Perhaps you’re simply looking to transform all those “wasted” rent payments into mortgage payments that give you something tangible: equity. Or maybe you see homeownership as a sign of independence and enjoy the idea of being your own landlord. Also, buying a home can be a good investment. Narrowing down your big-picture homeownership goals will point you in the right direction. Here are six questions to consider
Your Financial Health
Do a serious audit of your current financial situation. You need to be able to budget for the purchase and the ongoing payments, maintenance and expenses of a home. Doing some sort of audit will give you an idea of if you’re ready to buy a home or if you need more time to prepare.
Look at your savings
You need an emergency savings that has 3 to 6 months of living expenses worth. When you buy a house there will be considerable up-front costs which include the down payment and closing costs. You need money put away for this, and the emergency funds.
Review Your Spending
Know how much you are spending each month and where it’s all going. This will tell you how much you can spend on mortgage payments each month. This will include your utilities, food, car maintenance and payments, student debt, clothing, kids’ activities, entertainment, retirement savings, regular savings, and any miscellaneous items.
Check Your Credit
Generally you will need good credit to get a home loan, you need a history of making payments on bills, and a maximum debt to income ratio of 43%.
What type of home will best suit your needs
There are single family homes, duplexes, condos, etc, the options are endless. So, give it some thought, because depending on your wants/needs/goals whatever type of property you should should reach those goals.
What features do you want your home to have?
All boxes might not end up being checked, however, this is the biggest purchase of your life! You still deserve a home that fulfills your wants and needs as close as possible, shoot to check 80% of the boxes, especially the basics like, size, number of bedrooms, garage and neighbourhood.
How much mortgage do you qualify for
Make sure you get pre-approved for a purchase price you can afford. Then you will
How much home can you actually afford
Sometimes a bank will give you more money for a home than you can actually afford. Just because a bank will lend you $300,000 doesn’t mean that you should borrow that much. First time home buyers who make this mistake often end up “house poor” when most of their monthly incomes go towards their mortgage payment and they have no money left over for other things. Consider things like property taxes, home insurance, home maintenance & improvements and closing costs along with the payments.
How do you get pre-approved
Call your mortgage broker or your bank’s mortgage specialist first before you even start looking at houses.
Make sure you are good with the minimum down payment
The minimum down payment in Canada is 5% of the total purchase price. The biggest hurdle for a first time buyer can be saving up for this down payment. A savings plan is essential, because the more you save for a down payment on a home means the less you have to borrow for it.
This doesn’t just apply for house hunting, but also for a mortgage. Do your research and compare mortgage rates. Even half a percentage will make a difference.
Consider using a mortgage broker
Mortgage brokers compare mortgages from many different banks and financial institutions to find the best option for their clients. In addition to getting lower rates with the Big Banks, mortgage brokers have access to mortgage products and special rates from trust companies and credit unions. They also work with smaller lenders who don’t have the same overhead costs as the Big Banks. The best part? Most mortgage brokers don’t charge you for their services. It is the lender that pays the broker’s commission. All the negotiating and paperwork is handled by the broker and they will assist you in the application process, from pre-approval to home appraisal. Our own Richelle is a Mortgage Broker with TMG and can help you with all your mortgage needs!
Take advantage of the first time home owner programs
As a first-time homebuyer, you’ll want to be familiar with various programs that apply to your situation. Whether it’s a rebate you may qualify for or a tax-efficient way of funding your down payment, there are a number of government programs listed below that can help you potentially save some money when you buy your first home:
The Home Buyers' Tax Credit currently works out to a rebate of $750 for all eligible first-time home buyers.
The Canadian government's Home Buyers' Plan (HBP) allows first-time home buyers to borrow up to $35,000 from your RRSP for a down payment, tax-free.
If you buy your home before it’s built, or if you substantially renovate an existing home, you could qualify for a rebate for a portion of the sales tax. The GST/HST new housing rebate amount you can qualify for depends on the purchase price of the home, and can only be claimed if the net purchase price is $450,000 or less.
Who will find you a home and help you through a purchase
Buyer’s actually pay nothing for the commissions of a real estate agent. SO, you have nothing to lose by working with an agent, except getting the help, knowledge and insight that they will give you to buy a new home at the right price.