Most first time homebuyers in Canada are taking on a responsibility that will either enrich or make their lives worse. If you are a first-timer yourself, then you should know that the outcome of this important life decision will depend on how well-informed you are about its entire process. There are steps, requirements, and tasks that come with it that could overwhelm you if you are not ready. 

It would help if you also established how buying a home fits into your long-term goals. You can be looking at this move as a way to convert your rent payments into mortgage payments, which for you, leads to homeownership. You can also see this as an investment or an act of independence where you become your landlord. Whatever the big picture is for you, know that there are so many points to consider before making the final decision.

So, to help out a little, we have gathered several essential things you need to know before you even begin thinking about which house to place an offer on:

1. Make sure that your finances are in robust condition. 

This is not just about whether you have enough savings for the down payment of your dream home. This is also about whether you can afford to pay the monthly mortgage while shouldering other expenses like taxes, maintenance fees, utilities, and additional living costs. 

So, when you look at your savings, make sure that you have more than enough to cover at least six months of living expenses. This figure will assure lenders that not only do you have money for the down payment, but also the closing costs. This will also ensure them that you still have money left over as an emergency fund. Keep in mind that mortgage brokers and lenders will require you to submit financial statements to check if you can pay in case of setbacks. 

You also need to check your spending. Knowing how much you spend every month and where your money is going will let you ascertain the amount you can allocate for the mortgage payment. Be sure to account for everything, including food, utilities, car payments and maintenance, clothing, entertainment, and savings for retirement and emergencies. 

Most importantly, you should also ensure that you have good credit standing. If you have a track record of paying all your bills on time and have a maximum debt-to-income ratio of at least 43%, then you will have a better chance of qualifying for a home loan. Lenders usually prefer to limit housing expenses, including the principal loan amount, taxes, interest, and homeowners’ insurance, to 30% of a borrower’s gross monthly income. However, this figure will largely depend on the local real estate market.

2. The home you choose should be ideal for your needs and have the specific features you want. 

There are several options you can choose from when buying a house. There are single-family homes, townhouses, or duplexes. You can also opt to go for a condo or a unit at a multi-family building. Each of these options has its advantages and disadvantages that depend on your goals as a first-time homeowner. So, when you decide on which type of home to buy, you also have to consider if it will help you achieve your goals. 

If you are the kind of person who wants to work on a home to really make it yours, then you can even go for a fixer-upper. This kind of property will let you save on the purchase price and will allow you to renovate it according to your specifications. However, if you are not willing to spend time, sweat, and money to get your dream home, this option is not for you.

Another thing you should consider about choosing a home is the features it offers. Although it is good to be flexible about this, it might be wise to have already a list of the qualities you are looking for. This list should include basic things like the size and the kind of neighborhood it is located in and smaller details like how the kitchen should be fitted with the appliances you need or how the bathroom is laid out. The Internet has tons of real estate websites where you check out available houses that offer the features you are looking for. Through this, you will also see how much they cost and within your budget range.

3. Get preapproved for a mortgage.

Many sellers now won’t entertain offers on homes if they don’t come with mortgage preapprovals. Therefore, you must have yourself preapproved for a loan before placing a bid on a house you’re interested in. This can be done by applying for a loan and gathering all the needed paperwork. However, it is best if you shop around for a lender first so you can compare fees, terms, and interest rates before settling on one. 

You must have an idea of how much you can actually borrow to finance your first home purchase before you even begin house-hunting. It’s possible that what you think you can afford is not the same as what lenders may think. You might think you can afford $300,000, when in fact, you can only go for one priced at $200,000. Lenders will base your approved loan amount on many factors, not just on your monthly income. They will also look into the length of time you’ve been with your current company and other debts you are still paying off.

4. Know how much you can actually afford to pay for a home.

There are times when a bank will approve you for a loan beyond what you expected or have the means actually to pay for. Just because a bank is willing to lend you $300,000 for your home loan doesn’t mean that you actually have to borrow the entire amount. A lot of first-time homebuyers have made this mistake and ended up being “house poor.” This means they no longer had enough money left over after making the monthly mortgage payments that they can hardly pay for their other living expenses like utilities, clothing, entertainment, vacations, or even food.

So, look at the total cost of a house before you decide on how much actually to borrow from the bank. Do not just look at the payments you need to make monthly. Also, consider the closing costs of the sale. Then, think about the property taxes in the neighborhood where the house is located and the cost of homeowners insurance. Then, figure out how much you would possibly spend on home improvements or maintenance in the future. These are the considerations you need to deliberate on before deciding on how big a loan you can actually take on.

5. There are first-time homebuyer programs you can apply for.

The Canadian government has three programs meant to help first-time homebuyers: The Home Buyers’ Plan or HBP, the Home Buyers’ Amount tax credit, and the First-Time Home Buyer Incentive. Plus, most provincial governments in the country also offer land transfer tax refunds to first-time homebuyers on top of these federal programs. The Canada Mortgage and Housing Corporation or CMHC also provides mortgage loan insurance that can benefit you. Learn about all these and know which one you can avail of. This could surely go a long way in assisting you with your first home purchase.

Buying your first home is probably just one of the steps you need to take in realizing your dreams. However, you need to be prudent about getting yourself ready to take on this responsibility and going for the people and firms that could help you make things happen. Keep in mind that the first-time homebuyers who did not regret the decisions they made were those who did not cut corners. They saw that every necessary step was taken, each requirement fulfilled, and all the tasks done to the letter. Let this be you as well.

For More Information, Contact:

John (Adam) Watson, CEO, CanCap Mortgage Group Inc. 

Email:   Tel: 416-452-5281