Purchasing a home is the biggest financial commitment for so many people. It can be expensive, time consuming and frustrating. To top it all off, horror stories flourish of duff surveys and rogue agents. However do not despair; owning a 1st home is a highly rewarding experience for the majority of the people. Knowing the right information can simplify the process. Below are the steps for owning a house as a 1st home buyer.
Several people get fade up of renting and decide to commit themselves to purchasing their own house. Even though this demonstrates how ready you are to make the leap from renting to owning your first home emotionally, it doesn’t show your capacity to make the transition.
While you won’t be expected make cash payments for the whole amount of your 1st property, you are required to come-up with a down payment. These are in the range of 5% – 20% of the total purchase price. In case your downward payment amounts 20% or even more, you meet the requirements for a conventional mortgage. If you have got anything that is less than that, you’ll be required to pay a one-time payment known as “default insurance” for protecting the lender in case you default on the mortgage. Its cost may range from 1.00% – 3.10% of the loan’s total amount.
When saving, take into account the additional costs which are normally associated with purchasing a home. These may include fees for: surveying, taxes, inspections, insurance, lawyers and many more. These can accumulate to about 1.5%-2.5% of the home’s price.
Look for the money
There are several government grants and programs for Canadian first-time-home-buyers. An example of such is the RRSP Home Buyer’s Plan or the First Time Home Buyers’ Tax Credit of the federal government.
Trim down your debt
Besides making savings for the down payment, you will also need to cut down your debt as much as possible before you can approach a lending institution for the mortgage. Essentially, the less debt you’ve got, the more you will be able to borrow for your mortgage from the bank. You won’t be allowed to carry a debt which is greater than 40 percent of your gross income. Before getting an approval, the lender will wish to see how well you have paid your past bills and debts. Your credit report will be examined by the lender so as to review your credit history.
Getting the mortgage
There aren’t very many people that can afford buying a property without the need to borrow any funds from a lender. Therefore, many Canadians’ home-buying journeys begin with getting a mortgage. A loan which is used to buy a house is one which is referred to as a mortgage. Many lending institutions love giving out mortgages because they earn vast amounts of interest from them (mortgages). Also, since the purchased property is used as the security, the lender will take the property back in case you fail to pay back the loan.
Decide whether to use a mortgage broker, or to go direct to the lending institution
Two options are available to 1st time home buyers when it gets to applying for a mortgage. You may choose to contact a broker to assist you in finding a home loan, or you may individually come-up to a financial institution and speak to the lender’s representative.
Approaching the lending institution directly for a mortgage is a good option for those that have already researched about the home-loan options which are available, in addition to having a good relationship with them (lending institution). The disadvantage with this is that you will only be able to obtain a mortgage product that is from the lender’s specific suite of products.
The 2nd option is to take advantage of the mortgage broker. They have an advantage of having relationships with many different lenders and can assist you find a lender with the mortgage plan that suits you best. Besides that, he or she can also help you to get the required documents ready and guide you throughout the process of buying thus increasing the chances of success. The brokers’ services to you are free since they are paid a commission by the lending institutions. The representative of your lender or your mortgage broker will take you through the alternatives to help you select the mortgage type which suits you best.
The mortgage broker or lender will take a look into your financial situation so as to establish your borrowing capacity. Borrowing capacity is the maximum amount of money that someone is capable of borrowing basing on their income, existing debts, whether they are making the purchase with someone else, and all the other liabilities they have.
Keep in mind that the figure which is presented to you is the maximum amount of the mortgage. It is a great idea that you draw up a budget basing on your income and expenses. This will help you determine how much you can practically pay on the mortgage per month. Don’t forget to take into account the costs which are associated with possessing a home such as strata fees, insurance, council fees, mortgage repayments and maintenance costs. You should incorporate infrequent expenses such as birthday gifts, car repairs, dental visits, travel and others.
Get a pre-approval
After your financial situation has been reviewed with the broker or lender, you can then obtain a letter from the bank which verifies that you have been pre-approved for the mortgage. This letter usually guarantees a rate of interest for 60 to 120 days. It also demonstrates to the seller that one is a serious buyer.
Find a home
This is surely the exciting part. Since you already know how much you are able and willing to spend, you’re ready for shopping. Narrow down your search by drawing up a list of what you are seeking for in a property. Some of the considerations include: the location, size, local amenities, parking, special features, type of home and others. You can use the internet, word of mouth, newspapers, magazines and any other possible means to uncover your dream home.
Take advantage of the professionals in the home-buying business
You may seek for services from professionals such as a realtor, lawyers, home inspector, land surveyor, contractor, and others.
Make an offer
After finding the property, your lawyer or realtor can assist you in preparing “an offer to purchase”. This is a legal document which is presented to the vendor and features:
- Your legal name.
- The vender’s name.
- And the property’s address.
It also includes every item that is in and/or around the home such as wardrobes and appliances.
Complete your application for the mortgage
After the Offer to Purchase has been acknowledged, you head back to the broker or lender. Your financial information will be verified by the lender and then you can complete the process of your mortgage application. The lender may request for a land survey, property appraisal or both. You may also be requested to acquire title insurance.
Be a responsible homeowner
After finalizing the whole process and moving into the home, you may decide to pay your mortgage promptly, or else you may face foreclosure.