When buying your first Home, you will need to consider if you are ready to take on a mortgage and become a responsible Homeowner.
This includes looking past the purchase price of the house you're interested in since you will be accountable for many aspects of the home-owning process including securing a down payment, managing a mortgage payment, seeking pre approval and buying a house which isn't always about the initial price.
Since it's your first time house hunting, you may need some assistance. Below are tips and advice that will guide you towards a smooth journey into Homeownership.
Start Saving Money — Now
Even though browsing open houses is fun and all, you need to focus on setting strict budgets to guarantee you have enough money for all the costs associated with a property purchase.
Some of these costs include:
A down payment (%):This initial cost determines whether or not you will be required to purchase additional coverage. More details about your down payment will be explained below.
House inspection fees: The cost of Home inspections depend on the actual size of the Home. While you're closing in on your house, call for an inspection right away so they can fix anything that is broken sooner than later.
Appraisal: The appraisal, which is an unbiased assessment of the Home's value, is usually covered by the lender however they may be a financing fee attached depending on your credit history.
Legal Fees: After buying a house, a legal team will look over mortgage contracts while also double checking if any mortgages or liens are tied to the house. Since this involves tons of effort and paperwork, you will be responsible for the bill.
Other costs include:
- Home insurance
- CMHC default insurance (if applicable)
- Moving costs (if applicable)
- Harmonized sales tax for new Homes (if applicable)
- Closing cost(s)
- Emergency funds (just in case)
Since being financial fit is evidently a big part of being a Homeowner, you need to start saving today.
A down payment is one of the first ways you can secure the house that you want. This initial amount of money commits you to the Home.
The minimum down payment in Canada is 5% however, putting down a down payment that is less than 20% requires Home buyers to purchase default mortgage insurance.
It's pretty common for a first time Home buyer to buy the default insurance. It is extra protection for your lender if you are unable to continue your monthly payments.
If you have a down payment between 10%-14.99%, the CMHC insurance is 3.10% of the mortgage amount. For down payments between 15%-19.99%, the CMHC insurance is 2.80%.
How much is my down payment?
To determine the dollar amount of your down payment, you will need to utilize a mortgage calculator which states:
- The purchase price
- The amortization period (how many years you want to pay back your entire mortgage in)
- The mortgage interest rate (fixed or variable)
- The % of down payment you're willing to provide
% of Down Payment
$ of Down Payment
Make your mortgage payments
While you're looking at the listings priced within your budget, you still have to consider how much mortgage you can realistically afford.
If you're spending more than 35% of your monthly income – it is unlikely that you can steadily pay for mortgage payments.
Again, you can utilize a mortgage calculator to determine exactly how much you will have to pay every month.
Our advice is to create a mortgage payment plan that suits your lifestyle. If paying monthly is too much on your finances, ask your broker/lender is paying weekly is a feasible option.
Know your credit history
Having ideal credit scores in the 800-range is not a priority. You can be approved for a mortgage more easily with that kind of score however, anything over 650 is in range for an easy approval. Depending on the lender, you can even qualify with a 620 with a 5% down payment.
Even if you have had a rough past with your credit, you can take steps to get it back in the green. In order to do this, you will have to make sure that you:
- Pay your bills on time (pre-authorized automatic payments)
- Not miss a single payment
- Tackle your debt
- Look over your credit reports
- Have no outstanding FHA loans
First Time Home Buyer Opportunities
Home Buyers' Plan
As a first time Home buyer RRSP owner, you will have the opportunity to participate in the Home Buyers' Plan. This is a government program that allows you to take up to $25,000 tax-free from your RRSP.
Home Buyers' Tax Credit
You also have the chance to claim the Home Buyers’ Tax Credit (HBTC). It's a non-refundable tax credit that allows a first time homebuyer to claim a tax refund of up to $750 in the same year that they purchased a house.
In order to claim this tax credit, you, your spouse or common law partner have to file through the Canada Revenue Agency (CRA) website.
Real Estate Agent
A real estate agent is someone who will take your 'wants' and 'needs' list and will find you what you're looking for in your price range. They prioritize you as a client and a future homeowner. To find the best of the best, you have to search online for reviews, referrals and also take a peek at their social media platforms.
The best way to find a good realtor is to ask a friend, family member or neighbour. Rely on a trusted person in your life to guide you towards a successful realtor. Once you've found one that fits your agenda, make sure you proceed in your due diligence before agreeing to any business.
A mortgage broker is an intermediary person between you as a client and a lender. Since brokers have this connection, they will not only find you the best interest rate that suits your situation, but they will also make sure you are on board with all the aspects of home owning until you are an official Homeowner.
To find a reliable broker in your area, you will have to do your own research online or once again, ask a friend who utilized a brokerage.
Mortgage lenders provide the funds needed for an official real estate purchase. You can choose to work with different types of lenders including big banks, credit unions, monoline and private lenders.
The big banks that are already established are a safe choice for a first time home buyer since they are aware of the organizations financial stability.
However, if you have a background that deals with inconsistent income from self-employment or a bad credit history, a bank may not want to risk supplying their funding on that kind of profile.
Monoline or private lenders are more likely to take on your financial history which is a plus however, they will stamp on a higher interest rate in return.
You also have the option of asking your real estate agent or mortgage broker which lender you should do your business with. Since they exist in the same industry, they have a good idea of where to go with your business.
For any more information regarding first time Home buyer needs, Please contact HomeHow and we can get you started in the right direction.