitigate any of the above and avoid the heartache and stress of not being able to purchase that dream home.

           We mortgage professionals recently learned something very interesting. A survey of mortgage consumers revealed that people would rather get a root canal than a mortgage. Gasp!! I can understand that the process can be overwhelming but considering that your home is likely the largest purchase you will ever make and will cost you hundreds of thousands of dollars perhaps we should reconsider this attitude? Look at it this way, you shop around for the best price on a new TV which is likely under $1000. You look at flyers and websites and visit stores to see which one has the best picture and features so why not give you mortgage the same time. Instead of saving hundreds of dollars you could save tens of thousands.

           So if you have decided to stay with your current bank for your mortgage so that you have everything at one spot you should consider a few things before you sign.

• 1.  Interest Rate. I know this will shock you but banks are a business. They have investors and shareholders whom they are required to report to and these people like to see a profit at the end of each year. Profit is not a dirty word and considering that the strength of Canadian banks are the envy of the world this is a good thing. One of the ways they make money is through the interest they charge on the loans they make. Despite your relationship with the bank you may not automatically be offered the best rate. Do your research and make sure you are getting the best rate possible.
• 2.  Portabilty – This is a feature which will allow you to take your mortgage with you to a new property in case you end up moving. Asking some questions can save you money and headaches later. Does your lender role this into one new loan or will you end up with 2 parts to the new loan? The latter could mean different maturity dates meaning you are locked into that lender indefinitely unless you are willing to incur a penalty down the road.
• 3.  Collateral Mortgages – It is a common practise for banks to register a higher amount on the title of your property than what you actually owe. The benefit of this is that you can borrow additional funds without needing a lawyer down the road. The downside is that the bank is now able to tie all the borrowing you do with them into this charge. That’s right, your vehicle, trailer and credit cards are now potentially tied to the equity of your home. This could be a real problem when you sell the house thinking you have $100,000 to put down on the next and then find out instead that all of the other debts will be paid first and you now have no down payment. Keeping your mortgage with another lender protects you from this possibility.
• 4.  Prepayment Privileges – All banks offer you the ability to pre-pay your mortgage but did you know there are some differences? Will you have to wait for the anniversary date or can you start immediately? If you are making a lump sum payment is the minimum $100 or $1000? These little differences can be frustrating.
• 5.  Penalties- We all know that if you break your mortgage you will have to pay a penalty but guess what, that’s right, there is a big difference between the mortgage lenders. Each is able to decide how they will calculate this amount. All are now required to disclose this formula to you as a part of the mortgage process. What you should ask is this. What interest rate is used in the calculation? Are they using the discounted rate or the posted rate in their calculation? The difference can be huge and cost you a lot of your hard earned money.

So there you have it, the reasons you should ask some questions before you sign. Call your mortgage professional today for even more help. Trust me, it’s way easier than a root canal.

        So perhaps circumstances have deemed it your time to purchase a new home. We have all heard of the brisk spring market but what can you expect when you look to buy in the fall or winter? Let’s take a look shall we? I will warn you all that the ‘s’ word is going to be used. That’s right, we will be talking about snow.

Always look on the bright side of life, as the song goes, so let’s start with the pros.

1. Fall is a really pretty time of year. The upside is that you will be able to look at your potential new backyard before the snow hides any flaws. You will also get the chance to peek through the trees as the leaves fall to know just what your view will be throughout the winter when those same trees are bare.

2. The natural light of fall is very comparable to the winter light. You will be able to see your new home as it will be through the winter, at its least vibrant. This is a true benefit in my opinion, you are seeing the property in its truest and most naked form.

3. The fall market is generally slower. This means less chance of competing offers on the property. The sellers may be more motivated to negotiate on the details such as the price or possession date.

4. You will be shopping with certain features in mind. This time of year reminds us that winter is indeed coming. Energy efficient furnaces and windows, a garage built for 2, in floor heat and a myriad of other features are at the top of the list when you shop in the fall. Given how long the winters can be here and how much it costs to heat your home for those long months, this can be a great benefit.

