By: Bola Ricky

Buying a home is a significant milestone in life, and finding the right mortgage is crucial to this journey. Many of us turn to online resources for information, including when it comes to mortgage shopping. Unfortunately, the lowest advertised rates are often used as a lure and are unattainable for most customers because they don’t qualify or it’s unsuitable for their needs. This can be very frustrating for prospective homebuyers and homeowners in Mississauga and the Greater Toronto Area.

To shed some light on why you may not qualify for that low advertised rate, and why rates can differ significantly, let’s explore the various factors that influence mortgage rates.

Does the Mortgage Require Default Mortgage Insurance? Whether your mortgage requires default mortgage insurance affects the rate you’ll be offered. There are three categories of mortgages related to this insurance:

Insured Mortgages: These mortgages benefit both borrowers and lenders. Borrowers with a down payment below 20% must obtain mortgage default insurance, which protects lenders in case of borrower default. The insurance cost is usually added to the mortgage, increasing the mortgage amount and payment. Insured mortgages provide access to lower down payment requirements and often the lowest rates, making homeownership more attainable.

Insured mortgages have a maximum property value of $1 million and require owner occupancy. They are only available for purchases and renewals, not refinances. The longest available amortization period is 25 years.

In Canada, mortgage default insurers include the Canada Mortgage and Housing Corporation (CMHC), Sagen (formerly Genworth), and Canada Guaranty. To be eligible for mortgage default insurance, borrowers must meet specific criteria, including a solid credit score, adequate income, and property guidelines set by both the lender and insurer. Additionally, borrowers must pass the stress test, demonstrating their ability to manage higher interest rates or payments.

Insurable Mortgages: Insurable mortgages are eligible for mortgage default insurance, but it is not a government requirement. Lenders opt for insurance to reduce risk or securitize their mortgages. Since the lender pays the insurance premium, rates are slightly higher compared to insured mortgages.

Insurable mortgages are available only for owner-occupied home purchases (or renewals) with a down payment of 20% or more and for a property value of up to $1,000,000. The maximum amortization period is 25 years. The stress test is required, and insurable mortgages are not available for refinances.

Conventional/Uninsured Mortgages: Conventional mortgages are for borrowers with a down payment of 20% or more. These mortgages don’t require mortgage insurance, offering borrowers more flexibility. They can accommodate purchase prices exceeding $1 million, have extended amortization beyond 25 years, permit refinancing, and support single-unit rental properties. There is also more leniency towards credit scores and debt levels. Additionally, the mortgage stress test doesn’t apply when the financial institution is not federally regulated, such as credit unions. However, since lenders assume all the risk, rates are higher compared to insured and insurable mortgages.

Fixed vs. Variable Rate: The rate you’ll get depends on whether you choose a fixed or variable rate. Fixed rates remain constant throughout the mortgage term, providing predictability and consistent monthly payments. On the other hand, variable rates are tied to a benchmark rate and can fluctuate as market conditions change. While fixed rates offer stability, variable rates sometimes have lower interest rates but come with the risk of potential increases.

Is it a No-Frills Mortgage? No-frills mortgages are frequently advertised online with enticingly low rates. Usually, these are insured mortgages, but the low rate often comes with restrictions and fees that can be costly in the long run. It’s essential to do your online rate research but seek advice to understand any potential fees and limitations that may arise in the future.

Extended Amortization: Conventional mortgage holders have the option to extend their amortization period beyond 25 years, which offers cash flow flexibility through lower payments. However, this extension might come with a rate premium.

Investment Property Mortgages: Lenders often consider investment properties riskier, resulting in slightly higher interest rates compared to primary residences. Working with a Mortgage Broker can help navigate the complexities of investment property mortgages and find competitive rates.

B Mortgages: B mortgages, also known as alternative or non-prime mortgages, cater to borrowers who do not meet the strict criteria set by conventional lenders. These mortgages are tailored to individuals with lower credit scores or unique financial situations, resulting in higher interest rates compared to other mortgage types.

