27 Sep Buying a home! Where do I start?
You know what a mortgage is. So here is another important question. You can’t just get whichever amount of money you would like. You need to qualify, you need to be pre-approved for the mortgage. This is an important first step in the process of buying a home. The last thing you want is to find the house of your dreams to soon discover you cannot afford it. There are some factors to consider to ensure the amount of money you are entitled to get as a loan.
However, you need to ask yourself if you can make the payments required by the mortgage agreement. Also, consider the running costs of owning a home – utility bills, property taxes, insurance, repairs. Lenders will ask you to provide them with proof of your income and any debts, if you have any, as well as you credit history (see chapter on credit). Once they take into account all these factors, they will then assess what level of monthly payments you can afford. In either case, you should have saved some money in order to put as a down payment for the house you will purchase.
So, what do you need to know? The first important thing is to understand what the stress test really is. Simply put, uninsured borrowers from federally regulated lenders must have their finances “stress tested” to ensure they would be able to pay off their mortgages if rates were higher than they are today. To do that, the lender must run a test assuming rates were two percentage points higher than they are right now, and see if borrowers would be able to pay off the loan. Potential buyers will be tested against the greater of either the Bank of Canada’s five-year benchmark rate or the rate offered by a lender plus another two per cent. Those who fail the test will need to look for something cheaper on the market. The stress tests are based on the notion that interest rates are set to rise.
To know more about this topic, check Carmen Costa’s book “The Reality of Mortgages: a step-by-step guide” to the world of mortgages.