Getting pre-approved is one thing, but when it comes to applying for a mortgage, the process can be confusing and intimidating, especially if you’re a first-time buyer. There’s an extra layer to the process if you’re buying a new construction home.
We had the opportunity to chat with a first-time buyer, Erin, who is currently trying to find the best mortgage option for her and her husband. They bought a new condo in Toronto in 2016 and occupancy is scheduled for the end of this year. They put 20% down and their household income is nearly $100,000 a year.
Newinhomes (NIH): While you’ve been mortgage hunting, what’s been the most confusing thing so far?
Erin: Learning all the terminology, definitely. Bankers speak pretty quickly, so I’ve had to slow them down and get them to explain things to me. And rates still confuse me a lot. I’m still not entirely sure how they’re even calculated, I just know that the lower the better.
NIH: Are you worried about the rising interest rates?
Erin: It’s definitely on my mind. I know we can afford it because when we were pre-approved two years ago, we were approved at a rate just over 4%. With rates going up and the stress test, I’m nervous. We actually put down 20% so we didn’t have to be subjected to the stress test, but then that rule changed. I think we’ll be okay though.
NIH: Can you tell our readers when the best time to get approved is when it comes to new construction?
Erin: This confused me at first. We bought in a new condo, so we’re moving in before the building is registered and we’ll be paying fees to the builder (interim occupancy fees). This is like rent. It’s not for our mortgage. We don’t need our mortgage until final closing, but we don’t even know when that is. The builder will be notifying us. So we’re just doing research now to figure out what we need to do. Apparently it could be months after occupancy before final closing, so I don’t even know the best time. A couple banks told me a month before closing is safe, and I talked to a lender who said they could hold our approval for up to six months.
NIH: Aside from the confusion you’ve already experienced, what else has been one of your greatest challenges?
Erin: Being self-employed doesn’t help. My husband is on salary and works for someone else, so it’s easy enough to get his financials together, but I’m self-employed, which means I need to supply way more paperwork to prove I can afford the mortgage payments. I’ve had my business for more than two years, so that’s good, but every bank I’ve talked to definitely feels less confident when I tell them I’m self-employed. The funny this is, I’ve been working in my field for so long and if my business ever were to fail, I’d likely get a job making way more money than I do working for myself. It’s frustrating because banks don’t see it that way.
NIH: Any final mortgage tips for our first-time buyer readers?
Erin: Shop around. Get printouts of what other banks and other lenders are offering you. Then return to the lender you feel most comfortable with and show them the lowest rate you’ve been offered. I’ve noticed that while banks may be giving me a hard time about being self employed, they’re still willing to match rates in order to get my business. I may even end up going with a lender that is supportive of me being an entrepreneur even if they can’t offer me the lowest rate. I need to feel like my best interest is in mind in order for me to be comfortable with my lender.
We extend a big thank you to Erin for taking the time to share her experience so far shopping for a mortgage as a self-employed professional in Toronto.