By Todd Mumford
Home loans last longer than most marriages (and may be more expensive), so you should take as much care in choosing a mortgage as you do a mate. Just as it’s generally not wise to rush to the altar after one or two dates, it also doesn’t make sense to commit to 25 years of mortgage payments after one visit with a bank loan officer.
Before you fall in love with a house — before you start looking at homes to buy — do your home loan homework. Don’t commit to a 30-year mortgage before you understand the commitment.
Here are 3 things you should do before saying “I do” to a mortgage.
1. Review Your Finances
It’s not fun and it may not be pretty, but it’s better you find out before a loan officer does whether your credit score is less than ideal or if you can afford both your bar tab and a house payment on your current salary.
There may be a gap between what you believe you can afford and what a mortgage loan officer thinks. Banks, for example, look beyond what your debt ratio suggests you can afford today under current mortgage rates.. They analyze your ability to pay if mortgage rates go up when it’s time to renew your loan.
2. Find a Mortgage-Minded Real Estate Agent
Any licensed real estate agent can sell you a house. But only a real estate agent who understands both the local real estate market and mortgage options can help you make the best investment in a new home.
“Home buyers and home sellers alike are disappointed when a sale falls through because of financing,” says Rick Clarke, owner of Real Estate Valley and Century 21 New Trends Realty in Vancouver. “If you’re buying a house, an agent who is knowledgeable about mortgages, particularly given new federal lending regulations, can help save you time and money.”
Clarke says a real estate agent should be able to help you understand the new lending rules, discuss financing options and pre-qualify you for a mortgage or refer you to a mortgage broker or trusted lender who can.
Interview several prospective real estate agents. Ask them about their knowledge of the market you’re interested in — someone who sells $2 million homes may not be the best fit to help you find one in the $400,000 range — and about their marketing techniques — Do they use the latest home listing apps offered by companies such as Zillow or SEO real estate marketing software?
But don’t forget to ask agents about how they will help you find financing for your new home.
3. Do Your Own Research
Homes are expensive, particularly in markets such as Vancouver where a typical detached bungalow or two-storey home sells for more than $1 million and the average home sells for nearly $600,000, according to a recent survey by Royal LePage.
So, as much as you need a professional, to help you negotiate and secure the best possible mortgage loan, you should also learn as much as you can yourself.
An article called, “The B20 Bombshell: Defusing New Home Mortgage Regulations” provides a simple explanation of the complicated lending regulations that took effect in November.
Some key points for you to consider are these:
- Proof of income
Persons who are self-employed will need to provide banks with greater proof of income than in the past. Requirements may be less stringent with private lenders but, if you’re planning to buy a home, check to see if your banking statements support the income you claim.
- Debt Ratio
Lenders will take a harder look at your ability to pay off your mortgage. This holds true for all home owners but particularly for those who apply for sub-prime or B mortgages.
Learn about the debt ratios acceptable by federal bankers, credit unions and private lenders. If yours are higher than acceptable levels, reduce debt to obtain the best possible mortgage rates.
- Mortgage Insurance
The government has set a limit on the dollar amount of loans it will back. Houses with selling prices of more than $1 million will no longer qualify
- Amortization Periods
The new rules shorten the lengths of bank-backed mortgages from 30 to 25 years
Follow Your Head
It’s easy to fall in love with a house but it’s a mortgage that you have to live with. So don’t let your heart rule your home-buying decisions. Say yes to the mortgage that makes the most practical business sense for you.
Meet Todd Mumford – entrepreneur and business man extraordinaire. As CEO of Property Target he is culminating his expertise from online marketing and real estate brokerage to drive a unique real estate marketing concept that focuses on building and driving qualified Realtor leads through Social Media, Content Marketing, State of the Art Websites and traditional online marketing strategies.