The Early Buyer Gets the Home
By on Oct 17, 2007
Where does the home buying process begin?
Does it start when you fall in love with the
perfect home? When you make the decisionto buy? Or maybe it's when you make that very first
mortgage payment? Many experts will tell you that the mostimportant step towards home ownership is getting
pre-approved for a mortgage, which is most certainly thestart of the official process of purchasing a home.
Pre-approval not only ensures that you qualify for a
mortgage, but it determines how much money you qualify
for and guarantees a rate of interest for a specified amountof time while you shop (60, 90, or sometimes 120 days).
From here you can decide the location, size, and level ofluxury you can afford and even the timing of your home
purchase. It might also mean the difference between gettingthe house of your dreams and losing it to the next person.
Pre-approved buyers definitely get preferred treatment.
Many options are available to get you started: you can conduct your own calculations using an online mortgage
calculator, you can visit a mortgage broker, or you can
simply walk into your financial institution. The one thingthat is certain is that you should take this important step
before you buy.
Paul Bimm, vice-president of the builders' market at
RBC Royal Bank, says "I encourage anyone who is
looking at buying to speak to a mortgage specialist to getpre-approved. One of the things I've noticed is that some customers will purchase the home they fall in love
with and then go to get qualified and find out they can'tafford it."
Recent homebuyers Shari Brown and Greg Marshall
used online calculators to get an idea of what they couldafford while they did some preliminary shopping. "We
had been looking at new homes for a year or so to get anidea of what we wanted. Since the pre-approval has an
expiry date we saw no point in rushing it," Brown says.How do you avoid unwanted surprises? Bimm suggests
a few easy guidelines to help you estimate the price you'llbe able to afford. "The rule of thumb is that 32 per cent
of the gross household income can be used to pay themortgage and housing costs." This figure includes the
mortgage principal and interests costs, property taxes,heating, and if you live in a condominium development,
one-half of the condo fees.
Once you have an idea of what's out there and whether
or not you can afford it, it's time to determine where you
want to apply for pre-approval. Brown and Marshall saythat the two biggest factors in this decision were past
experience with financial institutions and which one hadthe better rate. If you decide to go into a financial
institution or even if you apply online, Bimm says thatyou should "really know your numbers in terms of what
your income is." The more up-to-date the informationyou provide is, the smaller the room for error in your
pre-approval amount will be.
If Brown and Marshall had to do it again, what would
they change? There were a few things that came up
unexpectedly in the process, such as estimating the costof mortgage insurance and where to obtain this coverage.
"These are all things that we know for next time andwe'll pass on to our friends when they apply for a mortgage."
Bimm also includes one last piece of often-overlooked
information: obtaining pre-approval for a mortgage isfree, and so is the advice that comes with it.