Getting Ready For The Biggest Purchase Ever!
Buying a first home, or an only home for that matter, can be challenging – especially in today’s seller’s market. The prices have gone up, the quality of houses is kind of staying the same. So, how are you supposed to buy that perfect home you’ve been dreaming about? By preparing on time.
This will most likely be one of the biggest purchases of your life, so it might be a good idea to do some research and get ready for the incredible journey you’re about to go on. Start your research now and take a look at these five tips before you go ahead and buy the house.
Get Ready For A Mortgage
Yup, you guessed it. Buying a place isn’t just waking up one day, going to the bank, getting approved for a loan immediately and finding and buying a house in a day. To make sure you get the house you always wanted, you will have to start getting ready for a mortgage way, way earlier.
First of all, you don’t even know how much money you will be able to get as a loan. Second, no one has the guarantee they will be able to afford their dream house on the first try. That’s why it’s important to work on your credit score, compare rates and fees among banks, and, the most important stuff – get pre-approved.
Also, you should pay attention to government incentives for first-time homebuyers. Just recently, with the Federal 2022 Budget, the government announced the new Tax-Free First Home Savings account that will be available to Canadians next year. It should help you save up to $40,000 and, as the name suggests – it will not be taxable, just like TFSA and RRSP.
Another incentive is the Home Buyer Incentive Share Equity Program which lets you ‘share’ your debt with the government. Check if you’re eligible for it here.
Know What You Can Afford
We mentioned how important getting pre-approved is. Why? Because that way you will know for sure how big of a loan you’ll be able to get, as well as if you’ll be able to buy that house. Yes, mortgage calculators are a great tool, but they only give you an estimate. Your bank has the real numbers.
Do the math and see how much you can afford based on your lifestyle and monthly expenses. Make sure you have the resources to handle the extra costs of homeownership. You never know when something will come up – and here, you’re the landlord that has to fix it.
Don’t rush into things – make sure you know where your money is going and don’t skip the house inspection! A house inspection, the one that happens before you officially buy a house, will tell you all about the problems (or lack of, hopefully!) the house has.
If you have already struggled with coming up with the money for the down payment and your monthly budget is as tight as it can be – how will you afford the inevitable fixes? That’s why you have to plan ahead.
Save Up For A Down Payment
The bigger the down payment, the shorter the amortization period. By law, you have to give at least 5% of the total house price as a down payment, but ideally – you should give 20%. When you give a 20% down payment, you don’t need to get mortgage insurance (which is mandatory for lesser down payments), and your mortgage period can be shorter – because your overall loan is lower, of course.
But, saving up for a down payment can be hard, that’s a fact. Especially now when the prices have skyrocketed. Here are some tips that might help you save up:
- Create a clear savings plan – come up with an amount you want to save and create a monthly or biweekly plan of how much money you need to put aside.
- Take advantage of a tax-free savings account
- Monitor your spending
- Make lifestyle changes if needed – for example, limit eating out to once a week, or twice a month. If you can, try finding a place with cheaper rent and use public transportation more.
- Choose staycations over vacations
We know, some of these sound a bit radical. But you know it will all be worth it in the end!
If you don’t want to do that – you can use your RRSP as a down payment. You can borrow up to $35,000 in a year from there, but you must repay the loan (from your future self) within 15 years.
Explore Your Options
By this, we mean finding the best mortgage rates, and (as we mentioned before) government programs.
This is where pre-approval also has a big role. It can show you what type of mortgage and interest rates you’re qualified for. Also, you should get familiar with the lingo:
- Mortgage term – the time your mortgage contract is in effect;
- Mortgage amortization period – the time you’ll need to pay off the loan;
- Open mortgages – you can make extra payments without penalties;
- Closed mortgages – no prepayment flexibility, lower interest.
Then there are rates, and that will be a tough decision. You can choose between the variable and fixed rates, or you can opt for a hybrid mortgage which is a combination of the two. Each has its pros and cons: with a fixed rate you know your monthly payments will be the same, but you miss out on the variability the variable rates offer. With them, you can benefit when the rates go down, but they don’t really give you peace of mind and you can’t be sure your monthly payments will stay the same.
Ask For Help
There is nothing wrong with asking for help when you’re a first-time homebuyer. A lot of adults today rely on their families to help them save up for a down payment.
Also, you should always ask for a realtor’s help. They can help you out in many ways – whether with the house inspection, linking you up with a good mortgage broker, or just plain old helping out finding the house you want and can afford. A good real estate agent will listen to you, scour the market to find the home you need, and help you out through the negotiation and the closing process. You don’t have to go through it all on your own! Give us a call, and let’s get you that house!