How do you know when you’re ready to buy your first home?
Don’t worry. We prepared a checklist:
_ You’re excited for DIYs and regular trips to Home Depot
_ You have (some) money saved for a downpayment
_ You have a stable job with money coming in every month beyond your expenses
_ You’re sure you have done a pretty good job of paying all your bills on time
_ Your inner designer cannot wait to style your new space
If you have checked off more than one of the above, then let’s move to the basics.
The key characteristics of a mortgage are: the rate, the term, down payment, payment frequency…have we lost you yet? Let’s break it down together.
The term – The length of time your rate is “locked in”. In Canada, that term is usually 5 years, but shorter and longer terms are available. Generally, the shorter the term the lower the rate. When the term ends you must renew into a new term at the new market rate.
The rate – Choose either fixed or variable. First off, variable rates are often lower but involve more risk. Fixed rates are locked in for the full term, whereas variable rates fluctuate with the prime rate set by the Bank of Canada. A variable rate can lead to monthly payments that rise over time. That’s the risk.
Down payment – The minimum down payment is 5% on homes less than $500,000 and 10% for the remaining portion. A down payment of less than 20% requires CMHC insurance, which comes with its own cost. 20% or more down means no CMHC insurance, and rates are now quoted based on the specifics of your application.
Payment frequency – When you purchase a property, you will make regular payments on it. Exactly how much you pay and how often you pay depend on your payment frequency. You can choose from six different mortgage payment options: monthly, semi-monthly, bi-weekly, accelerated bi-weekly, weekly, or accelerated weekly. If you are looking to pay down your mortgage faster and have the extra cash, pick an accelerated option.
Okay, got it. What else should I know?
Most lenders require that your housing costs (mortgage payments, property taxes, utilities, and half of any associated condo or community fees) be less than 39% of your gross income (the amount of money you earn before anything is taken out for taxes or other deductions).
Lenders care about your other debts too. The total amount of your monthly debt payments (including your new home mortgage) must be less than 44% of your gross income.
Realtor fees! Something you don’t have to worry about as the seller of the home pays those fees. If you secure a mortgage with us and purchase using one of our own TN Realty agents, you will actually receive a portion of their commissions earned back to you! On average, our home buyers are receiving a rebate of $3,800*. Think about all the decorating magic you could do with that. We’re talking trips to HomeSense, West Elm, Bed Bath and Beyond – you know, just to get started.
Lastly, closing costs. The price of your home is not the only cost! Some additional costs are, home inspections, moving expenses, utility hookups, land transfer taxes (where applicable) and lawyer fees. Lenders typically like to see that you have 1.5% of the purchase price as additional savings to cover these costs. As for broker fees, forget about them, with True North Mortgage, our agents are salaried, not commission-based. This means the lenders pay us so you don’t have to – more means to treat yourself to that couch you’ve been dying to own.
But wait. I’m now self-employed and unsure if I even quality. What would you recommend?
We get it. We’ve been there too! Entrepreneurship is one of the most rewarding, yet risk heavy choices you can make. We recommend sitting down with one of our agents and reviewing your financial situation; debts/liabilities, income (how you generate it and for how long), as well as reviewing your credit history. From there, we can determine if you qualify for a mortgage now, and if not now – then when! Just because you don’t qualify today, doesn’t mean it’s something you can’t work towards.
Ready to get started? Here’s what’s next:
- Walk into one of our 11 locations across Canada, visit us online or give us a call and one of our agents will start the process.
- Together, we’ll review your financial situation.
- Get pre-approved! Or discuss the steps on how to put yourself in a position to be pre-approved.
- Work with a Realtor to find the perfect home (remember, if you use a TN Realty agent they will give some of the ‘commision’ back to you in the form of a rebate!)
- Find your dream home, make an offer, have it accepted.
- Finalize your application, get approved, celebrate!!
- Move in, pop bubbly, receive copious amounts of plants at your housewarming.
- We will stay in touch with annual courtesy calls, just to say hello or to provide you with any needed advice.
Already have a mortgage or looking to buy an additional property?
We have you covered there as well as we can provide you with the best rates and service for your mortgage renewal, refinance, vacation home or rental property purchase!
Note: Rules and guidelines are subject to change. Please inquire within.