Deciding to apply for a mortgage is a big commitment particularly if you’re a first-time home buyer. There are a lot of things to consider before you make this decision, including your current financial situation and your long-term financial goals.
1. Calculate Your Net Worth: First, you’ll need to calculate your net worth. This includes your assets (cash and investments) minus your debts and liabilities. If you have too much debt, it may be difficult to secure a mortgage that meets your needs, so make sure to take this into account when assessing your readiness for a home purchase.
2. Determine Your Monthly Payment Capacity: Next, determine how much money you can afford each month in payments on an annual basis for the mortgage loan that meets your requirements. Note that this figure does not include down payment or closing costs associated with the purchase of a home.
3. Do you have a down payment saved? – In Canada, you need a minimum of 5% down payment to apply for a mortgage loan. Depending on the value of the property you’re planning to buy, saving for a down payment may take a long time.
Think about your current lifestyle and how a mortgage would fit into it. Would it be difficult to make ends meet if there were an unexpected expense?
It’s important to carefully consider all of these factors before you decide to apply for a mortgage.
Start Saving For A Down Payment And Closing Costs
If you’re thinking about buying a home, one of the first things you’ll need to do is start saving for a down payment and closing costs. In Canada, a down payment is typically at least 5% of the purchase price of a home, and closing costs are usually around 1.5% of the purchase price. So if you’re looking at a $500,000 home, you’ll need to save at least $25,000 for the down payment and $7,500 for closing costs.
Saving for a down payment can be difficult, especially if you’re not used to setting aside money each month. One way to make it easier is to set up a separate savings account specifically for your down payment fund. Then, set up automatic transfers from your checking account to your down payment savings account each month. This will help you make sure that you’re consistently saving money each month towards your down payment goal.
Getting Down Payment Gift From Family Members
It is not uncommon for family members to help with the down payment on a home. In fact, it is quite common. There are a few things to keep in mind if you are thinking about getting a down payment gift from family members. First, you will need to make sure that the gift is given as a true gift and not as a loan. This means that the family member should not expect to be repaid and should not be named on the mortgage or deed to the property. Secondly, you will need to make sure that you are able to document the gift. This means having a letter from the family member stating that it is a gift and not a loan. The lender will likely require this documentation in order to approve the loan.
Using Your RRSP As A Down Payment To Buy A Home
There are a couple of things to consider if you’re thinking of using your RRSP as a down payment on a home. First, you’ll need to make sure that you have enough money saved up in your RRSP to cover the down payment. Second, you’ll need to make sure that you’re comfortable with the idea of taking money out of your retirement savings. Finally, you’ll need to make sure that you understand the rules surrounding RRSP withdrawals. If you’re comfortable with all of these things, then using your RRSP as a down payment can be a great way to save money on your home purchase.
Make Sure Your Credit Score Is Good Enough For A Mortgage Loan
Your credit score is one of the most important factors in determining whether or not you will qualify for a mortgage loan. Lenders will use your credit score to determine your creditworthiness and whether or not you are a good candidate for a loan. The credit score that is preferred by most lenders ranges between 680 and 900. Paying your bills on time is one of the most important things you can do to improve your credit score. Late payments can negatively impact your score, so it’s important that you pay all of your bills before their due dates. You should also try to keep a good credit history by avoiding opening too many new lines of credit at once and using credit responsibly. Finally, using a credit monitoring service can help you keep track of your credit score and identify any potential red flags.
Get A Mortgage Co-signer If You’re Having Issue To Qualify For A Mortgage
If you’re having difficulty qualifying for a mortgage on your own, you may want to consider finding a co-signer. A co-signer is someone who agrees to sign the loan with you and is legally responsible for making the payments if you default. This can be a family member, friend, or business partner. Having a co-signer can help you get approved for a loan and may even get you a better interest rate. Cosigners are often used when people are trying to get a mortgage but don’t have enough income or credit history to qualify on their own.
Requirements for a mortgage cosigner vary by lender, but typically include being at least 18 years old, having a good credit score, and having a steady source of income. Some lenders may also require that the cosigner have equity in their home or another asset that can be used as collateral.
