Information About Buying A New Home
Are you ready to buy a house?
Depending on where you live, the amount of money you pay in rent could be equal to a mortgage payment. For many, Covid has put the brakes on home buying with job uncertainty. For others, the record low interest rates have provided the perfect launchpad for those that have been on the fence or in the planning stages. Of course, having a down payment available to you either by a gift from a family member or in your savings or RRSP account is an important item.
The minimum down payment in Canada depends on the purchase price of the home:
- If the purchase price is less than $500,000, the minimum down payment is 5%.
- If the purchase price is between $500,000 and $999,999, the minimum down payment is 5% of the first $500,000, and 10% of any amount over $500,000.
- If the purchase price is $1,000,000 or more, the minimum down payment is 20%.
Your down payment will determine the home you can afford, the size and amount of your monthly payment, and if you will be paying CMHC insurance. So, what is affordable?
Monthly Budget Planner http://download.remax.ca/BuyersGuide/Monthly%20Home%20Budget%20Planner.pdf
What is Debt Service
RRSP information for first-time buyers – Home Buyer’s Plan
Do you have a steady income and expect to in the future?
Owning a home means that expenses will crop up, such as a new roof, new furnace, and the day you decide that your new pooch needs a fence. It is important to budget for these items because they WILL come up.
Settling down…. it’s a big question.
Take a mental look down the road. Where do you see yourself in 3 years? 5 years? If you can’t see yourself in the same place for that length of time, maybe this is not the right time. Is a job transfer an option in the near future? Do you want to be closer to your distant family if kids come along? If any of these answers are an absolute ‘yes’, then perhaps rethink why you want to purchase a house now.
Do you know the local real estate market?
Buying in a seller’s market can be difficult, never mind frustrating, and expensive. If the inventory is low, then you will no doubt be in competition with other similar-minded buyers. This will undoubtedly create competition. Competition creates bidding wars and purchase prices more than the listed price. Know your upper limit and stick to it. It is important to find a Realtor that you feel comfortable with. Then have a discussion with that person about the market and what to expect. You may need to interview more than one person to find a fit. You are making one of the biggest purchases of your life, trust is vital.
Tips for Buying in a Seller’s Market
Your credit score and how it affects your house purchase
When applying for credit, such as a mortgage, the lender will look at your credit score. It’s a measure of your financial health and provides lenders with the level of risk they are taking when lending money. Scores are rated between 300 and 900. A credit score above 700 is a sign to a lender that you manage your money well. A lower score can suggest financial mismanagement and although a lender may still consider lending to you, the interest rate will be higher.
Your credit score is built and tracked by information sent by the credit bureaus. This information includes credit card companies, banks and credit unions, retailers, or anyone that has given you credit where you repay in lump sums or monthly payments. In Canada, there are 2 such credit bureaus: Trans Union and Equifax. You can obtain free reports about your credit from these companies upon request. You can also purchase a subscription with them where you can monitor your credit report monthly or whenever you like.
What affects your Credit Score?
- Credit History – how long you have had credit. Longer is better.
- Past Payment History – don’t miss a payment or be late with one and your credit score will do well. Bankruptcies will also affect your credit score and in some cases will prevent you from getting a mortgage.
- How Much Debt You Have – try keeping this number low. Under 35% is preferred.
- New Credit Requests – do you apply for new credit cards from various lenders or retailers often. This will negatively affect your credit score. Checking your credit score yourself will not.
- Type of Credit – a mix of different types of credit is best. A credit card, line of credit, and a car loan would be considered a reasonable mix.
Having no credit can also affect how a lender looks at you. If you don’t have any credit history, take steps to create some. Apply for a credit card or take out a loan. Establishing credit is essential if you want to buy a house in the future.
Talk to your bank or a mortgage broker to get on track to purchase a house.
Understanding your Credit Score:
The next question is who you talk to – a bank or a mortgage broker. The 2 articles below discuss the pros and cons of both.
So, you think you’re ready to buy? Take a look at the Steps for Buying a House in the tab under Buyers.