There may be no better feeling than closing on your first home. Over the last 10 years, first time homebuyers have seen the market change dramatically, whether it’s mortgage rule changes that impact qualifying, or rising house prices that took some first timers out of the market altogether. Combine that with stagnant incomes, and it’s not surprising that young people feel that the dream may never happen for them.
But is it still a dream for the younger generation? Last year – 2019 – was the last for millennial graduates. We are now in the Gen Z world. Gen Z refers those born after 1996, so they’re now 23 and younger. Millennials were born between 1981 and 1996, so they’re now between 23 and 38.
This group grew up with an iPhone in their hand and an iPad on their laps, and clearly have learned to process information differently than generations before them. But what hasn’t changed is their desire for home ownership.
In fact, Gen Z is poised to overtake millennials in their desire for homeownership. A survey conducted by real-estate company Zillow found that in 15 years Gen-Z homeownership will be bigger than the share of millennials who currently own their homes.
Another survey from Finder.com shows that 81% of the Canada’s Gen Z’ers think they’ll purchase a home in the next 20 years. Ten percent of the 18-24 age group say they already own their own home, while 35% (one in three) believe they’ll purchase a home within the next five years.
Interestingly, millennials are more likely to believe that homeownership is NOT in their future. The difference? It hasn’t been quantified yet, but anecdotally, Gen Z ‘ers don’t like the high cost of renting, and would rather make personal financial sacrifices to save for the large down payment needed.
For these future homeowners, education and information is key. And the best person to help guide the process is a mortgage broker. The following information is not only for Gen Z, but for everyone looking for their first home.
There are six steps to the mortgage application process.
Step 1 – The Application/Pre-Approval
It’s important to get all the following information. This allows your mortgage agent to determine the amount you qualify for and the best mortgage strategy/product for you. Current address. If you are less than three years at your current residence, you must provide your previous address as well. In addition, you will need to provide:
- Birthdate
- Contact number
- Do you own or rent your current home?
- If rented, is the rent paid monthly? If not, specify term of rent
- If owned, is there a mortgage? If so, with whom, the value of your home, and mortgage payments
- Approximate value of assets -- identifiable assets like RRSPs, savings, investments, vehicles, other properties, etc.
- Approximate value of liabilities -- identifiable liabilities like car payments, line of credit, student loans, credit cards, etc.
- Any alimony or support payments
- Employer (if less than three years, previous employer as well)
- Title
- Tenure
- Salary and other compensation
- Self- Employment information that includes historical taxable income, historical gross business income
Step 2 – Qualifying
Your information is sent to a lender for a rate hold, pre-approval or approval. All info is sent electronically and directly to a lender. A response can come within 24-72 hours.
Step 3 – Verification
Verification will be done on items such as your income, with a job letter and recent pay slip, and proof of down payment. Some lenders require tax returns and Notice of Assessments. Your mortgage agent will list out all the information needed and lead you through a straightforward verification process.
Step 4 – Purchase
Once you’ve found your new home, your Realtor will draw up a Purchase and Sale Agreement, which he or she will also send to your mortgage agent on your behalf. When writing your offer, it’s strongly recommended that a "subject to financing” clause be written in, even if you have a pre-approval.
Step 5 – Approval
During this stage the lender will review all documents and will call your employer to verify employment. You will also receive a Letter of Commitment with the rate, term, payment amount or frequency, amortization, and more. Your mortgage agent will review the commitment letter in detail with you before you sign.
Step 6 – Funding/Closing
The only thing left to do is to register the transaction legally. This will require a lawyer or a notary, depending on where you live. The lender will forward all the documentation directly to your lawyer, and the lawyer will contact you to arrange a meeting.
During this meeting your lawyer will confirm the details of your transaction and will request a bank draft or certified cheque to cover the amounts outstanding before the closing date, which includes the down payment, the lawyers fee, property transfer tax and any other disbursements not yet paid for, less any deposits already paid.
The lawyer then receives the funds from your lender, disburses them and registers the title in your name – then you get the keys.
Digital Experience
Gen Z’ers were born to process a massive amount of information 24/7, but info overload can negatively affect anyone. There’s a lot of mixed messages, and sometimes outright misinformation on the ‘Net. Despite the I-Generation "always on” environment, the human touch is still welcome.
Buying your first house is a journey, but don’t take it alone. Contact a mortgage professional to combine your digital experience with the human touch.