Private Mortgages: Private mortgages involve borrowing from private individuals or companies instead of traditional lenders. Borrowers often turn to these loans when they cannot secure financing through conventional means. While private mortgages may carry higher interest rates, they can provide a quick short-term alternative.

Leveraging a Mortgage Broker’s Expertise

Navigating the complex landscape of mortgage rates and options can be confusing and frustrating. This is where an experienced Mortgage Broker can make a world of difference. A skilled and trusted Mortgage Broker. Here’s how:

Enhancing Credit: To secure the best mortgage rate, it’s important to have a strong credit profile. A Mortgage Broker can assist you in repairing and enhancing your credit score before a mortgage application. 

Debt Restructuring: Managing debt effectively is crucial for obtaining the best mortgage rates. A Mortgage Broker can advise you on reorganizing your debt to improve your overall debt-to-income ratio. Through optimal debt management, you can position yourself favorably for more competitive mortgage rates.

Options to Improve Qualifying: There are options available to help you improve your ability to qualify for a mortgage and get the best rates. For example, a gifted downpayment involves having a family member provide some or all the down payment as a gift. You could also access funds from your RRSP through the Federal Home Buyer’s Plan. These options can increase your downpayment, which can make a real difference in your ability to purchase your desired home and access the best rates.

If you still need help qualifying, getting a cosigner on your mortgage can boost the strength of your application because your cosigner’s financial profile is added to your application to strengthen it. A Mortgage Broker can provide invaluable advice on down-payment and qualifying strategies.

 Market Analysis and Rate Comparisons: Mortgage Brokers conduct thorough market analysis and rate comparisons on behalf of clients, identifying optimal mortgage rates and terms. 

Positioning for the Best Rate

Now that we have reviewed the intricate landscape of mortgage rates, one thing remains abundantly clear: securing the optimal mortgage deal demands more than a cursory glance at online rates.

By: Bola Ricky

Are you considering buying a home in Mississauga, Toronto, or the Greater Toronto Area (GTA)? As the fall season approaches, you may be wondering if it’s the right time to make such a significant investment. Purchasing a home is a big decision, and timing can play a crucial role in ensuring you get the best deal. Let’s explore whether this fall is the right time to buy a home, discuss the steps to take to improve your chances of mortgage qualifying, and the options we have that can help.

This Fall – A Favorable Time for Homebuyers

In the Spring, when the Bank of Canada paused its interest rate hikes, the housing market accelerated and recovered a good portion of the losses sustained in 2022. Now with two subsequent rate hikes in June and July and increased fixed rates, some homebuyers have become nervous, not to mention priced out of the market with an increasingly tougher qualifying stress test. There will be fewer buyers actively searching for properties, which means less competition, giving you improved negotiating power and potentially better prices.

Additionally, sellers who have listed their homes during the summer months and have not yet sold could be more motivated to close the deal before the end of the year. This increased motivation can work in your favour, as sellers may be more willing to negotiate on price or other terms.

Surging Immigration and Lack of Housing Starts

If you needed any further motivation to buy a home this fall, consider the current state of housing in Canada. There is a persistent shortage of housing due to the failure of new home development to keep up with demand. In 2022, the Canada Mortgage and Housing Corporation (CMHC) noted that Canada needed to construct 3.5 million more homes by 2030 to achieve home affordability for Canadians. This is in addition to the nineteen million housing units that were already expected to be completed by 2030. However, according to CMHC data, housing starts are on a noticeable decline, and we may not even reach the original nineteen million new housing units by 2030.

Adding to the housing shortage, Canada’s immigration targets have increased, further straining the market. In 2023, Canada is targeting 465,000 new permanent residents, followed by 485,000 in 2024, and eventually aiming for 500,000 new arrivals each year starting in 2025. This influx of new residents adds to the already high demand for housing.
Statistics Canada reported that the Canadian population reached more than forty million as of June 16, 2023. This milestone came faster than expected, with 1.050 million people arriving in 2022, the first time our population grew by over one million people in a single year, with most being permanent and temporary immigrants.

