For first-time homebuyers, getting a mortgage might require going to some place other than a bank
Simone Abrahamsohn, National Post
Your new dream home has bay windows, a fantastic fireplace in the living room and a spacious backyard. You’ve just been pre-approved for a mortgage and are asking friends if they know any good movers.
Before popping the cork, ask yourself what pre-approved means. Will your ownership dreams now be realized?
Jake, 25, who is self-employed in Internet marketing and his fiancee, Edwina, (last names withheld upon request) spent months searching for the perfect home. Once they found it — a house with potential to be converted into a three-unit apartment, allowing a unit for them as well as two self-contained rentals — they were assured by their bank that financing wouldn’t be a problem.
“After being told we were pre-approved and signing the offer, we were shocked to learn at the last minute that the bank wouldn’t finance the purchase after all,” says Jake. “It was really cutting it close.”
Jake and Edwina’s real estate agent referred them to a mortgage broker, who was able to arrange financing for the couple in one day. They now own the home in Toronto’s west end.
Jake’s experience is not uncommon, says David Grossman, the broker who helped the couple obtain their mortgage. “Pre-approved basically means a conditional acceptance,” says Mr. Grossman, a mortgage specialist with Community Financial Group, who is also known as “the mortgage mensch.”
“Many people feel discouraged when they are turned down by a bank. It helps to seek out a second opinion, especially for young people buying their first home, self-employed people or those who don’t meet the bank’s criteria for whatever reason,” he says.
Mr. Grossman advises first-time buyers to inform themselves and to be proactive when researching their options. “Banks tend to be very strict when it comes to determining your maximum mortgage amount,” he says. “A broker knows which lenders to take your application to and finds the best avail-able mortgage rates and terms.”
For the prospective purchaser who hasn’t met the bank’s requirements for a mortgage (often after being told they were pre-approved), a second opinion can be the difference between success and disappointment.
“Since a pre-approval can be declined at a later date depending on whether you meet all the qualifications, you really have to read the fine print when applying through your bank,” says Terry Wexler, an accredited mortgage professional with Centre Mortgage. “These days, with multiple offers, people really don’t want any surprises,” he says.
“There are lots of players in the lending market now, and many tools and programs to help,” says Mr. Wexler, who took over his father’s Richmond Hill-based business in 1988. “There is almost a program now for everyone. Sometimes at the bank, the service can be general, not as tailored to the individual, but when applying for a mortgage, it can’t be one size fits all.”
In addition to personal service and customized programs, the mortgage broker is generally considered to be more objective, since he or she doesn’t work for a bank and doesn’t need to promote a particular lender’s products.
“My wife and I were pretty green when buying our first home,” says Owen Morgan, 37, who works in corporate finance and owns a home in the Davisville/Bayview area. “We went to a broker upon the referral of a friend, and he just simplified everything for us,” says Mr. Morgan. “You get the feeling they’re really working in your best interest and they can be more objective. We also got a better rate than we would have gotten through our bank.”
So, who is an ideal candidate for using a broker?
“If people don’t have a relationship with their bank, perhaps they’re self-employed or have poor credit, they can really benefit from a broker’s services,” says Stephen Smith, president of First National Financial LP, Canada’s largest non-bank provider of single-family mortgages. “The broker’s going to have the best knowledge of the best rates in the business and they know the best non-bank lenders,” he says. “It’s such a huge purchase — I still remember my first mortgage and how much it was 25 years ago. You never forget.”
According to the Canadian Association of Accredited Mortgage Professionals (CAAMP), 30% of first-time homebuyers obtained their mortgage through a broker.
For those who are self-employed or who have unconventional jobs, there are fewer limitations in today’s housing market than in previous years.
“Self-employed people, such as restaurant servers who earn tips and auto mechanics who may do cash jobs on the weekend, can be eligible for different products than someone who works in a full-time job,” says James Robinson, manager of Alternative Mortgage Sales at TD/Canada Trust. “Some self-employed people can now buy up to 95% with the right products.”
Among the products tailored to first-time buyers is First National’s self-insured mortgage, launched in June, which allows qualifying homebuyers to access a low-cost mortgage insurance option (40% savings).
While entrusting a broker to find you the best deal on your mortgage is a sensible option, aspiring homeowners shouldn’t rule out their bank.
“It’s good to know about alternative options, but get all the details when going for a pre-approval at your bank,” says Jennifer Allard, a real estate agent. “Once you’re well-informed, then you can shop around to see what best suits you.”
When a prospective purchaser meets with a broker (or a non-bank lender) for the first time, the broker takes a snapshot, so to speak, of the client’s financial picture. They look at personal info. For instance, how long has the person been employed and what are their debts and their credit scores. They then crunch the numbers and try to match a client with the best possible lender.
That said, homebuyers should also educate themselves.
“We outsource so many things, such as our taxes, but who manages our mortgages?” says Calum Ross, senior vice-president with First National Financial LP. “Even when people have a home, they still aren’t informed about mortgage management,” he says. “They’ll know all about their stocks, but they don’t know what their mortgage is about. People need to be more aware.”
TD’s Mr. Robinson acknowledges that people can’t be expected to be mortgage experts, but they should research their options and go to a trusted individual.
“After all, when we go to a doctor, we don’t present him with a diagnosis,” he says. “We tell the doctor what we’re feeling, and they ask questions and perform tests. We then let the professional take over.”
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Contact the Jeffrey Team for more information – 416-388-1960
