A few of the resources I read mentioned it was a good idea to get a credit report prior to visiting the mortgage lender/broker, so any inaccuracies can be corrected in advance. They indicate the credit report can be obtained free of charge through Equifax or TransUnion.
I went to Equifax (note this was before their 2017 breach – I obviously now recommend you go to TransUnion instead). And their home page is a bit scary offering products protecting you from identity theft (I guess that didn’t help or protect those affected in 2017). But I was only interested in the credit report and score (the score is not necessary but it’s a nice single-number summary of your credit and I though it worth it). They have an option to purchase on-line for $23 so I went with that.
But remember the report can be obtained for free? understandably, this is not terribly visible in their front page, but there it is: “You can receive a free credit file disclosure from Equifax Canada Co. via Canada Post“. That link will take you to a form you can fill out and mail or fax (Fax, really?). So for the cost of a stamp and a bit of waiting you can also have your free credit report.
I was impatient and paid the $23, only to get a scary error when trying to get the report, which necessitated calling Equifax, in the course of the call they tried to upsell me on their credit report monitoring service (it’s cheaper, they said, only $16/month instead of the $23 you’re paying – conveniently not mentioning than the $23 is a one-shot charge). Which product you choose is up to you, just remember to stand your ground if you’re not interested in the more expensive one.
The credit report indicated a reasonably high score and no unusual activity, and should look good to any prospective lenders, so this phase is complete and we’re good to go!
One of the changes to mortgage rules for 2016 in Canada is the creation of the “stress test“, meant to cool down hot real estate markets and keep people from buying houses that stretch their financial capabilities.
If you’re going for a high-ratio (less than 20% down payment) mortgage, lenders are required by law to check your payment capacity as if your loan interest rate were as high as the standard five-year rate (which currently is 4.94%), even if your eventual mortgage will actually be at a much lower (currently around 2-2.5%) rate.
The FCAC calculator makes it very easy to check what your maximum loan will be, once this rule is taken into account. Just enter your information and your expected interest rate to calculate your real maximum mortgage. Next, change the interest rate to 4.95% (I went super safe and put in 5%). It will tell you you won’t qualify, but you can now play with the maximum property value until it shows you you’re likely to be approved.
In my case, it resulted in a reduction of 18% in the maximum price I could afford, which is not terrible because all my previous calculations were taking this into account. Some people may be surprised, and discouraged out of the house hunting process by this, but if you know about this rule and factor it in your calculations prior to starting the process, you’ll know what to expect and how to compensate (get more money, save up for a larger down payment, lower your house price range).
So we decided to buy a house, what will the journey look like?
There are plenty of easily-googlable resources on the house buying process in Canada and in Québec more specifically (here’s the two most detailed I’ve seen: FCAC and CMHC), so I won’t try to repeat that information, but I’ll document the specifics of our process which will invariably result in a brief outline of the steps to follow.
Roughly what we’ll try to do:
Get a relatively good family income so we can qualify for a reasonable mortgage loan.
Build up a credit history.
Save up for a down payment.
We’ve worked on those first three steps since we moved to Canada: I’ve been fortunate enough to have a stable and well-paid job, which has allowed us to use consumer credit responsibly, so should have a pretty good rating. It also allowed us to save for a down payment. So at this point we should be ready for the next parts of the process:
See a lender to get financially checked and pre-approved for a loan. You can go for a well-known financial institution, perhaps your bank, or you can go to a mortgage broker, which is what I’m planning on doing.
Once you know your price range, you can start looking at houses in your desired areas.
BUT before you can start with this, you should know roughly how much you can afford, be realistic with your inputs and use one of the available online calculators. I like this one which will tell you how much you should be able to afford, and this one which calculates your estimated payments. And this one is very simple but also very detailed as to the criteria used to estimate affordability. It makes sense to use this so you’re not disappointed when the broker tells you you can only afford a tiny shack in the boondocks :).
You should also have a pretty good idea of whether you like your target neighbourhood. Montreal is a geographically large city and neighbourhoods can differ, so it makes sense to check the ones you like and make a short list. If you don’t care where you buy, there’s something for almost any price range, but I don’t think that’s very common.
A possible problem with the neighbourhood you like is whether you can afford it. If you can’t just yet, there are two options: choose a different one or get more money (higher salary, larger down payment).
Once I identified our target neighbourhoods, I started scouring centris.ca frequently, looking for houses in (and out of) our price range, checking their pictures and prices, nearby amenities, and comparing several possible neighbourhoods. We ended up discarding one of those, even though it was cheaper and had more inventory, because we decided we didn’t really like it that much. So we’re focusing on one of the other candidates, and also looking at adjacent neighbourhoods, which can be cheaper while still being closer to the amenities we want.
OK, so knowing how much we can afford (per the calculators) having located (and lived in) a neighborhood we like and knowing the approximate price range for homes here, and knowing it is within our affordability, I’m ready to hit the mortgage broker.