While our population is now growing at a record-setting pace, our housing infrastructure is struggling to keep up. The resulting scarcity from our chronic lack of supply leads to a very competitive real estate market and sometimes bidding wars, creating frustration, and making it exceedingly difficult for first-time buyers to find affordable options.

Inflation is Tumbling

On July 18, annual inflation tumbled to 2.8%! We are finally getting closer to the Bank of Canada’s target of 2%. When the Bank feels it has achieved success in achieving this goal, rates will start to come down.

But don’t wait for rates to start falling. Once rates do start to come down, this could fuel the market, given pent-up demand, improved affordability, surging immigration, and a severe undersupply of housing supply.

Buyers are already aware of the market dynamics and are out house shopping. Phil Soper, CEO of Royal LePage, in this recent Financial Post article, noted that there are buyers who have accepted the reality of higher initial mortgage payments, believing that rates are either at or close to their peak and that carrying a mortgage will become more affordable before long.

Qualifying for a Mortgage: Key Steps to Take

Now that we’ve discussed the potential benefits of buying a home in the fall, let’s dive into how you can qualify for a mortgage and make the process smoother.

1. Check your credit score and polish your credit: Lenders use your credit score to determine your creditworthiness. Your score can affect your ability to get approved for a mortgage and the interest rate you receive. A higher credit score generally translates to lower interest rates and better terms, which can save you thousands of dollars over the life of your mortgage. You can ensure your credit score is in good shape by paying your bills on time, keeping your credit card balances low (below 35% of your limit), and correcting any errors that you may find on your credit report.

2. Pay off debt. Paying off debt before getting a mortgage is recommended because it can improve your debt-to-income ratio, free up cash flow, lower monthly payments, reduce financial stress, and improve your credit score. This can make it easier to qualify for a mortgage with favorable terms and put you in a stronger financial position overall.

3. Get pre-approved: A preapproval is important because it helps you determine your home much house you can afford, shows sellers that you are a serious buyer, gives you a rate hold for up to 120 days, and streamlines the mortgage application process. A pre-approval can save you time, prevent you from overreaching, and increase your chances of having your offer accepted.

4. Increase your downpayment: A larger down payment can lower your monthly mortgage payments, improve your ability to qualify with your lender, reduce the amount of interest you pay over the life of your mortgage, and potentially eliminate the need for mortgage default insurance if you have a 20% or larger downpayment. A common strategy for many new homebuyers is to get a gifted downpayment from parents or grandparents. You can also withdraw up to $35,000 from your RRSP under the first-time buyers’ plan.

5. Get a co-signor. A cosigner for your mortgage application can be beneficial if you have a low credit score, little credit history, or a high debt-to-income ratio. A cosigner with good credit and income can help strengthen your application by adding their financial resources to yours, which can increase the likelihood of approval and improve the terms of your mortgage.

6. Get advice early! It’s a good idea to have help, to understand your options and identify potential roadblocks before you start the application process. He can review your financial situation, credit history, and other factors that could impact your ability to get approved for a mortgage. By seeking advice early, you can avoid surprises and make informed decisions that can save you time, money, and stress in the long run.

Our Mortgage Solutions to Help with Qualifying

We have mortgage options that are specifically designed to help you qualify at today’s rates and help you manage your monthly budget.

Extend Your Amortization
The benefit of extending your amortization is lower monthly payments, which can make a dramatic difference if your budget is tight. You can always shorten your amortization once rates begin to drop, and you have more breathing room.

To get a 30-year amortization mortgage, you need a 20% downpayment, which is another reason to try and achieve a larger amount down. Some non-prime lenders offer 40-year amortizations, but they do come with a rate premium.

6-Month Mortgage
This mortgage may sound odd; why take a new mortgage for only 6 months? The benefit of this product is that the rate is significantly lower and is essentially a promotional rate to help you qualify and pass the stress test. Then at 6 months, you renew into the product that looks to be the best at that time.

Non-Stress Tested Mortgages
Most non-prime lenders and credit unions are not required to use the stress test for mortgage qualifying because they aren’t federally regulated. These lenders will qualify you at your contract rate, and not your contract rate plus 2%. This can help you qualify for the amount you want or allow you to purchase more house.

