Mortgage 101 For First-Time Homebuyers

Entering the housing market for the first time can be a bewildering experience, especially where financing is concerned. Our post this week looks at the bare basics of residential mortgages and how a real estate lawyer can help ensure that a housing newbie's first go at financing is a smooth one.

Mortgage Types - Conventional vs High-Ratio

Mortgages fall into two categories depending on the amount of home that a buyer finances. Those able to finance less than 80 per cent of a property's value can apply for a conventional mortgage.

High-ratio mortgages are for purchasers who finance between 80-95 per cent of the property's value. These mortgages allow more individuals to join the housing market, but with the higher risk involved, the law imposes mandatory mortgage loan insurance on these transactions as a safeguard against mortgage default. Read more about mortgage loan insurance in one our previous post.

It Pays To Shop Around

The first place that first-time homebuyers logically turn to for mortgage help is their own bank. This can be a good starting point to obtain information and do some number crunching, but a number of alternative options exist. These include trust companies, insurance companies, credit unions and private lenders.

Rates, options, conditions, risks and benefits differ, so it's wise to treat a mortgage no differently from any other major purchase decision. Shopping around could also sizably impact the total money a buyer saves or loses in interest over the long term.

Working with a mortgage broker instead of a single lender opens up options. These brokers do the shopping for the mortgagee, scouring various institutions to gather the best possible packages to suit the needs in each transaction.

The Role Of A Real Estate Lawyer In Financing

Meeting with a real estate lawyer is the next wise investment, especially for a first-time buyer. Experienced lawyers have reviewed hundreds and thousands of mortgage agreements. They can cut through the fine print and provide clarity to ensure that buyers know exactly what they are signing to.

Real estate lawyers can also spot existing and potential problems that buyers are often not aware of. They can also ensure that legal provisions are in place to protect against possible future risks. With one of life's largest investments involved, professional scrutiny makes good sense - both financially and practically.

Buying or selling?

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