5.And finally, if you move in before the holiday season you get to enjoy your new home all decked out while snuggled on the couch in your pj’s.

        And now the cons. Remember, you were forewarned that we would be discussing snow.

1. The snow can come quickly and when it does it can be very hard to get a true sense of the land once it is covered. You will not be able to determine how well the yard was maintained or what level of ongoing maintenance will be required for the landscaping. If you are purchasing a home with pets you may even want to negotiate for the cost of poop clean up for the spring.

2. Given the snow, you may not be able to determine if the traffic near the home is lighter than usual due to adverse road conditions.

3. You will have to view the potential properties much earlier in the day to be able to see the property in the natural light.

4. The inventory is much lower in December and January given first the preparation for, the enjoyment of and the recovery from the Christmas season.

5. Lawyers and lenders often close or operate on greatly reduced staff during the holiday season. Any glitch to the mortgage funding may not be addressed until business as usual resumes in January.

6. Moving in the winter when it is minus 40 give or take with the wind chill and when the snowdrifts prevent the moving truck from getting closer than a half block make moving during the winter less than ideal to say the least. Yikes, that’s all I have to say about that.

So there you have it. The pros and cons of buying a home during the fall or winter. Until next time!!

I am sure that there are things that my accountant or lawyer would like me to know. Tips that would make their job so much easier if I just understood. This is likely true of most of us in our chosen career paths. You are obligated to perform certain tasks which your clientele then grumble about. So today let’s take a moment to look at the things your mortgage professional would like you to know.

1. 1.  Credit Cards – If you would like to get a mortgage you will need a credit card. Lenders need to be able to see how you handle your credit obligations. So even though too much debt is bad, you do need to have some available to you to develop your credit rating. The flip side of this is that you need to make sure you do not exceed 75% of the available limit and ensure you payments are made on time.

2. 2.  Cell Phones- Cell Phones report on your credit bureau. If a lender sees that you are not able to pay this small monthly obligation on time then how on earth can they expect you to pay your mortgage. Late cell phone payments are becoming a much more common reason for declines from lenders

3. 3.  Taxes and Collections – You may have a very small amount outstanding on your personal taxes. Or perhaps there is an old cell phone bill you are disputing which has gone to collection. You will be required to pay these in full as a condition of your mortgage approval.

4. 4.  Pre-approvals – So you have been proactive and taken the time to get a pre-approval, that’s fantastic but it is not a guarantee of success. Most lenders do not review your documents or even your application until you have an accepted offer to purchase. And then you have to get through the mortgage insurers. This is true even if you have more than 20% down. Many lenders insure all of mortgages they approve. Nothing is final until the lender gives us the coveted all clear.

5. 5.  Documents- We will be asking you for a whole lot of stuff. It’s going to feel ridiculous and possibly intrusive. We are honestly only doing our jobs. The lenders are governed by their investors and the mortgage insurers and the provincial and federal governments. They have to ensure there is no fraud or money laundering and also do their best to make sure they are only lending to people who will pay them back. This means that they will ask for documentation and clarification which means that we may have to come back to you for more until they are happy.

6. 6.  Down Payment – There is sadly no such thing as a 0 down mortgage anymore. You can borrow, be gifted, or save the down payment but you will have to show that you have at least 5% to put down on the new home.

7. 7.  Closing Costs – The lenders require us to show that you have 1.5% of the purchase price available for the closing costs. They are not trying to be mean. There are genuinely costs which come up at the very end that you will be responsible for so you need to have some extra cash. Legal fees, title insurance, property tax adjustments are some examples of things that you are required to pay.

8. 8.  Details – This is your mortgage. You are signing a contract which is legally binding for at least the term of the mortgage. We will do our best to explain it but you should ask questions and read the documents so that you don’t get hit by anything unexpected.

