Another day, another post guiding you through your adulting challenges. My husband and I borrowed our first mortgage about 5 years ago. Since then, we sold that first home, bought a new one and with that a new mortgage. This process was even more confusing than the actual real estate side. This is where the money starts talking!
Because I am far from an expert I reached out to Reza Sabour who has 15 + years experience working for big banks & now as an independent broker. I specifically chose to reach out to Reza (even though unfortunately we haven’t had the chance to officially work with him – we met him after we moved!) Because I believe he has set the new standard for what brokers should offer to their clients. Truly living with the goal to be there for each client he helps & works with. I am so appreciative that he accepted the offer to help me spread knowledge to all of you trying to adult out there!
Before we dive into Mortgage Broker/Big Banks (Mortgage Speciaist) lets back this up a notch and answer a couple questions we probably already have & give some insight to help us better understand.
1) What is a mortgage?
A mortgage is a contract that outlines the repayment details of a loan used to purchase a property. This is not the total purchase price of the property you are buying – it’s the remaining balance owing after you have placed your downpayment. Remember, like anything in life nothing comes free and with that when you borrow money from a lender it comes at the cost of interest (just like a car loan, student loan, credit card debt etc.)
What is amortization and how is it different from the term of the loan?
Amortization is the scheduled length of time to repay your loan to the bank. Terms set the parameters of your mortgage.
You buy a condo for $200,000, put $15,000 down = $ 185,000 mortgage (not including the interest that would be added on of course!)
Let’s assume you want your payments small & choose a 25-year amortization (it will take you 25 years to pay off your condo if you never sell, put extra money down etc.)
You agree to 5-yr fixed-rate mortgage (the term).
This means that for the first 5 years you’re living in your condo & paying your mortgage loan back you will have a fixed interest rate.
Interests rates are consistently changing (especially here in Canada where the government is trying to get a hold of the real estate market!) so when you agreed to your terms; let’s say the interest rates were 3% (I just chose the first number that came to mind). No matter how much they go up or down, you will pay 3% for the first 5 years. When your term is up, you are no longer protected by your terms and if the interest rate is 4% your monthly payments will be increased but if it’s gone down then your payments will be decreased.
There are various different options when it comes to these terms, like a variable rate (where your interest changes as the government/lenders change it. There is no right or wrong choice when choosing your terms/loan. This is something you need to talk to a trusted professional about and make the decision based on your personal needs & abilities.
Hopefully we now have base knowledge of what a mortgage is and how it works the first question is, who helps you get a mortgage?
Before I dive in any further – I do want to say most of this post is focussed towards Mortgage Brokers & not the big banks. I have found for myself personally I like working with a Mortgage Broker more, have received better service & built relationships with our brokers .
2) Who are Mortgage Brokers?
There are two types of people you can go to. A Mortgage Broker or a Mortgage Specialist from a big bank. Below I go into details of who a mortgage broker is, what they do and how they get paid. As well as the differences between a broker and specialist from a big bank.
Mortgage brokers are licensed financial professionals that search on your behalf for the best mortgage lender for their clients needs. They can reach out to over 50 of the top lenders across the country. There are a ton of factors that weigh-in on getting approved and then, the amount you get approved. Having a professional who understands your financial story and goals is important.
Mortgage brokers work independently from the lenders (big banks) themselves. Where Mortgage Specialist work specifically for a bank (ex. TD, RBC, Scotia Bank).
Who pays your mortgage broker?
99.9% of the time they are paid directly by the lender themselves. You don’t pay a penny! Now there is that 0.1% chance…and there are two reasons for that small percentage.
- When obtaining a commercial mortgage
- Or going through a private lender
I don’t feel it’s necessary to go into more detail as this blog post is for buying your first home!
Mortgage Broker VS Big Bank (Mortgage Specialist)
I know… we have NO idea what the difference was & to be honest I didn’t really know before I started researching for this post!
