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“Manage Your Money… Live Your Dreams”.

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“Things to consider when Buying or Purchasing your Dream Home”

This series of articles is published to celebrate Financial Literacy Month – October 2008. This year, the theme is: “Manage Your Money… Live Your Dreams”.

For most people, approaching financial institutions for a mortgage can be an intimidating task. This article seeks to provide the reader with some basic questions to ask lenders in order to make an informed decision.{{more}}

1. What is the interest rate on my mortgage?

Most lenders give you an annual percentage rate (APR) but it doesn’t hurt to ask. This ensures that you make accurate comparisons across financial institutions.

2. What is my minimum down payment?

Very few financial institutions offer 100% financing. It is very likely that an injection of equity on your part will be necessary to purchase your home.

Asking this question gives you an idea of the budget that you will have to work with.

3. How much do I qualify for?

This is critical since it gives you an idea of the price range to look for when house hunting. It makes sense to know what you can comfortably afford so that your taste and your pocket work together.

4. Are there any other costs to finalize the mortgage?

There are a number of additional fees that the customer must consider. These include appraisal report fees, legal fees, property insurance, and application fees. From experience, lenders can provide an estimate of what the fees will be based on the amount of money you intend to borrow. These fees are in addition to the down payment you may have to make.

5. Is there an early settlement penalty?

Some financial institutions may penalize a borrower who wants to pay out or settle their mortgage early. There are a number of reasons which might lead to early settlement such as, the need to sell your home, receiving a lump sum and wanting to pay off the mortgage, and also wanting to switch from one financial institution to another. Some institutions charge two months interest others charge eight. This should be clearly stated.

6. How long does it take to get approval for a mortgage?

This is important to know, especially when you are working within a time frame which might involve a contract for sale. Time for approval really depends on the structure of the particular financial institution. Some may say within two weeks, others may say that the approval depends on a monthly board meeting. Nonetheless all financial institutions should be able to give some idea as to the average time it should take for the mortgage to be approved.

In conclusion, therefore, it pays to be informed about how financial institutions work. There are certain ground rules or basic pieces of information which should help you negotiate when you approach a financial institution looking to buy your dream home.

Kwame Mascoll
Personal Banking Manager
Bank of Nova Scotia
St. Vincent