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Making Cents of Life – Your Home Ownership Teammates

Your home ownership teammates

You know your budget. You know your location. You know how much mortgage you’ve been pre-approved for. 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 offense 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 is there to educate and really represent you in your corner during the home buying process. (there are actually 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 client – strategies are aligned then with the best lender to offer the unique terms, rates, conditions that then match – to simplify: we work for our client to find best solution without bias – we do NOT work for any 1 bank.  We want to present solutions and show the pro’s (and more importantly the CON’s 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 as you now enjoy home ownership.

Often times the usual request is “I want your best mortgage, whats your cheapest rate” – I make the joke similarly that the “best” steak I have had, was certainly not the cheapest one … similarly you can’t walk into Star Bucks and order a Venti Latte and also ask them for it at the price of McDonalds small coffee, its just not the same product. In mortgages, we do have “cheap” lenders – its 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 3 in Canada).   Days end you’re going to get what you pay for, so ensure you’re educating yourself on all the terms besides just the rate – its 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 think of this in a comparison as Brokers being like a huge Beer-Store with every kind, 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.  They don’t have prejudice as I’ve found they truly want me to obtain the product to fit my needs and see me as a satisfied consumer.

A Bank – would be like going to a beer store where they have only 1 beer available (the horror I know!) as they would then have to try and convince you that the only beer they offer is what you’d want.

You can test this theory: head to your bank, ask for a mortgage and then ask them to outline what their competitors are offering, in which way is their product inferior and review even 4 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 1 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 at days end “direct you” to a lending solution – we’ll generally be able to discover after working together, looking at future goals and needs, getting to you’re your budget,  etc. what is going to be best and encourage you to take this lender!  Selfishly, if we’re “pushing” towards one or the other, I want you to be with the one that gives you the best fit and we have years experience with lenders over thousands of mortgages – I want you happiest (thus referring others that we can assist with as well)

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 give yourself a filling or perform your own appendectomy – BUT, I’d rather leave complex procedures to skilled and highly trained professionals.

When buying a home, you actually pay nothing to the realtor – the sellers pay their commission, so you have a pros searching for you, when viewing the homes outlining potential issues and when making offers a seasoned negotiator ensuring you get the best deal (and doing all the paper work as well)

I hear often people have elected to do the search themselves and there’s a couple reasons (both flawed)

  1. “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)  and you might further discover when you do find a house, its already sold by the time you get there. Agents “open houses” generally occur during the week before the home is brought to open-houses, so you’ve missed out again my friend.
  2. “I’ll find the house and just use the listing agent as my agent as well as I hear they will get a reduced commission and maybe I’ll get a cheaper price”  – lets 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 example $500,000 that is then a $5K savings by the sellers – you might just get that $5K off the purchase price … OR you could have had your own agent representing you that found comparable properties and more probable, was able to negotiate even further than that amount.

Do I need a lawyer? 

Yes – short and simple a lawyer is required to register the new home, search for any title defects and represent as an intermediary again between the lender, sellers and yourself.
NOTE: while you’re at the lawyer, we always strongly suggest you set up a will and power of attorney as well if you already haven’t!  Getting it done while you’re already there will also generally 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 again 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 they can to save money and you’re then risking actually closing on time of your purchase (and might suffer the legal liability and cost should it not).

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 – but also review the “fine print” of each provider.
Example: a major insurance provider (won’t name names here) was offering a client great rates on their home, with the large flood in Burlington we had 2 years ago, sadly their home also now came with an indoor pool that day (previously known as their basement) so 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 as was their policy restriction. 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 required in the process… that represent you to avoid costly mistakes such as picking TD (whoops).

When we start house hunting, what should we look for once we’re in the house? 

Great question – 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 & keeping 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. etc  We are again 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 – which is actually going to be amended to add a few more:

11. Hiring movers (replacing all the things your friends break can cost more than movers)

12. Adding cost to complete a will and power of attorney to the legal fees (about $500)

13. 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 FP 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 FP.  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 6 months (because markets change) and manage your funds for tax efficient planning.

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