When the time is right for you to make the big move and become a homeowner, the first big step is to find the right bank or financial institution that can offer you a mortgage with a good interest rate. But with so many banks and other lenders vying for your attention, how can you be sure you've found the right place?
In this article, we'll describe exactly how to assess your options, and find the right place to apply and qualify for a mortgage that's right for your budget, income level, and needs.
Doing Your Research
The first step to finding the right lender is to budget plenty of time to do research.
Start by asking friends, family, and colleagues for tips, advice, and recommendations. Visit the local branch of your bank or other mortgage lenders and request printed documents that list their offers. Go online to visit websites from mortgage lenders to request their current rates and offers. Make sure you know and understand mortgage rate increases.
Once you've begun to receive information, record it either on your computer or on a piece of paper, detailing things like interest rates, mortgage terms, and amortization periods. With this data, you can use our handy mortgage calculator to see what you'll be committing to should you agree to borrow money from each lender and determine what you can afford.
After you've assembled a list of the top five lenders that have favourable terms, rates, and conditions, it's time to take the final step - performing a background check. If possible, find past clients and speak with them. Look online for reviews, feedback, and comments. And don't be afraid to ask lenders any questions you have, including how long they've been in business.
Last, but definitely not least, talk to loan officers and get a feel for what kind of person they are. If your "gut" tells you that something is off, it's important to heed your own intuition. Likewise, a loan officer should make you feel comfortable, especially considering this is whom you'll be dealing with for years, possibly even decades.
Tip: If you're worried about your email inbox being flooded with mortgage quotes or ads pestering you with offers popping up everywhere you go on the web, you can set up an email address to be used solely for researching mortgage lenders. You can also set your browser to "incognito" mode or activate ad blockers to stop from being inundated with offers.
Your Builder's Preferred Lender
Another really great place to turn to for advice on a financial lender is to ask your builder.
Your builder does a lot more than work with you to customize your home, organize subcontractors, and perform the construction work to transform sets of plans into a home. Your builder also has years of experience working with people to find the right lender.
Although you may initially be concerned your builder would only recommend a lender because there's a financial benefit to them (such as a commission or kickback), that's not usually the case. Commissions are strictly regulated by law in Canada, and only a licensed mortgage broker is able to collect them.
What's far more likely is that your builder benefits from seeing families be able to afford quality homes. For instance, most mortgage companies offering fixed-rate mortgages will only offer a "lock-in" period for 30-60 days after which the interest rate could rise. While that's plenty of time for a family to move into a home that's already built, it's usually far too short a period of time for a new home to be built.
Builders, therefore, often work with a shortlist of preferred lenders who understand that families moving into new homes need a longer lock-in period. Depending on a number of factors, the lender might be able to extend the lock-in period for up to a full calendar year. This can mean you get a better mortgage rate.
Another benefit to working with a builder's preferred lender is that many banks struggle with the appraisal process when dealing with a newly developed community. Without a long history of price valuations in the neighbourhood to compare with your property, banks can often struggle to find a way to confidently assess the value of your home.
But lenders with an established relationship with your builder have a far better understanding of not just your individual property but also the new community as a whole. The lender can, therefore, assess the future value of your home with greater confidence, streamlining the mortgage qualification process.
With a little bit of planning and research, you can save yourself countless headaches and thousands of dollars by sifting through the various lenders in order to find the right one. Considering that you'll be committing yourself to decades of payments, doing your homework ahead of time is definitely worth the effort. As part of your due diligence, be sure to inquire with your builder about their recommendations for a lender.