9. 9.  Afterwards – Mistakes happen. You may tell me that you would like a bi-weekly payment which includes your property taxes but by the time it goes from me all the way through the lender and your lawyer this doesn’t happen. Take a few minutes to call your lender after the mortgage funds. Double check that your payment is set up exactly how you like. This 5 minute phone call can save you oodles of frustration later on.

So there you have it. Things that your mortgage professional would like you to know. Have a great week!

There are 9 million Millennials in Canada, representing more than 25 percent of the population. Born between 1980 and 1999, the eldest are in the early stages of their careers, forming households and buying their first homes. Buying a home is a daunting process for anyone, but especially so for the first-time home buyer. This is the largest and most important financial decision you will ever make and it should be done with the appropriate investment in time and energy. Making the effort to be financially literate will save you thousands of dollars and assure you make the right decisions for your longer-term financial security.

1.    Don’t rush into the housing market–do your homework: learn the basics of savings, credit and budgeting. 

Lifelong savings is a crucial ingredient to financial prosperity. You must spend less than you earn, ideally saving at least 10 percent of your gross income. Put your savings on automatic pilot, having at least 10 percent of every paycheck automatically deducted. Money you don’t see you won’t spend. Contributing to an RRSP, at least enough to gain any matching funds your employer will provide, is essential. The Tax Free Savings Account (TFSA) is an ideal vehicle for saving for a down payment and now you can contribute as much as $10,000 a year. 

You also need to establish a good credit record. Lenders want to see a record of your ability to pay your bills. As early as possible, get a credit card and put your name on cable, phone or other utility bills. Pay your bills and your rent in full and on time. Do not run up credit card lines of credit. The interest rates are exorbitant and the only one who benefits is your bank. Keep your credit card balances well below their credit limit.

Do a free credit check with Equifax every six months to learn your credit score and to see if there are any problems. Equifax tracks all of your credit history, which includes school loans, car loans, credit cards and computer loans.  Equifax grades you based on your responsible usage and payments.

Budgeting is also essential and it is easier than ever with online apps. You need to know how you spend your money to discover where there is waste and opportunity for savings. The CMHC Household Budget Calculator helps you take a realistic look at your current monthly expenses.

2.    Make a realistic projectory of your future household income and lifestyle and understand its implications for choosing the right property for you.

Millennials are likely relatively new to the working world. Lenders want to see stability in employment and you generally need to show at least two years of steady income before you can be considered for a mortgage.  This also applies if you have been working for a few years in one career and then decide to change careers to something completely different. Lenders want to see continuous employment in the same field. If you are self-employed, it is more challenging, and you need professional advice on taking the proper steps to qualify for a mortgage.

Assess the stability of your job and the likely trajectory of your income. Millennials will not follow in the footsteps of their parents, working for one employer for forty years. In today’s world, no one has guaranteed job security. Take a realistic view of your future. Will your household income be rising? Will there be one income or two? Are there children in your future? Will you remain in the same city? The answers to these questions help to determine how much space you need, the appropriate type of residence, its location and the best mortgage for you.

Financial planning is key and it is dependent on your goals and expectations.

3.    This is not a Do-It-Yourself project: build a team of trusted professionals to guide you along.

You need expert advice. The first person you should talk to is an accredited mortgage professional. There is no out-of-pocket cost for their services. Indeed, they will save you money. 

These people are trained financial planners and understand the ever-changing mortgage market. Take some time with them to understand the process before you jump in and find your head spinning with all the decisions you will ultimately have to make. They will give you a realistic idea of your borrowing potential. Before you fall in love with a house or condo, make sure you understand where you stand on the mortgage front. Mortgages are complex and one size does not fit all. You need an expert who will shop for the right mortgage for you. There are more than 200 mortgage lenders in Canada and they will compete for your business.