Get Pre-approved For A Mortgage Loan
If you’re thinking of buying a home, it’s a good idea to get pre-approved for a mortgage loan. This will give you an idea of how much you can afford to borrow, and can also help you get a better interest rate. To get pre-approved, you’ll need to provide some financial information to your lender, including:
- Your income & Down payment
- Letter from your employer showing your guaranteed hours and salary/wage
- Asset you own – such as cars, investment, properties
- Debts – the money you owe to others
Once you’re pre-approved, you’ll still need to go through the regular mortgage application process.
Find The Right Real Estate Agent
If you’re thinking about buying a home, you’ll need to find a real estate agent to help you with the process. But how do you know if you’re working with a good agent? Here are some things to look for:
First, make sure the agent is licensed by your province’s real estate regulators. For instance, if you live in Alberta, can find this information on the Real Estate Council of Alberta‘s website.
Next, ask the agent about their experience. How long have they been in the business?
Finally, ask for references from past clients. A good agent will be happy to provide you with names and contact information of people who have used their services.
By following these tips, you can be sure that you’re working with a reputable real estate agent who will help you through the home buying process.
Choose The Right Neighbourhood To Buy A Home In
The neighbourhood you choose to buy a home in can have a big impact on your quality of life. Pick a neighbourhood according to your priority.
- If you’re looking for a quiet place to raise a family, you’ll want to avoid neighbourhoods with a high crime rate or lots of noise.
- If you’re single and looking for a vibrant nightlife, you’ll want to choose a neighbourhood with plenty of bars and restaurants.
- If you have young children, you may want to choose a neighbourhood that is close to good schools.
- If you don’t like long commute to work, buy a home near or closed to your workplace.
- If you want to move closer to your family and friends, buy a home near or closer to your the people you love
Another important factor is the crime rate. You can research this online or ask your real estate agent for more information. Finally, you should visit the neighbourhood and get a feel for it before making an offer on a home.
Start Home Searching Within Your Budget
Once you get your pre-approval for a mortgage loan, you know your price range, and it’s important to start your search within your budget. There’s no point in looking at homes that are out of your price range, as you’ll only be disappointed when you can’t afford them. Your real estate agent can guide you on property types, styles, and features.
Home searching is the most daunting tasks in the home buying process as you will need to take time off of work or look for houses in evenings or weekends. If you clearly define what you’re looking for in a new house before you start searching, it will make the process much simpler. Luck of clarity from the get-go will cost you in time and cause unnecessary stress.
Make A conditional Offer On A House and Negotiate
When you make an offer on a house, you may want to include a contingency clause that allows you to back out of the deal if certain conditions are not met. In Canada, the two most common contingencies are:
Finance Condition – if you’re getting a mortgage loan to buy the house, your loan may be contingent on the house appraising for a certain value. If the house doesn’t appraise for that value, the lender will decline your loan. In that case, you can back out of the deal and get your deposit money back. You may ask the seller to reduce the price so the property passes the appraisal
Add your own money – If you have additional funds, you can pay the difference above the appraisal value and get the house
Home Inspection Condition – This contingency allows you to back out of the deal if the property has serious damages or requires extensive repairs that the seller is not willing to fix.
Pay Deposit On An Offer
Paying Deposit on an offer is part of the purchase contract. You’re promising the seller that you’re serious about buying the house and that you’ll follow through with the purchase. In Alberta, the deposit money is paid with 2-3 business days after the offer is fully signed by both seller and buyer. If the buyer fails to pay the deposit within the specified time frame, the seller can void the contract. The deposit amount is usually negotiable but generally around 2% of the purchase price.
Do A Home Inspection And Negotiate On Repairs
Doing a home inspection before you finalize the purchase of a home is important for a few reasons. First, knowing the overall condition of the house helps you plan for future repairs or upgrades if you end up buying the property. Second, if the inspector discovers issues, you can negotiate with the seller on any repairs that need to be made. Third, if the seller is unwilling to make the repairs, you can walk away from the deal or try to negotiate a lower purchase price.
