Research and negotiation are powerful tools when shopping for a first mortgage
Contractors construct the upper level of a new section to this home located on the corner of Carpasian Road and Larch Place in St. John’’s east end. A portion of the home was removed earlier this spring to make way for the renovations. — Photo by Joe Gibbons/The Telegram
First-time home buyers shopping for a mortgage have all the technology at their fingertips to make informed decisions, and financial experts say those resources should arm them with enough knowledge to prepare themselves, and even negotiate a better rate.
“In today’s environment, with so many things on the Internet, social media in general, there’s no reason why people shouldn’t be doing a lot more research,” said Jim Murphy, president and CEO of the Canadian Association of Accredited Mortgage Professionals (CAAMP).
One of the biggest challenges can be finding a starting point.
Begin by taking a hard look at your financial goals and then match them with the many features and functions a mortgage has to offer.
Murphy suggested visiting CAAMP’s website for the basics on mortgage shopping.
CAAMP is the national organization representing Canada’s mortgage industry, with more than 12,250 mortgage professionals representing more than 1,700 companies.
Those shopping for a mortgage should also check the websites of financial institutions and government agencies for mortgage calculators.
Farhaneh Haque, mortgage advice director at TD Canada Trust, said the research process should begin months before you walk into a bank or meet a broker.
“Don’t start on the day of, but start six months before you shop for a mortgage,” Haque said.
Research topics like how to prepare your credit and whether its realistic for you to use your RRSP for a down payment, she said.
Don Campbell, who has written seven books on investing in real estate, said preparation should include gathering enough information to give lenders confidence that you’ll make your payments on time.
That can include documents like an employment letter, pay stubs and copies of income tax assessment. If you want to be especially thorough, include a cover letter, financial objectives and a short biography that runs one page at most, Campbell said.
A binder of documents plunked on a lender’s desk is a great test for financial dependability.
“The louder the noise means the more prep you’ve done,” he said.
If you’re going to a bank for your loan, don’t accept the posted rate, but ask to look at the grid instead.
“Each bank and banker receives a grid daily. It says, ‘Here’s the most you can discount today for one-year, six-month, two-year, 10-year rates,”’ Campbell said.
“Right now, bankers are looking and fighting among themselves to get the money into the hands of strong borrowers.”
So he says, don’t be afraid to ask and negotiate.
“A half a percentage point of a mortgage, which banks are easily willing to give right now, is going to save you hundreds, if not thousands, of dollars a year,” Campbell added.
Then there’s the question of whether you should take out a lien through a bank or a broker. Experts say the choice depends on your comfort level.
CAAMP’s Murphy suggests to favour those who are recommended by a friend or a colleague who recently made a purchase, though secondary references should always be considered.
Screening the brokers through email can also be a fast and effective way.
“You can send an email and then give an overview of your situation and see the response,” Murphy said.
Campbell pointed out that choosing to use a broker will help lessen the hit on your credit score.
“If you sign an application document for each bank, that allows them to have access to your credit history, suddenly your credit score is going to do go down because you have so many inquiries on your credit history that it raises a red flag,” he said.
But Campbell said not to ignore the possibility of using a credit union.
“Most people don’t even think about getting a mortgage from (them),” he said.
“They are fantastic. They’re also offering wonderful deals.”