It is a very good idea to get a pre-approved mortgage amount before you start shopping. This is a more detailed process than just a rate hold (where a particular mortgage rate is guaranteed for a specified period of time). For a pre-approval, the lender will review all of your documentation except for the actual property.

There is far more to the correct mortgage decision than the interest rate you will pay. While getting the lowest rate is usually the first thing on every buyer’s mind, it shouldn’t be the most important. Six out of ten buyers break a five-year term mortgage by the third year, paying enormous penalties. These penalties vary between lenders. The fine print of your mortgage is key and that’s where an expert can save you money. How the penalty for breaking a mortgage is calculated is key and many monoline lenders have significantly more consumer-friendly calculations than the major banks. ^[2]  A mortgage broker will help you find a mortgage with good prepayment privileges.

The next step is to engage a real estate agent. The seller pays the fee and a qualified realtor with good references will understand the housing market in your location. Make sure the property has lasting value. Once you find the right home, you will need a real estate lawyer, a home inspector, an insurance agent and possibly an appraiser. Make any offer contingent on a home inspection and remediation of significant deficiencies.

4.    Down payments, closing costs, moving expenses and basic upgrades need to be understood to avoid nasty surprises.

The size of your down payment is key and, obviously, the bigger the better. You need a minimum of 5 percent of the purchase price and anything less than 20 percent will require you to pay a hefty CMHC mortgage loan insurance premium, which is frequently added to the mortgage principal and amortized over the life of the mortgage as part of the regular monthly payment. 

Your lender will want to know the source of your down payment. Many Millennials will depend on the largesse of their parents to top up their down payment. 

The down payment, however, is only part of the upfront cost. You can expect to pay from 1.5-to-4 percent of the purchase price of your home in closing costs. These costs include legal fees, appraisals, property transfer tax, HST (where applicable) on new properties, home and title insurance, mortgage life insurance and prepaid property tax and utility adjustments. These amount to thousands of dollars. 

Don’t forget moving costs and essential upgrades to the property such as draperies or blinds in the bedroom.

5.    Test drive your monthly housing payments to learn how much you can truly afford.

Affordability is not about how much credit you can qualify for, but how much you can reasonably tolerate given your current and future income, stability, lifestyle and budget. Most Millennials underestimate what it costs to run a home, be it a condo or single-family residence. 

The formal qualification guidelines used by lenders are two-fold: 1) your housing costs must be no more than 32 percent of your gross (pre-tax) household income; and, 2) your housing costs plus all other debt servicing must be no more than 40 percent of your gross income. 

Lenders define housing costs as mortgage payments, property taxes, condo fees (if any) and heating costs.^[3] But homes cost more than that. In your planning, you should also other utilities (such as cable, water and air conditioning), ongoing maintenance, home insurance and unexpected repairs. Taking all of these costs into consideration, the 32 percent and 40 percent guidelines might well put an unacceptable crimp in your lifestyle, keeping in mind that future children also add meaningfully to household expenses and two incomes can unexpectedly turn into one. 

The best way to know what you can afford is to try it out. Say, for example, you qualify for a mortgage payment of $1400 a month and adding property taxes and condo fees might take your monthly housing expense to $1650.  A far cry from the $500 you pay now to split a place with 3 roommates. Start making the full payment before you buy to your savings account and see how it feels. Do you have enough money left over to maintain a tolerable lifestyle without going further into debt?

Keep in mind that this is not a normal interest rate environment. Don’t over-extend because there is a good chance interest rates will be higher when your term is up. Do the math (or better yet have your broker do it for you) on what a doubling of interest ratesfive years from now would do to your monthly payment. A doubling of rates may be unlikely, but it makes sense to know the implication. 

Do Your Calculations Look Discouraging?

If so, here are some things you can do to improve your situation: 

•   Pay off some loans before you buy real estate.
•   Save for a larger down payment.
•   Take another look at your current household budget to see where       you can spend less. The money you save can go towards a larger     down payment.
•   Lower your home price — remember that your first home is not           necessarily your dream home.