The entire process of buying your first home can be overwhelming for some. As the biggest purchase of your life, there are many details involved, many processes, and lots of legalities. The Jen Scholte Team has compiled this comprehensive list of tips from various sources bringing them all into one place for your ultimate guide to your First Home Purchase.
Know your Credit Score
Many things can affect your credit score, and if your score is on the lower end you may wish to take some extra time to re-build. Old issues from the past can still affect your credit rating today. The most common, and reputable site that the general public can use to gain access to their Credit Report is Equifax. You will see things like current open credits, payment history, any missed payments, if anything has gone to collections, if you are in good standing order with your debts, how many times you have applied for a credit card or loan for example, and much more. It’s an entire profile of your credit details to date.
Is your credit low? Pay bills on time or early, pay off debts but do not close your accounts, pay more than the monthly minimums. This applies to not only credit cards and loans – but if you have any negative payment history with regular bills as well such as cell phone, utilities, car payments etc.
If you are working with a low credit rating, allow yourself 6 months to a year to rebuild. And do not check back too frequently as each inquiry into your credit profile shows up.
Determine your Budget and your Downpayment
Determine your combined household income for both yourself and your spouse/common law partner (if applicable). Your total mortgage costs should not exceed 32% of your income per year. Use an updated mortgage calculator with current interest rates to determine average mortgage costs to get a ballpark of what you can afford. Ultimately, when you get your pre-approval from a bank or mortgage broker that will be the final deciding factor, however, it’s always helpful to do your own research as well so you can be prepared up front.
This will also help you determine the size of downpayment you will want/need. Minimum downpayment amounts are as follows:
$500,000 and under requires a minimum of 5% downpayment
$500,000 - $999,999 requires a minimum of 10% downpayment
$1,000,000 and above requires a minimum of 20% downpayment
Also take into consideration the 20% rule. If you are purchasing a home with less than 20% downpayment, you will have to obtain an ‘insured mortgage’ which will be an additional cost added to your regular mortgage payments.
Get a Mortgage Pre-Approval
You can estimate your budget until the cows come home, but the pre-approval will be the ultimate deciding factor of what you can or cannot afford. It will take your income, credit, current debts etc. into consideration and come up with a maximum figure you can afford.
We recommend you avoid purchasing right at your max, to avoid becoming ‘house poor’.
Obtaining a pre-approval will be peace of mind for both yourself and your Realtor. It will narrow down your search, you will not be wasting your time looking at homes you cannot afford, and when you have found ‘the one’ you can go into an offer situation confidently that you can afford this home.
While the pre-approval is a great guide, it is not the final deciding factor. Once you submit an offer, you will still have to go through the final and actual approval process.
Choose your Realtor
Determining the best Realtor for you can depend on a number of factors:
Are they local to your search area?
Are they up-to-date with current market trends?
What types of services are they willing to provide you?
Are they active and easy to get ahold of?
Are they willing to WORK HARD for you?
Have an Open Mind / Be Realistic about your Wishlist
Wouldn’t it be fantastic if you bought your dream home the first time around? Of course it would! But the reality is, that doesn’t always happen. Often for your first home, you have to determine your ‘must haves’ with your ‘bonus wishlist’ – Items that it would be great to have, but it’s not going to make or break the home if it’s the right one for you.
Keep an open mind, more affordable homes will require a little work – maybe consider being open to renovations, or a little outside of your core search area. An open mind brings a great purchase.
Don’t Become too Emotional
While buying your first home is a very personal and emotional time in your life, try to avoid letting your emotions overcome your logic. A house may be beautiful, but if it has major underlying issues – it may not be the choice for you. Be practical, reasonable and level headed when considering homes. Look past the bells and whistles into the bones and foundation as well.
Don’t Make any Major Financial Decisions that could Hurt your Credit
Once you know your credit rating, try to avoid doing things that could bring that score down. Do not apply for any new credit cards, do not purchase a new vehicle that requires financing, do not close any credit cards (if you are paying them off, leave them open). Do not purchase furniture on a financing plan, do not upgrade your phone on a new cell plan. Avoid all of these things until your home closes. Although you may have been approved for your financing today, the mortgage provider can still pull your credit report anytime up until the date of closing.
The same can be said about your overall financial situation, savings, etc. Avoid changing jobs prior to closing, making big purchases out of your savings account – as that money could be required for unforeseen costs.
Understand your Different Payment Options
Speak to your mortgage provider about your options. Ask questions about Fixed vs Variable Interest Rates, Open or Closed Mortgages, and Payment Frequency. All of these things can affect your affordability. Ensure you make the right choices for your financial situation and lifestyle.
Calculate your Moving Costs
Ensure you budget for moving costs, regardless of how basic or elaborate they are. From booking movers, to a U-Haul, or even having friends/family move you in exchange for food and drink – there are costs associated with all moving expenditures. Many moving companies and truck rental providers require deposits up front. Don’t get caught last minute without the funds to do so.
Once you Find your Home, Stop Looking
House Hunting can become an addition, especially with the convenience of viewing listings online. But when you’ve selected your home and everything Firms up, STOP LOOKING! There are always going to be new houses on the market, and some may even match your criteria! But the fact is, you’ve made your decision, and you should avoid having ‘buyers remorse’ or driving yourself crazy looking at other properties.
Furnishing your New Home
With a new home comes new grown up furniture. Perhaps you’re currently using hand-me-downs or 2nd hand purchases. If you’re looking to have a more ‘pulled together’ look in your home be sure to budget for new furniture! Brows the stores, get an idea of your tastes, again, be realistic but have fun with this, and determine how much you will need to set aside for furniture. Again, avoid making such purchases until your closing date to ensure you have what you need to cover all costs.
Determine Renovations Requirements
Often your first home is a fixer upper. If this is the case, determine what renovations need to happen right away, and which can wait. Perhaps the brand new kitchen can wait until you rebuild some funds in your savings account. Meanwhile, that stained old carpet could be replaced right away. Do your research on the cost of your renovations and incorporate them into your budget accordingly.
Take Advantage of Tax Credits
There are a number of credits you can take advantage of as a first time home buyer. For example: The Home Buyers Plan (HBP) allows you to take up to $25,000 from your RRSP without affecting your taxable income, provided you meet specific conditions pertaining to repayment. Claim the First Time Home Buyer’s Credit on your income tax return and receive up to $5,000 for the purchase price on your home. Apply for the GST/HST Rebate, Claim Moving Expenses, or Home Accessibility Expenses. For more information on these credits, click here
We hope this article was informative, and helped you be realistic about preparing for buying your first home. For further questions, or to get started with your search, contact 705-444-4949.
Source: The Star, Global News, Lowesttrades.ca, CMHC