For First-Time Home Buyers: Understanding Mortgages 101

Last Updated on 2023-04-07 by Tom

Buying your first home can be overwhelming, especially when it comes to understanding how a mortgage works and how to qualify for one that best fits your needs.

As a community that values knowledge and expertise, we turned to mortgage experts for help. We spoke with Justine Cooper, one of ATB’s top mortgage specialists in the Sherwood Park and Edmonton areas, and asked her the most commonly asked questions about mortgages for first-time homebuyers.

Question 1: Can you provide a simple example of how a mortgage works?
Let’s say you want to buy your first home for $400,000. You have a down payment of $20,000 or 5% of the total, and the rest of the money ($380,000) can be borrowed from the bank once you qualify. This $380,000 is called a mortgage and must be paid back to the bank over the agreed term (usually 25 years) with regular payments (most commonly as monthly, or bi-weekly, etc.).

Question 2: What home price should I consider based on my current financial condition?
Let’s use a simple example to demo via the simple steps below.
Step 01 – your monthly gross income is $6,000 as (A).
Step 02 – Multiply (A) by 0.44 (See *Note 01) to get $2,640 as (B).
Step 03 – Add your monthly debts, such as car loans, which we will assume is $340 as (C).
Step 04 – Subtract (C) from (B) to get $2,300 as (D), which is the maximum mortgage monthly payment you can afford.
Step 05 – Let’s assume you have a 5% down payment ($20,000 in savings) and plan to pay off the mortgage over 25 years.
Step 06 – You can use a standard mortgage calculation form to determine that the dream home price you can afford is $400,000.
* Note 01 – In some cases, depending on the applicant, 42% would be the max number here. 44% would be the very highest for strong clients with strong credit and would be considered taking the client to their very limit , which isn’t always best, depending on the situation. Keep in mind we would be looking at not just their mortgage and existing monthly obligations but things like property taxes, condo fees, insurance, and heating costs , etc. that they would incur as a result of owning the home.

Question 3: What are the key things to consider when applying for a mortgage?
First, pick a home that meets your family’s needs for the next 5-10 years and that you can comfortably afford based on your income.

Second, consider your long-term plan for the home. Will you sell it or hold it for investment in the future?

Third, aim for a down payment of at least 5% or more if possible. (On this note, If you’ve been renting from our community for more than three years in good stand and plan to buy a home through our preferred experts in mortgage, real estate, and law, you may qualify for Culfidant Community home buying funding up to $3,000.

Lastly, having a steady income history and good credit is essential. Our community members are likely overqualified in this regard.

Question 4: What documents should I prepare when applying for a mortgage?
Documentation requirements can vary depending on the income type of the individual and also their situation ( tenure, etc.) so the below are typically a good starting point , but requirements again may vary case by case
01). your latest pay stub,
02). T4 form from the past 1-2 years, and
03). Two pieces of government ID (driver’s license and SIN).
04). (Optional) It’s also a good idea to know your credit history, which you can easily find for free. Contact us if you need help with this (Bank will check independently as per their policy but you will be more informed by knowing it up front and what are the chance for you to get approval or not, say good credit history with a score of 650 will be a good sign).

Question 05 – What makes ATB and you (Justine) stand out among many other competitors?

ATB is a local bank deeply rooted in the community. We go beyond just meeting our clients’ needs, as we strive to establish meaningful connections with them.

Compared to the five big names in the industry such as CIBC and Scotia, ATB is smaller, and this aspires us to focus on providing exceptional service to our clients.

Personally, I am a local mortgage specialist based in Sherwood Park and Edmonton, with a decade of experience at ATB. I am a client first oriented individual with a passion for helping Albertans achieve their home ownership dreams and goals ! If you are thinking about purchasing a home or wondering what that might entail, I’d love the opportunity to connect ! I have relentless desire to ensure all my clients are comfortable and happy with their mortgage financing. I will be there every step of the way through the home buying process and beyond, and make sure you feel supported, educated, and, most importantly , excited, from start to finish. Even long after possession, I will always have my clients best interest at heart and be there for years to come. I am committed to delivering the best customer service possible by truly listening and understanding what your individual goals are and then working along side you to make these dreams a reality. If you are considering a new purchase in the future or wondering about your current mortgage options , let’s start a conversation and see how I may be able to help or advise!

A few last words
I hope this blog about Mortgage 101 has given you a good idea about what a mortgage is, how to evaluate your readiness to buy your first home, and what is needed to start the mortgage pre-approval process, which is the first formal step towards your dream home. In addition, As Albertans, we have this unique advantage of having ATB as our home bank to support us in obtaining the best mortgage product for us.

Furthermore, our Culfidant community is always ready to help our tenant members at every step forward as we work towards our common goal of “discovering the joy of renting, sharing, and caring” for years to come! Simple let us know whenever you are ready, we will help to find your first-ever dream home!