Whether you are looking in Port Elgin, Paisley, Kincardine or Mississauga, there are some basics questions every first time buyer has.
How Much Do I Need For My Down Payment?
In Canada, you need a minimum 5% of the purchase price for the down payment. When you have less than 20% down payment, you will also have a default insurance premium added to your mortgage eg: CMHC fee.
When thinking about down payment, you want to put as much down as you can do comfortably. Leave yourself some savings – a financial cushion – for the what-ifs. That could be furnishings, landscaping, emergency dental work or car repairs. Lenders will also look to see that you have something left in savings after the purchase so you don’t have to go into debt to pay for unexpected costs. Balance is the key here. Bigger down payment leads to lower mortgage payments but it’s never fun to be living pay cheque to pay cheque.
What Other Costs Should I Plan For?
Down payment is one part of home buying. You also need to have money for your lawyer and what are called Closing Costs. In simple terms, there are your legal fees, the costs of transferring the property into your name and for costs to set up the mortgage.
There is a more detailed blog post on this topic at 12 Closing Costs To Know About.
Generally you want to plan on 1.5% of the purchase price for other transaction costs. For example, on a $200k house, that would be $3k.
On top of the formal costs, you may have moving costs, deposits with utility companies, curtains/blinds and basic things like snow shovels and garden hoses.
How Much Can I Afford or Get?
Lenders make this decision by comparing what the mortgage payment will be together with property taxes and other debt payments you have to your gross income. All those payments can’t be greater than approx 42% of your before tax income.
This is what lenders will base their decision on. You have to take a look at your budget and decide what is a comfortable number for your mortgage payment and property taxes – so you don’t end up house poor. No one wants to exist to pay the mortgage lenders interest only.
How Lenders Make Decisions is another great short post on this topic!
Do I Need A Pre-Approval?
When you are getting serious about shopping for a home, a pre-approval is a strongly recommended first step.
We’ll look at your credit report to make sure there are no deal breakers. If necessary, we’ll tell you the steps to make to change and improve your credit report. This is typically not something that can be done in the time constraints of getting an actual approval.
We’ll do that ratio analysis to ensure that you are looking in the right price range. With new government rules around mortgages, there has never been a more complicated environment to get a mortgage.
A pre-approval will also reserve an interest rate for up to 120 days. This protects you against increasing interest rates while you are shopping.
Is There Anything Else I Need To Know?
Sure. But let’s keep it simple for now.
Basic terminology and an understanding of the mortgage application and decision process is best touched on quickly at Mortgage 101 in 7 Paragraphs.
For more information – for something you can hold in your hand – contact our office or ask any leading Realtor for a copy of Your Personal Guide To Mortgages.
PS – One Final Tip – Use a Realtor
In this market early in 2018, listings are at an all time low. An experienced Realtor will be connected and will know about properties that are coming to market often before they are visible on realtor.ca A Realtor can give you an edge over others that are just listing-surfing and waiting for the right home to show up. As a first time purchaser, they are an invaluable resource, helping to ensure you avoid the pitfalls of purchasing your first home. Their fees are paid by the person Selling their home – so take full advantage of a professional, experienced Realtor. Need a recommendation, contact our office!
Good Luck in your search! Contact Us at 519-396-6800 to get your questions answered.