The Crucial First Step for Ontario Homebuyers: Understanding Your Borrowing Power Before Viewing Homes

As an Ontario Realtor, I’ve seen firsthand how exciting and overwhelming the home-buying process can be. One of the biggest mistakes we see from first-time homebuyers (and even seasoned buyers) is diving into the house-hunting process without fully understanding their financing options. This can lead to wasted time, frustration, and even missed opportunities.

Before you start viewing homes, it's critical to talk to more than one lender. Why? Because your borrowing parameters can vary significantly depending on which lender you choose, understanding these parameters will help you focus your search and avoid disappointment. Let’s dive into why consulting multiple lenders is such an important first step.

1. Understand What You Can Afford – And What You Can’t

When you get pre-approved by a lender, you’re essentially learning what price range you’re looking at in terms of financing. But here’s the catch: different lenders will offer you different terms, interest rates, and potentially different amounts based on your financial profile.

Pre-approval involves the lender reviewing your credit score, income, down payment, debt, and other factors to determine how much you can borrow. While one lender may approve you for $500k, another might offer you $550k with better terms or a more competitive interest rate.

If you only consult one lender, you may be leaving money on the table, or worse, you could be overcommitting yourself with a mortgage that's out of your financial comfort zone.

2. The Power of Shopping Around – Why One Lender is Never Enough

Ontario’s housing market is diverse, with both urban and rural options, and no two homebuyers are exactly the same. That’s why it’s so important to explore more than one lending option.

• Banks: While major banks like TD Canada Trust, RBC, and Scotiabank are the go-to for many Ontarians, they might not always offer the best rates or flexibility. If you’re self-employed, have unique financial circumstances, or if you’re purchasing in a more niche market, you may not get the best terms from a big bank.

• Mortgage Brokers: A mortgage broker can help you shop around and compare multiple lenders, including banks, credit unions, and private lenders. This is a great option if you’re unsure where to start or want access to exclusive deals that brokers have access to. Brokers are often able to get better rates or customized products that may suit your needs better.

• Credit Unions: Often overlooked, credit unions like Desjardins or Meridian Credit Union are worth considering, especially for first-time buyers. Credit unions can offer more personalized service and may have lower interest rates or more flexibility in their lending policies than big banks.

• Online Lenders: Online lenders like Mogo or Ratehub can offer competitive rates, especially if you’re comfortable navigating digital applications. Just make sure to check for hidden fees or terms that might be different from traditional lenders.

By consulting a variety of lenders, you give yourself the best chance to secure a mortgage that fits both your financial situation and your homeownership goals.

3. Knowing Your Parameters: How Multiple Lenders Help You Define Your Budget

Pre-approval isn’t just about knowing how much you can borrow—it’s about understanding your monthly payments  and how they fit into your overall budget.

For example, let’s say you’re approved for $500k with one lender but $450k with another. While the first lender might give you the flexibility to look at more expensive properties, the second lender might offer a lower interest rate, which could save you thousands of dollars over the term of the mortgage. Or, the second lender might allow for a lower down payment, making your dream home more attainable.

This is where it’s key to compare not just the loan amounts but the total cost of borrowing from each lender. You might find that a slightly smaller loan with a lower interest rate is better in the long run, even if it means looking at homes in a different price range.

4. Avoiding Heartbreak: How Pre-Approval Saves You Time and Disappointment

There’s nothing worse than falling in love with a home, only to realize later that you can’t afford it. By working with multiple lenders to understand your true borrowing power before you start viewing homes, you’re setting yourself up for success.

• Stay focused on what’s affordable: Knowing your parameters keeps you from getting distracted by properties outside your budget.

• Be competitive in a hot market: In Ontario’s competitive real estate market, especially in areas like Toronto, Ottawa, or Mississauga, being pre-approved can give you a leg up. Sellers will take you more seriously, and you’ll be able to move quickly when you find the right home.

5. How to Choose the Right Lender for Your Ontario Home Purchase

Not all lenders are created equal, and finding the right one for your unique needs is key. Here are some things to consider when choosing between multiple lenders:

• Rates and terms: What interest rates are they offering, and for how long? Do they offer fixed-rate or variable-rate mortgages? Understanding these will help you decide what works best for you.

• Flexibility: What kind of down payment options do they offer? Can you increase or decrease your payments if your situation changes? Make sure to ask about flexibility around early repayment, as breaking a mortgage early can sometimes come with hefty penalties.

• Customer service: Do they have a reputation for good service? If you’re working with a mortgage broker, make sure they are licensed and have good reviews. For banks and credit unions, consider how easily you can communicate with a representative and whether they’re willing to answer your questions in detail.

• Additional costs: Some lenders charge higher closing costs, application fees, or prepayment penalties. Make sure you know all the fees associated with each option.

6. Common Mistakes to Avoid When Choosing a Lender

• Going with the first option: Just because a lender offers you pre-approval doesn’t mean they offer the best deal. It’s essential to shop around and compare.

• Focusing only on the interest rate: While interest rates are important, don’t forget to consider other factors like fees, terms, and customer service.

• Not asking the right questions: Always ask about the fine print, especially around penalties for early mortgage repayment or other hidden fees.

Conclusion:

In Ontario, homebuyers face a wide range of options when it comes to lenders, and understanding your borrowing limits is the first step to a successful home-buying journey. By consulting multiple lenders—whether banks, brokers, or credit unions—you’ll get a clearer picture of your budget, find better terms, and ensure you’re not overextending yourself financially.

As Realtors, our role is to guide you through the home-buying process, and that begins with making sure you’re financially prepared. Once you have your pre-approval and a clear understanding of your budget, we can start viewing homes that fit your needs and your financial reality.

Call to action: If you’re ready to take the next step and get pre-approved, feel free to reach out! We can help connect you with trusted mortgage professionals to get the ball rolling and set you up for success