Final Thoughts
While this fall looks to be an opportune time to buy a home in Mississauga, Toronto, and the GTA, it’s essential to consider whether you are financially ready or not. Remember that the right time to buy a home is determined by your financial readiness, market conditions, and personal goals.

If you’re well-prepared and have done your due diligence, this Fall can offer unique advantages for homebuyers like reduced competition and motivated sellers.

By: Bola Ricky

Welcome to our comprehensive guide on incentives for first-time homebuyers in Mississauga, Toronto, and GTA. Buying your first home is an exciting milestone, but the financial aspects can often seem challenging, that’s why it’s a good idea to be aware of the financial incentives that can help. These incentives can make a significant difference in achieving homeownership, both before and after your purchase. Here’s an overview of the key programs –

  1. First Home Savings Account (FHSA)

The FHSA is an excellent way for aspiring homeowners to save and achieve their dream of owning a home. First-time qualified homebuyers can contribute $8,000 annually and up to $40,000 in total for an individual or $80,000 for couples. Contributions are tax-deductible like an RRSP, while withdrawals, including investment growth, are non-taxable like a TFSA. You can carry forward $8,000 in unused contributions to the next year.

Parents who are gifting funds to their children for a home purchase should consider contributing to an FHSA on their behalf. This gives their children the bonus of a tax refund for those contributions.

Unlike the RRSP Home Buyer’s Plan (HBP), the FHSA has no repayment obligation.

The program allows for transfers from your RRSP to your FHSA. This strategy gives you a tax-free RRSP withdrawal, although you don’t get a tax deduction for the transfer, and this does not affect your RRSP contribution room.

Should you not buy a house, you have the option to withdraw your balance as taxable funds or move it to your RRSP tax-free and unlock additional contribution room.

More information including how to strategically use the FHSA can be found here.

  1. RRSP Home Buyer’s Plan (HBP)

An effective strategy to help you realize your homeownership dreams is to utilize your RRSPs for a downpayment boost. First-time buyers can receive a tax-free withdrawal of up to $35,000 from their RRSP ($70,000 per couple). This amount can serve as a significant portion of the down payment and help you reach the 20 percent down threshold required to avoid mortgage default insurance premiums.

To further bolster your downpayment, if you have the contribution room, consider contributing up to $35,000 to your RRSP account at least 90 days before closing. You could put your existing downpayment funds to work for this short period. With this contribution, a sizeable tax refund can be triggered which can help cover many of the costs associated with your purchase. The withdrawn funds will need to be kept in the account for a minimum of 90 days before they can be withdrawn. To not be required to pay taxes, you’ll need to repay the RRSP withdrawal within 15 years according to the repayment plan. Or, 1/15th of the amount withdrawn will be added to your taxable income each year.

Note: Both the FHSA and the HBP can be used for the same home purchase. This means that up to $150,000 could be available to help a couple with their downpayment.

  1. First-Time Home Buyer Tax Credit

New homebuyers can receive up to $1,500 in federal tax relief through the $10,000 first-time home buyer tax credit. This tax credit can be claimed on your personal tax return for the year of purchase and can assist with many of your first home expenses.

  1. Land Transfer Tax Rebate

In Ontario, homebuyers are subject to land transfer tax upon purchasing a property, which is calculated as a percentage of the property price. First-time homebuyers in Brampton, Toronto, and GTA are often surprised by the substantial land transfer tax they must pay. However, you may qualify for a partial or full rebate of up to $4,000. Purchasing a home in Toronto could entitle you to an extra rebate of up to $4,475.

  1. HST New Housing Rebate

When buying a new construction home or making significant renovations to an existing one, you may be eligible to recover some of the HST that you paid if certain criteria are met. The Ontario government will provide a 75% refund of their portion of the HST on the first $400,000 of your home’s value, which is $24,000.

You must apply within two years of the closing date and utilize the home as either yours or an immediate family member’s primary residence. Ensure that only immediate family members are on the title, or you won’t qualify. If you think you may qualify, check out the CRA’s GST/HST New Housing Rebate guide.

