Determine Your Financial Situation
-
Before you start looking for a home, it is important that you determine your personal finances so that you will know what kind of price range you can comfortably afford.
Arrange Your Financing Before You Start Looking
-
If you have already been pre-approved, your offer will be more attractive to the seller and this could mean the difference between getting the home you want and having to search all over again.
-
What should you look for - Flexible Mortgage Options. For example:
How long before closing is your interest rate guaranteed?
Prepayment (monthly or yearly)
Payment frequencies (weekly, bi-weekly, monthly). A higher frequency payment can save you a lot of interest.
Portability - if you sold your home, could you carry the mortgage over to your new purchase without penalty?
Assumability - can the buyer of your property assume your mortgage?
Our Mortgage Manager has access to the most competitive rates and flexible terms in the mortgage market, freeing up your time so you can look for your new home.
Determine Assets Available For Your Down Payment
-
Cash (do not use all of your cash for your down payment, as you will need some to cover your home buying expenses - see list below);
-
Stocks;
-
Mutual funds;
-
Canada Savings Bonds;
-
GICs;
-
RRSPs
-
There is a new government program that allows you to withdraw your RRSP without penalty. The details are outlined below.
-
Maximum $20,000 withdrawal (can be combined with spouse for total of $40,000)
Minimum of 1/15th must be repaid each year
Start paying 2nd year after buying home
Must become principal residence within one year of acquisition
Must not have owned a principal residence in any of the last five years
Funds must be in the RRSP three months prior to completion
If short of cash, you have another option with the 5% Down Payment Program that the government implemented to boost the housing industry. The details are outlined below. -
Must have an additional 1.5% to cover closing costs
-
Maximum purchase price $250,000
Borrower may select any term, but must qualify at three year rate (minimum)
Premium 3.75% of loan amount
For a purchase price over $250,000, CMHC offers a 10% Down Payment Program with no maximum purchase price.
Options and Resources for First Time Home Buyers
The decision to purchase a home is probably the most expensive one you'll ever make and can be rather daunting. Since emotions can run high, it's important to go into the process with your eyes wide open. Being well-informed is the best way to ensure the process goes as smoothly as possible and ensures fewer disappointments along the way.
Do your research and seek good advice before you even begin looking for a home. Home location, floor plan, room sizes and other amenities are all important factors to consider when making an offer to purchase a home. But none of these are as important as knowing how much you can put down, how much you can finance and how much house you can actually afford.
Before you do anything else you should visit a mortgage specialist who can help you navigate the waters of home financing and guide you toward the options that will best meet your needs. Your mortgage consultant will guide you through the pre-qualification process to determine a price range you can afford. They will need your credit history and information about your income, monthly expenses and existing debts, like outstanding loans or credit cards and other information. It can be a very sobering process! By using a mortgage consultant, you'll only have to go through the process once, instead of having to re-do the experience with a half dozen banks!
Even if you don't have a large sum of money to use for a down payment, there are some creative ways to come by the funds needed. You may qualify for a low down payment home loan. Some of the factors used to determine eligibility for one of these loans include a good credit history, adequate income to pay the mortgage payment monthly and appraisal value of the house you plan to purchase. Depending on the loan, other requirements must be met as well so it's important to confer with your mortgage consultant regarding this and other options.
The Canada Mortgage and Housing Corporation allows for a minimum down payment of only 5% of the purchase price of a home with the mortgage term of up to 35 years. Another money saver is the opportunity for a full or partial exemption of Property Transfer Tax (PTT) available for first time home-buyers depending on the house value and other criteria.
First time home buyers (and an eligible spouse) can each withdraw up to $20,000 tax-free (total of $40,000) from a Registered Retirement Savings Plan (RRSP) account to use as a down payment for a home. Your mortgage specialist will be familiar with the requirements for these and other programs that may be beneficial to you.
A loan or gift from a family member or other individual may be allowed in order to provide you with sufficient funds for a down payment. This option, including loan/gift amount allowed will vary and depends upon the type of loan for which you are applying.
Another way to assist you in meeting your monthly mortgage payment is to buy a home with a built-in "mortgage helper." That might include an in-law suite, two master bedrooms, or other floor plan that would facilitate your renting out part of your home. It is important to be sure your neighborhood is zoned to allow this type of arrangement.
Buying a home is much more complicated than it might seem at first glance. Before you even visit the first house, you need to be sure you are well-informed and well-educated about how your resources line up with your wants and desires. You need a home purchase team to advocate and assist you throughout the home buying process. A good mortgage broker will be able to recommend a real estate agent, an attorney, an insurance agent and other professionals for your home purchase team.
Let the Averbach Mortgage team advise you and lead you through the first-time home buying process. We've done it hundreds of times, understand the pitfalls and work hard to get you the best mortgage possible!
