You know your budget. You know your location. You know how much mortgage you’ve been pre-approved. Now the hard work begins; house hunting! Some people will tell you they love house hunting. The thrill of MLS listings flooding your inbox, the joys of comparing and contrasting homes, the happiness of falling in love with your dream home. Others, well, others hate it like getting a cavity filled at the dentist (no offence to dentists!) The grind of house hunting coupled with the bidding wars can be draining, frustrating and exhausting. When we bought our condo back in 2010, we had seen, what felt like twenty condos within a two month period. It was exhausting. Thankfully, we finally found one and had an amazing time living in the city, in a great neighborhood and a fun lifestyle.
As you have been reading these posts, you’re realizing there is a LOT that goes into the home ownership process. We’ve dissected the money, now, along with James Loewen from Loewen Group Mortgages, let’s look at the players involved.
Hi James! We have chatted a lot about the money side of buying a home. Time to chat about the people involved. Let’s start with an easy one. What’s the benefit of having a Mortgage Broker?
A Mortgage Broker educates and represents you during the home buying process. There are over 35 banks / lenders / trust companies / credit unions we have access to for our clients. Solutions are presented based on the needs identified of our clients. Strategies are aligned with the best lender to offer the unique terms, rates and conditions. To simplify; we work for our client to find best the solution without bias. We do NOT work for any one bank. We want to present solutions and show the pros and more importantly the CONs of each lender to ensure you’re making an educated decision. Your broker then walks you through all required documents and liaises with all parties required up to and even after closing.
Often times the usual request is “I want your best mortgage, what’s your cheapest rate.” I make the joke that the “best” steak I have eaten and it certainly was not the cheapest one. Similarly, you can’t walk into Starbucks and order a Venti Latte and ask for it at the price of McDonald’s small coffee. It’s just not the same product. In mortgages, we do have “cheap” lenders , it’s our role to ensure you know what you’ll be sacrificing (such as ability to pay down faster with prepayment options), giving up (such as online banking) and be restricted to (such as not being able to port or bridge in the future or even refinance the house to access equity). Though the rate may look cheap up front, the small print and fine terms could end up costing you dearly in the future as breakage fees on some of these can be as high as 3.75% of the balance of the mortgage (and we have the data showing over 75% of people change terms of their mortgage by year three in Canada). Ultimately, you’re going to get what you pay for, so ensure you’re educating yourself on all the terms besides just the rate. This is only 1 of the 8 factors we review of each mortgage option.
What is the difference between getting a mortgage from a Mortgage Broker and a bank?
I like to compare this as Brokers being a huge beer store with every size, brand and type of beer selection available and staff that will give opinions, insights, recommendations and even point out which are on sale or good value.
A bank would be like going to a beer store and there is only one beer available (the horror I know!) They would then try and convince you that the only beer they offer is what you’d want.
You can test this theory. Head to your bank and ask for a mortgage. Then ask them to outline what their competitors are offering. After that, ask for the downsides to their mortgage and review other competing offers that might fit your needs even better than what they’ve presented.
You can even cheat and bring our “how to shop for a mortgage” questionnaire with you!
They can’t, and if they did, management would more than likely fire their butts for doing it!
Your broker will have access to major banks as well (TD, Scotia etc) and can compare these with you to the other providers, using only one credit bureau being pulled that’s 35 options being shopped for you at NO cost (and you’ll save spending 40 hours yourself trying to do it).
I’ll be honest here and admit we will “direct you” to a lending solution. We’ll discover; after working together, looking at future goals and needs, and knowing your budget, what is going to be best and encourage you to take a certain lender! Selfishly, if we’re pushing you towards one lender or another, I want you to be with the one that fits best.
Why should you use a Real Estate Agent? Is there benefit to going solo in finding a home?
In the spirit of comparisons, I like to assimilate this to the fact you “could” just Google how to perform your own appendectomy, BUT, I’d rather leave complex procedures to skilled and highly trained professionals.
When buying a home, you pay nothing to the realtor; the sellers pay their commission and you have a pros searching homes for you. Realtors can help point out potential issues in a home and when making an offer, it helps to have a seasoned negotiator to get you the best deal.