  1. CMHC Eco Plus or Sagen Energy-Efficient Housing Program

If you purchase an energy-efficient home with a CMHC or Sagen-insured mortgage, you may qualify for up to a 25 percent refund of the mortgage insurance premium you paid, which can be quite significant savings. This refund also applies to those who choose to buy a home and make it more energy efficient. Canada Guaranty has a similar program called Energy-Efficient Advantage Program.

  1. Enbridge Home Energy Rebate

Ontario homeowners who want to make their home energy efficient can get up to $10,000 in rebates for eligible retrofits such as home insulation, windows, doors, and renewable energy systems. This applies to all homeowners and not just first-time buyers.

Enbridge Gas along with Natural Resources Canada (NRCan) have joined together and made it easier to apply for the Canada Greener Homes Grant. Ontarians who are not Enbridge customers continue to be eligible to receive up to $5000 in Canada Greener Homes Grant. More details are available from Enbridge.

A Note on the First-Time Homebuyer Incentive

This program is a shared equity program with the federal government that was designed to help first-time buyers get into the market by providing 5 percent of the cost of an existing home, or 10 percent of the purchase price of a new home. This has not been a popular program because homebuyers do not want to share their equity gains with the government, especially if they invest in renovations. Homebuyers look at homeownership as a strong long-term investment and sharing equity gains goes against that objective.

The government has extended this program to March 31, 2025, and is considering ways to make it make more acceptable to first-time homebuyers because usage of the program has been exceptionally low.

Contact Joe Purewal, Mortgage Broker

Navigating the world of incentives and understanding which ones you qualify for can be complex. As a Mortgage Broker with extensive experience in the Mississauga, Toronto, and GTA markets, Joe can guide you through the process and help you take advantage of the incentives available to you.

Contact us today to schedule a consultation. Together, we’ll explore your eligibility for incentives, discuss your financial goals, and develop a personalized strategy to help you achieve homeownership. Don’t let the challenges of buying your first home hold you back. Let’s work together to unlock opportunities and make your dream of owning a home a reality.

Now that you’ve checked out financial incentives, consider some common mistakes to avoid as a first-time homebuyer.

Looking at homes before getting preapproved: Getting pre-approved helps you understand how much you can afford to spend on a home. Without knowing your budget range, you may look at homes that are outside your financial reach, leading to disappointment. Or you may even qualify for more than you think.

Sellers often prefer working with buyers who have been pre-approved for a mortgage. It shows that you are a serious buyer who has taken the necessary steps to secure financing. Having a pre-approved mortgage can give you an advantage during negotiations and increase your chances of having your offer accepted.

Overall, a pre-approval helps you set realistic expectations, strengthens your position as a buyer, and increases your confidence when making an offer on a property.

By: Bola Ricky

Owning a home is a dream for most Canadians, and as parents, we want to provide the best opportunities for our children to achieve this milestone. Helping your children buy a home is not only a significant financial decision but also an emotional investment in their future.

Homeownership is a symbol of financial maturity and stability, and an investment that pays off in the long term with a more secure financial future. However, buying a home is a challenge for first-time buyers who do not have the benefit of a large down payment, enough income, or established credit history.

Not surprisingly, an increasing number of parents are helping their children achieve their homes. A study conducted by OREA (Ontario Real Estate Association) revealed that nearly 90% of Ontario’s parents agree that it is more difficult to buy a home today as compared to when they were of a similar age and looking to buy their first home. The study uncovered that about 40% of young Ontario homeowners received financial help from their parents when buying their homes. Abacus Data which conducted the survey for OREA found that gifting parents gave an average of $73,605, while parents that provided a loan gave an average of $40,878.

For parents, the desire to help their children achieve this goal is natural, but it can be tricky to determine all the ins and outs of the many options available. Here we’ll explore how parents can support their children in achieving homeownership while minimizing their own risk and ensuring the best outcome for their children.

