A recent study asked British Columbia homeowners to choose between mortgage shopping and taking a flu shot, aging by a year, or filing their taxes. Surprisingly, more picked the latter three choices over the mortgage experience!
According to the Ipsos Reid survey, 57 per cent would rather file their taxes than shop for a mortgage, 56 per cent would welcome a flu shot instead, and 54 per cent would prefer growing a year older. While the study posed these questions in jest, the responses highlight the fact that navigating the mortgage application process – and the overall responsibilities of home ownership – can be daunting for many.
We all want a dream home, but the work needed to qualify for a mortgage, get the best possible deal, purchase an ideal home, and manage the ongoing financial demands, brings its own dread. If you’re among those who view mortgage shopping and home ownership with the same trepidation as a jab in the arm, here are some suggestions on how to make the experience much less painful.
Leverage your credit rating
Interest rate remains the single biggest concern for home buyers, with 90 per cent ranking it top priority in the study. However, it is equally important for applicants to know how they rate, in terms of their credit score.
The truth is, you may have greater control over your credit rating than you do over the rate your financial institution offers you. Given that credit scores ultimately influence offered rates, applicants who work on attaining a strong credit rating will ensure they are much more attractive to lenders.
Before you go mortgage shopping, find out your credit score by visiting www.equifax.ca or www.transunion.ca. If you’re on the lower end of the scale, take the time to improve your rating to increase your chances of getting a preferred rate on your mortgage.
Pre-approval can reduce much of the stress and uncertainty involved in mortgage shopping and save home buyers from wasting time and resources. The mortgage pre-approval process involves a formal review by the lender to determine an applicant’s credit worthiness, how much he or she qualifies for, and a commitment to fund a specified mortgage amount, under stated terms. Since this happens before the home search begins, home buyers can quickly and easily create a shortlist of homes that they not only like, but can afford.
Work on your financial balance
If not well managed, the financial demands of home ownership can take away from other financial goals and needs, including investments. In the study I mentioned earlier, 70 per cent of homeowners with families said they put so much money toward their mortgage that they’re unable to save as much for retirement and 68 per cent of first-time homeowners said mortgage payments are preventing them from investing as much as they would like.
If you’re concerned about how a mortgage will affect your overall financial picture, discuss your situation with a financial planning professional. In fact, applying for a mortgage is a great time to review your financial plan, so involving both a financial planning expert and lender in the process is highly recommended.
Watch for helpful extras
Some mortgage products include features that can help you achieve financial balance and meet ongoing life commitments while meeting your mortgage obligations. Potential mortgage applicants can consider these helpful extras, alongside rate, in their mortgage shopping. For example, some mortgages allow homeowners to make additional payments that can be withdrawn for contingencies, as needed. Other features include the ability to skip a payment (under certain conditions), while some products offer bonus cash that eligible mortgage applicants can direct towards various investment vehicles (e.g. Coast Capital’s Members Get It Mortgage). Ask your financial institution about these features and how they might help.
Cut through the jargon with questions
Lastly, ask lots of questions. The Ipsos Reid study revealed that first-time homeowners in particular found the mortgage process confusing. A good financial institution will seek to present mortgage technicalities and jargon in simple language. The best approach is to do some research beforehand and approach your financial institution with prepared questions. If you are a first-time home buyer, it’s also a good idea to talk to family members or friends who have gone through the process, if you have any outstanding questions.
If you’re in the market for a mortgage, I hope these tips make your visit to your financial institution more inviting than a trip to the tax office!
Kathy McGarrigle is Chief Operating Officer for Coast Capital Savings (www.coastcapitalsavings.com), Canada’s second largest credit union by membership.