Waive Home Inspection and Finance Conditions
Generally, most home buyers in Canada give conditional offers to protect themselves as buyers. However, once these conditions are satisfied, meaning the lender approved your mortgage application and the inspection result is agreed up on, you can waive these conditions by signing a form. It is only after you signed the waiver notice that you officially purchased the home. After this time, the property status changes to “SOLD”
If you’re Renting, Give Move Out Notice To Your Landlord
Once you waived your home inspection and finance conditions, it’s important to give your landlord move out notice. This will help them plan for the next tenants and avoid conflict with your landlord. Give your landlord as much notice as possible and be sure to put your notice in writing.
Find A real Estate Lawyer and Sign Mortgage Documents
It is important you find an experienced real estate lawyer to help close the deal. The lawyer receives mortgage documents from your lender and from the seller’s lawyer and prepares everything for you to sign. This is the final step before you key get a key to your new home. Examples of tasks your real estate lawyer performs are:
- Background checks on the property
- Distribute documents the required entities
- Ensure that ownership is transferred and recorded
- Protect your legal rights during the transaction.
- Get the money from you and the lender and send them to the seller lawyer so that you get the keys.
- Deal with any changes to the purchase contract
Get A Home Insurance
Before you get the key to your new home, the lawyer wants to see the home insurance certificate. This insurance is required by the lender and if you don’t get the insurance coverage, the lender will not release the money to the seller. So it is important that you purchase a home insurance coverage prior to signing documents at the lawyer’s office.
Just like car insurance, the home insurance policy protects your home.
- First, consider what type of coverage you need. Home insurance policies typically cover damage to your home and belongings caused by fire, wind, hail, water, and other disasters. Y
- Next, compare rates from different insurers. Be sure to get quotes from at least three different companies so you can compare rates and coverage options.
- Finally, read the fine print before you purchase a policy. Make sure you understand what is covered and what is not. This will help you avoid any unpleasant surprises down the road.
- Following these tips will help you get the best home insurance policy for your needs.
Sign Up For Utilities Services For Your New Home
By now, your home buying process is almost over. The current owner of the home your’re buying disconnects thier utility services on the closing day. You want to sign up for the service effective on the closing day to avoid service disruption. The utilities include water, trash, electricity, and gas.
First, make a list of all the utility companies that serve your new address. You can find this information online or by contacting your city or county government offices. Once you have a list, call each company and set up an account in your name.
Be sure to have your new address and move-in date handy when you call, as well as your billing information. Most utility companies will require a deposit, so be prepared to pay that when you sign up for service.
Finally, don’t forget to contact your Internet service provider and set up service at your new home. With these few simple steps, you’ll be all set up with utilities at your new place in no time!
Do A Final Walkthrough of your new home
Before you get keys to your new home, it is time to do a final walkthrough. This is to make sure that everything is in working order and that there are no surprises. This is also a good time to check for any damage that may have occurred during the move.
Getting A Key To Your New Home
This is the moment you have been waiting for. Usually, the purchase contract states the time you will be expected to receive the key, but sometimes unexpected circumstances can delay things for a few hours. These small delays shouldn’t ruin your happiness. After all, you have successfully completed one of the most complex home ownership process.
Re-key or Change The Locks On Your New Home
It’s always a good idea to change the locks on your new home, especially if you don’t know who else has a key. A locksmith can re-key your locks so that they all work with the same key, or they can change the locks completely. Either way, it’s a good idea to do this as soon as possible after you move in.
While the home buying process seems an impossible task, with the right mindset, good preparation and an excellent guidance from your real estate agent, it is an enjoyable experience. In the end, you get to enjoy the Many Benefits Of Home Ownership, which are:
- From the financial standpoint, owning a home is often cheaper than renting, and can be a good investment.
- From the personal standpoint, owning a home gives you a place to call your own, where you can make your own rules and decorate as you please.
- It can also give you a sense of stability and security.