Usually spring is the busiest season of the year in the housing market in Canada. With spring on our doorstep, here are a few strategies for first time home buyers to help them find their ideal home while respecting their priorities financially.
Buying a home can be the most important financial decision in life and it is important to understand all the factors that must be taken into account to make a responsible decision to buy.
The first step is to determine the amount you are able to spend to buy a property, which means you must make an honest assessment of your household income and expenses. Once you have a clear idea of your financial situation, you are able to make a responsible decision about what you are able to pay, including your down payment, the monthly cost of your mortgage and other expenses such as utility bills and property taxes.
Here are a few different thing to assess before taking the plunge:
Assess your ability to pay.
There are two basic rules that first time home buyers must apply to determine what they are able to offer.
Firstly, the total expenses of housing, including mortgage payments, utility bills and property taxes, should not exceed one third of total household income.
In addition, the service of your total debt, including loans, payments on credit cards and lines of credit, should not exceed 40 percent of your income. If you are able to meet these parameters, then the purchase of a property can be an affordable option and realistic for you.
Accommulate a down payment
Depending on the amount of down payment, an "ordinary" mortgage is considered a down payment of 20 percent or more. Mortgages can be obtained though with a down payment of less than 20 percent.
If you are able to pay a larger down payment, this will help you pay less interest charges throughout the life of your mortgage.
If you have difficulty in raising a down payment from your savings, there are different options such as a tax-free withdrawal from your RRSP to add to your down payment. Your spouse or partner can do the same It is best to check with your lending broker as to the time frame for repayment of this type of withdrawal.
Choose the mortgage that fits your situation
Your mortgage must be in harmony with the rest of your financial priorities which can mean greater flexibility and greater security. Consider the following factors when choosing your mortgage:
Choose a shorter amortization period. By opting for an amortization period of 25 years rather than 30 years, you’ll save on interest costs and you free yourself of your mortgage faster.
Fixed rate or variable rate – The floating rate loans have proven to be a winning strategy in the long run, but the fixed-rate mortgages (currently at historically low levels) can predict with certainty the costs and promote peace of mind.
Apply for a pre-approved mortgage defines the amount you can reasonably afford to pay for your first home. Some of the benefits of a loan pre-approved:
The fixed rate that is offered is automatically granted and is guaranteed for 90 days, which gives you peace of mind if ever rates were to increase while you search of a property. Moreover, you also benefit from the situation if rates come down to, because you automatically get the lowest rate that is offered during the warranty period of 90 days.The term and amortization period of your loan, and an estimate of your monthly payments are determined at the time of approval of your application, so that you can use these figures when planning your budget.
It also gives you a good idea of the state of your finances. You have a better idea of the amount of loan you are eligible so you do not waste time visiting homes that you cannot afford.
With a pre-approved mortgage, it allows you to act quickly. If your mortgage application is pre-approved, you will be able to bid quickly when you finally find the home of your dreams.
If you are unsure where to start, do not hesitate to give me a call. We can meet and go through all the options that are available for you and start finding the home of your dreams.