There are a couple reasons why some people may search on their own:
- “I’ll be able to find the home myself on the public MLS.” Maybe, but you won’t see or have access to the homes that are sold with exclusivity (meaning they aren’t brought to the MLS system) you might discover that a home is already sold prior to you seeing it. Agents “open houses” generally occur during the week and before the home is brought to open-houses, so you’ve missed out again.
- “I’ll find the house and just use the listing agent as my agent. I hear they will get a reduced commission and maybe I’ll get a cheaper price.” Let’s start with who has hired the listing agent: THE SELLER. They have been hired by them to represent their interests in obtaining the best sale price / terms as sellers. How then are they going to also represent you as a buyer now? (Have you ever tried to arm wrestle yourself or suck and blow out of a straw at the same time … yeah, you can’t). The other argument, of the agent paying less commissions, may be true of around 1% of the sale price. If that home is for $500,000, which is a $5,000 savings by the sellers. You might just get that $5,000 off the purchase price. OR you could have had your own agent representing you that found comparables and able to negotiate to an even lower amount.
Do I need a Lawyer?
Yes. A Lawyer is required to register the new home, search for any title defects and represent as an intermediary between the lender, sellers and yourself. While you’re at the Lawyers, we always strongly suggest you set up a Will and Power of Attorney if you already haven’t! Getting it done while you’re already there will also save you a few of your hard earned dollars! We’re very selective on Lawyers we prefer to use, and will refer a few trusted partners. This is NOT the time to “skimp out” and get the cheapest one, as a low-cost lawyer will not make the time to speak with you. They’ll be hiring the lowest cost legal clerks to save money and you’re risking closing on time of your purchase. You might suffer the legal liability and costs.
What about an Insurance Broker?
Absolutely. The saying “Brokers do it better” I think says it all, though I may be slightly biased!
Similar to your mortgage broker, an insurance broker will review over 26 competing insurance companies which can save you on the monthly costs and review the fine print of each provider. For example, a major insurance provider (won’t name names here) was offering a client great rates on their home. Two years ago, there was a large flood in Burlington and sadly their home became an indoor pool. They contacted their provider only to learn that of the $98,000 it was going to cost to remediate the water, sewage, renovate and then replace all their contents, ONLY $25,000 of this would be covered. The $9 a month perceived savings had now cost them almost $75,000!! We work with AMAZING insurance brokers that are actually our neighbours and happy to make a warm introduction.
When we start house hunting, what should we look for once we’re in the house?
Great question! First, look for the agent that should be representing you, this is their expertise and will ensure you’re aware of what to be looking for and keep you focused. While you’re busy picturing having breakfast in the open kitchen, they should be looking for comparable sales, time on market, deficiencies in the house, seals on the windows, layouts issues, neighbourhood amenities, school options, etc. We are very selective in realtors we work and will refer based on experience working with them, personality and geographic requirements unique to each client.
You’ve chatted about closing costs in previous posts. Besides land transfer tax, what other fees should we budget?
To save length in this blog, we’ve done another full blog outlining the 10 Closing Costs and going to be amended to add a few more:
11. Hiring movers (replacing all the things your friends break can cost more than movers)
- The additional cost to complete a Will and Power of Attorney (about $500)
- My birthday present for being your favourite mortgage broker 😉
Is there anyone else you should include as part of your home ownership team?
We also like to see each client working with a trusted Financial Planner. No, not your bank representative that is primarily trained in credit and can only offer balanced mutual funds. You’ll want a true Financial Planner that specializes in asset creation and management that can shop similar to a broker to provide selection of investment vehicles from across the market. We want to integrate our credit-strategy with your insurance-strategy AND your asset-strategy developed with your Financial Planner. The budgets we completed to purchase your new home will have included allocated funds for savings and retirement / family planning such as TFSA, RRSP, RESP, Term policies, CI policies, Whole Life, etc. As above, we’re selective and will ensure you’re connected with a trusted advisor that will be meeting with you at least every six months (because markets change) and manage your funds for tax efficient planning.
Whew, that was a lot! Who knew that so many people were involved in this process?! We all want to save a buck or two. However, be wary about where to save those dollars. You don’t want to skim costs on things that matter. This is a MASSIVE investment and you want to make sure you have the best people working for your best interests.
Now that we have the money and people figured out, let’s chat more about what you do once you find THE home. Join us next week when we discuss the bidding process (how to move on from disappointment when you lose out on a home…again), what to do on closing day and figuring out those pesky property taxes.