The First Time Home Buyer’s Guide
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Aug 16, 2021 in
Buying a home is an exciting milestone in your life. However, it can be a complicated and very expensive process. From finding the right agent to arranging your mortgage and from house-hunting to putting in offers, you want to have a better idea of what’s in store. Here we provide your first-time home buyer’s guide to help make the whole home buying process easier.
Understand The Importance of Your Down Payment
Saving up for your down payment is the first step in the home buying process. However, this step often requires years of saving to come up with a reasonable down payment that will reduce your mortgage and improve your chances of mortgage eligibility. Although the minimum required for a $500,000 home is just 5%, this is still $25,000. Also, realistically, unless you intend to buy a condo apartment, you aren’t likely to find a home for this price close to an Ontario urban centre. Realistically, you should probably be saving enough for the next level which is 5% for the first $500,000 and then 10% for the balance. So for a home that costs $600,000, you would need $25,000 for the first $500,00 and then another 10% for the $100,000 remaining balance. This totals $35,000. Understanding how much you’ll need for your down payment is very important to avoid disappointment if you find your dream home and can’t put enough down to purchase it. A good idea is to keep an eye on housing prices in your favourite areas, so you have a fair estimate of how much you’ll need to save. Remember, the more you can put down on your home purchase, the lower your mortgage rates and the more equity you have in your home from the moment of closing. Note: For down payments below 20%, you must purchase mortgage loan insurance. In some cases, your lender might require you to get mortgage loan insurance even if your down payment is higher, which usually applies to people who have poor credit or are self-employed. So these costs must be considered when determining how much you can afford for your overall mortgage payment.Apply For a Pre-approved Mortgage
Once you have your down payment squared away it’s time to approach lenders to find a mortgage. It might seem too early in the game for this step, but pre-approval serves many purposes. First, it tells you the maximum a bank is willing to lend you for your mortgage. This is key as it confirms a) how much down payment you’ll need and b) your budget. Second, you’ll have a better understanding of how much your monthly payments will be for your mortgage to make sure you feel comfortable with your budget. Third, you’ll lock in an interest rate for up to 130 days. Should interest rates drop in the meantime, you’ll qualify for the lower rate. Keep in mind it also helps you avoid disappointment should you want to put in an offer only to find you don’t qualify. Pre-approval also provides negotiation power, especially if you are involved in a bidding war and others aren’t pre-approved.How to Apply For Mortgage Pre-approval
You can apply for pre-approval at any of the following institutions:- Banks
- Credit unions
- Mortgage companies
- Insurance companies
- Trust companies
- Loan companies
- Identification
- Proof of employment
- Proof you can pay for the down payment and closing costs
- A list of your other assets
- Record of your debts and financial obligations
Look Into Government First-Time Buyer Incentives
Once you have your financing arranged, consider the government incentives available for first-time buyers. This includes- Home Buyers’ Plan (HBP): The HBP allows you to withdraw up to $35,000, from your RRSP tax-free to put towards your down payment.
- First-Time Home Buyer Incentive: The federal government also offers shared equity mortgages of either 5% of the purchase price of an existing home or 5% or 10% of the purchase price of a newly constructed home. However, this money has to be paid back based on the current value of your home either at the time you sell or after 25 years.