Challenges Facing First-Time Homebuyers

The challenges facing first-time homebuyers in Mississauga, Toronto, and the GTA are many and complex. One significant obstacle is the persistent lack of housing supply, with new construction failing to keep pace with the increasing influx of immigrants to our area. This scarcity of available homes contributes to rising prices, making it difficult for first-time buyers to find affordable options.

Government regulations and stringent mortgage qualification criteria pose further hurdles, as they require potential homebuyers to meet strict financial requirements and pass a stress test to get approved.

High levels of student loan debt and the need for substantial down payments further compound the challenges for first-time buyers. And the high cost of living in Mississauga, Toronto, and the GTA makes it difficult to save up for a down payment. Other challenges include credit history or debt issues, which can impact a buyer’s ability to qualify for a mortgage or secure favorable interest rates.

The competitive nature of the real estate market and bidding wars can add to the frustration and obstacles faced by those looking to purchase their first home. Additionally, rising interest rates and increasing property taxes add even more financial strain to an already challenging process.

All these factors add layers of difficulty for first-time buyers, making it difficult for them to enter the housing market without parental assistance.

Ways Parents Can Help

Fortunately, there are several options available to parents who want to help their children achieve homeownership. Let’s explore common approaches: down payment assistance and co-signing. We’ll also look at the newly launched First Home Savings Account.

Gifted Down Payment: A gifted down payment involves parents providing funds to their children to cover a portion or the full down-payment on a home. This option can significantly reduce the financial burden on your children and increase their chances of qualifying for a mortgage. The only requirement is that the lender will want a signed gift letter that says the funds are a gift and there is no repayment requirement. A gifted down payment can help your child enter the housing market sooner, allowing them to start benefiting from appreciation in the property’s value. However, it’s important to ensure that the child is personally ready for homeownership before giving a large gift. Additionally, if the child is married, there could be property law issues to consider.

Another way to provide a gift is to help with monthly mortgage payments. This is a good option if it’s difficult to come up with a lump sum, although sometimes it’s that initial large down- payment that is the most pressing need.

Providing a loan: There are advantages to structuring your assistance as a loan vs an outright gift. You decide whether it should be an interest-free loan or with a specified interest rate, and you place a lien on the property. The loan agreement will protect funds from creditors in the event of a small business failure should that be applicable.

A documented loan amount is also more advantageous in the event of a divorce as a gifted downpayment is part of the matrimonial home and is subject to 50% division, whereas a documented loan isn’t. The loan can later be repaid upon the matrimonial home sale and these funds can then help your child purchase a new home. It’s important to note that if a loan agreement is crafted, it will be considered a loan by lenders, which means it will be added to the liabilities section of the application and could have an impact on mortgage qualifying.

Co-signing: If you become a co-signor on your child’s mortgage application, you assume joint responsibility for the loan and agree to be responsible for the mortgage payments if the child defaults. This can help increase the child’s borrowing capacity and improve their chances of securing a mortgage with favorable terms.

However, co-signing comes with risks, as it ties the parents’ credit and finances to the child’s mortgage and can impact their financial stability. It’s crucial to understand the potential implications and have open and honest conversations about financial responsibilities and contingencies. That’s why it’s essential to consider your own financial stability and credit score before agreeing to co-sign.

First Home Savings Account: If you’re thinking about supporting your child’s home-buying journey in the future, consider contributing to the new First Home Savings Account. You can contribute up to $8,000 per year ($40,000 in total), giving your child a bonus tax deduction for those contributions, which can further bolster their downpayment savings – a big win for their future as a homebuyer!

Factors to Consider When Determining Your Child’s Preparedness

While parents may have the means to assist their children financially, it’s equally important to assess the child’s readiness for the responsibility of homeownership. Factors to consider include their financial stability, employment status and income, credit score, and ability to handle mortgage payments and homeownership responsibilities. Honest conversations about the financial commitment, maintenance, and potential challenges of homeownership will help ensure that your child is prepared for this significant step. For some children, renting may be a better option until they are more financially stable.

Personal Financial Situation

It’s crucial to consider your own financial situation when deciding how to help your child purchase a home. While you may want to give a generous gift or co-sign the mortgage, it’s important not to jeopardize your financial stability. Consider your retirement plans, debt obligations, and long-term financial goals. Ensuring your financial stability is vital to provide meaningful support to your children without jeopardizing your future.

