I recently appeared as the first guest in the Bank of Montreal's Ask An Expert" video podcast series, hosted by John Turner, BMO's Director of Mortgages.
The subject of my interview was "5 Great Tips for First-Time Homebuyers." The following is an edited summary of my comments; the entire video interview can be seen on YouTube.
Tip #1: Practice Makes Perfect
How can first-time home buyers practice for that inevitable reality of having a mortgage?
I think that most first-time home buyers currently are paying rent - unless they're living at home - so they're used to paying for accommodation. The issue will always be, are you willing to cover all the costs associated with home ownership? And the only way they can make an educated decision on that is to have somebody - a realtor or a mortgage lender - explain all the variables of home ownership.
Tip #2: Saving for the Down Payment
An individual or a couple or family make a decision that if they ever want to move into a home, they have no alternative but to start to save. There are many vehicles available - RRSPs if they're first time buyers. They have to come up with a 5% down payment and enough funds to pay the closing costs and that varies from 1.5 to 2%.
Always have a buffer, because there's always going to be something that's unexpected. You really don't want to be house-rich and penny-poor. And so it's better to allocate some money when you're making your first home purchase. You can also approach your family with regards to gifted money to assist you for your first purchase. But you can't get in with nothing down.
Tip #3: Get the A-Team
Find a realtor that will take the time, has the patience to really explain to you the buying process. And they're going to introduce you to a lawyer who's going to protect your interest, is going to make sure the mortage gets applied properly on your property.
And you want a really good home inspector... not give it a once-over, but really tell you if there are any deficiencies. Because you're going in there, generally speaking, with limited knowledge on construction and that sort of thing...
You're going to end up asking for a survey certificate, or you're going to have to acquire a surveyor that's going to make sure that the home you're buying is on the property in a proper fashion that you're ont infringing on some rules that the city has. It is a complicated process.
And the other expert is the insurance expert, that's going to help you insure your home and contents against fire, floor, earthquake, depending on the area that you're in.
Usually it is the banker or the lender that will do the introduction to the players that will help you. Always ask 'why are you recommending this company, this individual?" and when you meet them ask for their references.
Tip #4: Know Before You Go
I definitely believe that a homeowner needs a pre-approval, it's imperative, especially in changing times. With interest rates fluctuating, if you get a pre-approval you can lock in the interest rate.
Tip #5: Pay as you get Paid
What I've noticed is homebuyers all of a sudden start to decide to reduce the cost of interest; they increase the amount of payments on their mortgage - either on a monthly or semi-annual basis, or they're making a a lump sum amount to get that interest down. Because over a period of 25 years if all you're paying is one fixed payment a month and the interest rate hasn't varied and you haven't made any adjustments - that's a lot of interest.
But I think lenders are very good at explaining the situation to the homeowner, and homeowners are paying attention to wanting to get away from debt.