See my chart below on comparing a Broker vs. Specialist
|Broker Licensing||Yes (UBC Sauder School of Business)||No|
|Offer’s variety of options||Yes||No – can only offer the best deal their own bank is willing to give – not necessarily the best in general|
|Biased Opinion||No – they are working to find their client the best price||Yes – Again, they can only offer their own company’s product|
|Can offer advice based on whole picture||No – they only specialize in mortgages & lending||Yes – If you are dealing with your bank they are able to see the entire picture & offer other financial advice|
|Motivation/dedication (opinion from experience)||I find mortgage brokers to be more thorough, better communicators & have a faster response time. In the end they are not guaranteed any sort of business by not having bank to back them and essentially are like a small personal business.||They are essentially “guaranteed” business just by working for the bank. I found them not as detailed oriented, slower & poorer communicators|
|Best Rate||Yes – because they have the flexibility to shop around||No – because they can’t shop around|
I suggest talking to both your bank & reaching out to mortgage brokers. This is a huge life decision and purchase with a bunch of lingo and information you probably don’t have too much knowledge on. That’s why it’s important to find the right fit for you and not necessarily what your friends, parents or aunts & uncles use.
3) How do you get a mortgage?
For you, it’s relatively easy. All it requires is a couple basic documents to help prove your job, income, expenses, debts & assets. The best place to start is by reaching out to your Mortgage Broker (we will get to finding one a little bit later on in the post). Chat on the phone, talk over email, meet up for a coffee…find a broker and line of communication that works best for you. They should talk you through the beginning steps and ask for you to provide certain documents. Once your broker has all the information they need they will begin to shop around for a pre-approval. This leads me to the next question…when?
4) When do you start this process?
The pre-approval process should be done before you start a search with your realtor. It provides you with a guideline on your max budget (this can change sometimes and is worth a conversation with your broker.) It also helps make the offer process go by a lot faster when you have found your dream home. I said it in my Finding a Real Estate Agent post & I’ll say it again! If the thought is there to start the search of buying a home thats when you should reach out to a mortgage broker and realtor. Even if you’re not serious it helps you understand where you’re at financially along with where the market is.
Once pre-approved the mortgage rate that was offered to you is good for 120-160 days. If your approval expires before you purchase a property then you are no longer guaranteed the original mortgage rate offered to you. Pre-approvals do take a small hit on your credit score – but if you’re serious about buying its something that has to be done and that shouldn’t’ deter you – just don’t go for a pre-approval all the time for the hell of it! 😛
5) What do you need?
I have a list below of the documents/information your broker should be asking for. Please note you need slightly different information if you are self-employed (which I also outlined below.)
If you’re employed by a company:
- Your broker should have you sign off on an application & consent form to allow them to work on your file & receive your credit score from one of the two credit bureau’s
- An employment letter from your employer that outlines the following:
- Full name
- Annual/hourly income (if you’re like me & serve then add in your average tip amount as well)
- Employers contact information
- If you’re hourly listing your weekly average hours
- A recent pay stub (again, if you’re like me and have inconsistent hours I always like to grab 2/3 pay stubs)
- Proof of downpayment funds
- 2 pieces of ID (one has to be government issued)
If you’re self-employed: All of the above +
- Last 2 years of T1 General Tax Return
- Last 2 years of Notice of Assessments
6) Where do you find a mortgage broker?
Well…how about online? Having a broker who is up to date on market trends is important. Google, instagram, facebook, friends & family or your realtor. The options are endless and there are a ton of different people out there. Finding one that suits you and your needs best and that you feel comfortable communicating with is most important.
Lastly I asked Reza for qualities to look for and red flags along with some final advice for you all!
7) Qualities to look for & questions to ask:
- Make sure they have accreditation (in BC you receive an MBI)
- Do they have good reviews online? (facebook, google, webpage)
- Ask about their experiences – how long have they been in the industry, how many mortgages they’ve funded
- Talking to them about their preferred communication methods & discovering if they like to work closely with your realtor or not
- Also asking how they work under pressure – in real estate deals can sometimes go very quickly and you have to make sure you have a broker who is readily available and willing to work in a crunch.
8) Red Flags to Look For
- Are they asking for a fee when you’re not taking out a commercial loan or using a private lender? Ditch em!
- Search them up on this website —> www.fic.gov.bc.ca/web_listings/mbsblisting.aspx to make sure they are registered to work in BC
- If they’re offering to forge documents, falsify information or by-pass on providing certain information on your credit score or income structure then ditch em!
Last advice from Reza
“Enjoy the process! Trust your Broker has your best intentions in mind and try not to stress. A good broker will be with you each step of the way and will ensure you understand all the information that is presented to you so that you feel confident about what is likely the biggest financial decision you will make!”