If you’re like most people, a home will be the single most expensive item you buy over your lifetime. In Montreal, the average condo costs $292,000 while the average single family house will set you back $440,000.
Fortunately, there are a few smart strategies you can use that will reduce the burden of your closing costs while also minimizing the long term costs of borrowing your mortgage. Here are a few tips:
1 . Start your home search with a pre-approval in hand
A pre-approval strengthens your offer, since it proves to the sellers that you have already been qualified for a mortgage loan by a bank. In the case of a bidding war, having a pre-approval could mean the difference between winning or losing your dream home. In a hot market, buyers putting in an offer without a pre-approval attached may need to go above the asking price in order to compete with other pre–approved offers. Avoid this easy mistake by requesting a pre-approval from your bank or from a mortgage broker.
2. Shop around for a mortgage to find the best rates
It’s a common misconception that borrowers are bound to the bank they already have accounts with. In reality, you can and should compare loan quotes across multiple lenders to find the best interest rates and terms. Alternatively, hire a mortgage broker to do the legwork when it comes to negotiating interest terms and finding you the best deal. Mortgage brokers are free to use as a buyer (they are paid by the bank, not the consumer). Over the course of a 25 year mortgage, a .1% decrease in your interest rate will save you $3,756 on a $300,000 home.
3. If possible, opt for a 20% downpayment
Borrowers putting forward a 20% down-payment can bypass private mortgage insurance, which will will save thousands over the course of a mortgage term. Private mortgage insurance is insurance on the mortgage loan itself – it protects the lender in case you default on your payments.
4. Find a BMV Property to save on the purchase price
A BMV (Below Market Value) property is a home, multiplex or apartment that has been listed for sale at an asking price that is lower than its current market value. There are several places a buyer or investor can look for BMV properties in Montreal: repossessions, hot-deal subscription lists, or properties listed under municipal value on Centris. Read this post for more on how to find BMV properties in Montreal.
5. Improve your credit score
The lower your credit score, the higher your offered interest rate will be. Lending fees and terms are directly related to your credit rating – a good credit score will indicate a trustworthy borrower and will be favored by banks and other lending institutions. There are several things you can do to quickly increase your credit score: pay your credit balance before the due date, keep your balances below 15% of your credit limit, and don’t apply for any new loans or make any hard inquiries before applying for a mortgage.
6. See if you apply for an incentive or HBP program.
The Home Buyer’s Plan (HBP) is a program that allows buyers to borrow up to $25,000 a year from their retirement savings (RRSP’s) to help finance the purchase of their first home. The withdrawal from your RRSP does not count as income, and no tax is taken off the money you withdraw. While the tax-free loan can be beneficial to some, buyers should consult with their brokers and accountants to determine whether it’s the right choice for them. In addition to the HBP, several municipal programs will offer financial advantages to families who choose to settle in a particular city. These incentives generally take the form of tax breaks or purchase cost rebates. Feel free to contact us for more information on Quebec’s home-ownership programs.
7. Use an experienced real estate broker
A good broker will save you plenty of money as well as time, by steering you away from risky investments and negotiating on your behalf with the selling agent. Their market knowledge and experience in the home buying process will ensure that the process goes smoothly. While some buyers are of the opinion that going directly to the selling broker will allow them to negotiate more on the asking price, doing so will hurt more than help. In fact, the selling agent’s commission is pre-determined in their contract with the seller, of which a portion is paid to the buyer’s broker. Since the listing broker will always prioritize their own client’s best interests, having your own broker will help you make a strong offer and smart negotiations. Read this post for more ways brokers help save money when buying a home.