In April, we were pleased to hear the announcement that the Bank of Canada held its key interest rate at 1.25 per cent. Canadians, especially first-time homebuyers, have been greatly impacted by the mortgage stress test and rate changes, which have increased the cost of mortgages in the last year.
What can consumers do to get into the housing market? I talked to Richard Woodhead, Regional Manager, Builder Marketing and Development of TD Canada Trust, about the current economic landscape. A new survey by the bank reveals that more than half (56 per cent) of Canadian first-time homebuyers are anxious and afraid that they’ll forget to take a crucial step as they gain their foothold on the property ladder. To reduce anxiety and stress, Woodhead recommends managing any existing debt, understanding all homebuying costs, making your mortgage work for you and, lastly, having the right home insurance.
A potential purchaser should meet with a mortgage provider and get an idea of their financial situation. The mortgage advisor will require background information, including verification of your job position and annual salary, and if you’re self-employed you will need to show your personal income tax return for the last three years along with proof of ownership of the business.
Lenders are required to fully document the source of your down payment and will need to verify through your bank or investment statements. It’s also important to be prepared to share details of your assets, such as vehicle(s), stocks and RRSPs, and to disclose any liabilities such as loans and outstanding credit.
“Take time to consider the many costs and steps associated with homebuying, and by anticipating expenses and adopting sound financial behaviours such as paying down your existing debts, you are setting yourself up for success,” explains Woodhead. “As soon as first-time homebuyers are able to get approved, they will have a better understanding of what they can afford. It’s wise to know what your capabilities are in terms of purchasing power.”
This is sound advice, especially if you’re looking at buying pre-sale. Get pre-approved for your mortgage as early as possible. Now that rates are starting to move, it’s wise to be proactive; The Bank of Canada is expected to announce further hikes later this year.
Often people don’t really know what they can afford – talking to a mortgage provider will help you identify that buying “sweet spot.” Woodhead’s final tip to home seekers is to make sure you thoroughly research the developer and understand their reputation.