30 Mar Get an education before you get a house

 Financing: Economic literacy is crucial for first-time buyers

 Postmedia News March 30, 2011

  Two years ago, when Michelle Gompf and Jesse Bagelman started thinking about buying a house, they assumed it would be impossible to qualify for a mortgage because of some heavy debt and Jesse’s status as a self-employed stone mason.

A friend in real estate suggested Gompf speak with a mortgage broker to see how close she was to qualifying for a first-time mortgage.

“The broker really worked his magic and next thing you know we were approved with a monthly payment that was less than the rent we were paying for our basement apartment,” she says.

She admits she knew little about the mortgage process initially.

“For the most part, the first-time homebuyer doesn’t know anything about financing a home,” says Sandra Grywul, owner of Always A Mortgage in Toronto. “It’s funny because buyers are thinking so much about what neighbourhood they want to live in, how many bedrooms, bathrooms, square footage. But they’re not thinking about what kind of mortgage they want to enter into.”

And buyers shopping for a mortgage have a lot of choices to sift through. Fixed term or open? Variable or fixed rate? Should they use their RRSPs for a down payment? But Grywul says those decisions should be made after the buyers have tackled the most important element, which is knowing how much mortgage they can afford.

Toronto real-estate agent Cameron Weir has worked with a number of first-time home buyers. He says it’s exciting to watch people go from being renters to owners. He says mortgage pre-approval is vital because it allows the buyer to be nimble in an active market.

“A lot of times today we find that there’s more than one offer in on a property. And if you don’t have everything set with a pre-approval, when your perfect property comes up you can’t close the deal without arranging financing first. While you’re working that out, a competitor who has already done his homework might make a firm offer at the same price and unfortunately you’ll probably lose that property.”

Weir describes the first time buyer as “very excited, very nervous, lots of questions. It’s the biggest purchase they’re going to make, after all. But along with that, they’re also pretty cautious.”

Gompf’s fear of high lawyer fees made her cautious. She was also concerned about having a stable and predictable monthly mortgage payment, so she chose a five-year mortgage and a fixed interest rate on the house she and her husband took possession of in February.

“With a variable rate, I worried that I don’t have a lot of experience with these interest rates and anything could happen. But the five year term gives me security right now. So I have the current safety net and hope for something better when the five years are up.”

In considering all the details and requirements of financing a home, Weir says “the most important thing is to find the right place, at the right price at the right time.”

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