Marriage and Property Law Issues

If your child is married or in a common-law relationship, it’s essential to consider the implications of property law. Understanding spousal rights, potential separation scenarios and legal agreements can help protect everyone’s interests. Consulting with a family lawyer specializing in real estate matters can provide valuable guidance.

Family Harmony

Finally, it’s essential to consider how assisting your child with homeownership could impact family harmony. It’s not uncommon for financial transactions between family members to cause tension or strain in relationships. It’s important to communicate openly about expectations and ensure that everyone is comfortable with the arrangement.

Government Incentives

In addition to parental assistance, several government incentives are available to first-time homebuyers. These include rebates on land transfer taxes, first-time buyer tax credit, grants for energy-efficient upgrades, and more. Parents can help their children navigate these programs and ensure they take advantage of all available benefits. A detailed overview can be found here.

What’s the bottom line? 

Opening the door to homeownership for your children is a significant milestone that requires careful consideration and planning. By understanding the challenges faced by homebuyers in Mississauga, Toronto, and the GTA, exploring available ways you can help, assessing your child’s readiness for homeownership, and navigating potential legal and financial complexities, you can provide meaningful support while mitigating risks for all involved.

Remember to prioritize open communication, consider your personal financial situation, and seek professional advice when needed.

By: Bola Ricky

Buying your first home is an exciting milestone in your life, but it can also be a daunting process, especially when it comes to navigating the complex world of mortgages. There are so many factors to consider, making it stressful to know where to start. Fortunately, you don’t have to face the process alone. We’re here to guide you and help you make informed decisions.

By taking a few key steps and understanding some important considerations, you can become a successful home buyer. One of the most important preliminary steps before entering the market is getting pre-approved for your mortgage.

What is a Mortgage Pre-approval?

A pre-approval is the cornerstone of any successful purchase strategy and one of the most important considerations for any aspiring homeowner. It’s a conditional commitment from a lender that they will provide you with a mortgage up to a certain amount. This pre-approval is based on your financial information, including your employment and income, credit score, and debt load.

Being pre-approved does not mean that your mortgage application has been approved; it just means that if all goes according to plan, it should be approved once all paperwork has been assessed and submitted. Additionally, your lender cannot give you a final mortgage commitment unless they assess the property you are buying to make sure it meets their guidelines.

Why is Mortgage Pre-approval Important?

Getting a mortgage pre-approval is essential for first-time homebuyers because it provides you with a realistic idea of how much home you can afford. With a pre-approval, you can set a realistic budget for your home search and avoid the disappointment of falling in love with a home you can’t afford. You’ll also learn what your monthly payment will be and get a rate guarantee for up to 120 days.

Getting a  pre-approved may give you increased leverage during negotiations and help ensure that your offer is taken seriously by sellers. The seller will want to know that you have the financing in place to complete the sale and may be more likely to negotiate. However, this does not guarantee that your offer will be accepted or that you won’t have to compete with other potential buyers.

Other Important Considerations for First-Time Buyers

While mortgage pre-approval is a crucial factor in the home-buying process, there are other important considerations you should keep in mind –

  1. Your downpayment: One of the most significant home expenses is the downpayment. The minimum down payment in Canada is 5% of the purchase price for homes up to $500,000. For homes between $500,000 and $1 million, the minimum down payment is 5% on the first $500,000 and 10% on the remainder. Homes $1 million or more require a minimum down payment of 20% of the purchase price.
  2. Downpayment assistance – Making your dream of owning a home more achievable may begin with support from loved ones. A parent or grandparent could provide a monetary gift towards your downpayment. They will need to provide a signed ‘gift letter’ that the funds are a true gift, with no need for repayment.

    The Federal Home Buyers’ Plan (HBP) can give you a significant downpayment boost. It allows first-time buyers to withdraw up to $35,000 ($70,000 for couples) tax-exempt from their RRSPs, if the funds have resided in the retirement plan for 90 days. The funds need to be repaid over 15 years or the money becomes taxable.

  3. Help with qualifying – An option for boosting your chances of getting a mortgage approval is to get a consignor, which typically is a family member. This involves adding their credit history and income to your application to strengthen your position. As a result, the co-signer is equally responsible for the mortgage and will be listed on the home’s title.
  4. Home inspection: It’s highly recommended to have a professional home inspection done before purchasing a home to identify any potential issues. Home inspections typically cost between $500-$1,000.
  5. Closing costs: There are several fees associated with finalizing the sale of a home, such as legal fees, appraisal fees, title insurance, and land transfer taxes. Closing costs can add up to 2-4% of the purchase price of the home. Be sure to have this extra amount set aside, along with your moving expenses.
  6. Recurring monthly expenses: Also remember to budget for your monthly homeownership expenses like taxes, utilities, maintenance and repair costs, and insurance premiums, all of which must be factored into the cost of ownership.

From obtaining a pre-approval through understanding closing costs —there are plenty of steps you must go through before settling into their perfect place—but by taking care of business early on—you’ll end up better prepared than most when confronting competition from other buyers who may not have done their homework!

The bottom line is that buying your first home doesn’t have to feel overwhelming! Doing research beforehand and understanding all aspects involved with purchasing property will help ensure that the process goes smoothly and without any major hiccups along the way. When you know what goes into becoming an educated and successful first-time homebuyer — you’ll have no problem finding that perfect place at the right price!

For first-time buyers in Mississauga, Toronto, and the GTA, remember that you are not alone, we will be your guide along the way and with you every step of the way. Joe Purewal and Team specialize in helping first-time buyers. They have access to lower rates and will get you quotes from multiple lenders, and they’ll advise on downpayment strategies and the documentation you will need to gather. Joe Purewal is ready to start answering your questions and get your preapproval started!


Q: Can I still get preapproved for a mortgage if I have a low credit score?

A: Getting preapproved with a low credit score may be more challenging, but it’s possible. Lenders will consider other factors such as your income and debt-to-income ratio when making their decision. We can give you advice on how to improve your credit score.

Q: What is mortgage default insurance?

A: Making a downpayment of less than 20% comes with an added cost: default mortgage insurance. This insurance is mandatory and designed to protect the lender in case of financial loss. The premium is typically rolled into your mortgage amount, increasing your monthly payment. If you put down 5%, the premium will be 4%, 10% down will require 3.1% premium, and 15% down requires a 2.8% premium. However, if you can make a downpayment of 20% or more, you can skip default mortgage insurance altogether.

Q: Can I change my mortgage type after I’ve been preapproved?

A: Yes, you can change your mortgage type after preapproval, but it’s essential to understand that this may impact the terms of your mortgage, including the interest rate and monthly payment.

Q: Should I work with a real estate agent?

A: Yes, you should. A real estate agent can provide you with access to listings, offer advice on the home-buying process, negotiate on your behalf, and provide guidance on neighbourhoods and market trends. They can also help you navigate legal and financial considerations.

Q: What is a financing condition? 

A: A financing condition should be part of your offer to purchase. It ensures that if you don’t get a final mortgage commitment, you can get out of the deal. It gives you the necessary time and space to secure your mortgage approval, ensuring you have the funds you need to successfully purchase your home. So, before you sign on the dotted line, make sure you add this crucial precaution to your offer.

Q: What are some tips for negotiating when buying a home? 

A: Some tips for negotiating include doing research on the property and neighbourhood, being flexible on the closing date, being prepared to walk away if the negotiations are not going in your favour, and working with an experienced real estate agent who can help you negotiate effectively.

Q: What are some common mistakes to avoid? 

A: Common mistakes include not getting pre-approved for a mortgage, not doing enough research on the property and neighbourhood, not budgeting for all the associated costs, and not having a home inspection done before purchasing.

Q: How can I make my offer more competitive when buying a home? 

A: Some ways to make your offer more competitive include offering a higher price, being flexible on the closing date, offering a larger deposit, and having a pre-approval letter from a mortgage broker or lender.