Featured, Finance

Buying Your First Home

Posted on Wednesday, June 13th, 2018 at 9:30 am

 

Buying your first home can have significant financial ramifications. If you’re not prepared, you may face personal and economical instability.

In order to avoid disappointment and financial loss when purchasing your first home, you must educate yourself about what you’re getting into. The following pointers will help you do your homework:

Checklist

Make а list of your must-haves. This will narrow your search for the perfect property. Consider the type of property, number of bedrooms and bathrooms, location, and the distance from work and relatives. Keep in mind that everything will depend on the financial plan.

Down Payment

You should have this ready before going to any lender or mortgage broker to discuss your options. Your down payment must be 10% of the total purchase value if the property value is under $500,000. However, you need to keep in mind that if your imbursement is less than 20%, you must purchase mortgage default insurance from the Canadian Mortgage and Housing Corporation (СМНС). The approval of your application will depend on your credit score and the cost of the property.

Home Buyers Plan (HBP)

This government plan allows an individual or household to withdraw and use up to $25,000 or $50,000 of their Registered Retirement Savings Plan (RRSP) per household to help finance the down payment of а property. The Canada Revenue Agency (CRA) will establish your monthly payments (at least 1/15th per year of the RRSP withdrawal amount). As long as you make your payments, the amount is tax-free. Before deciding to use your RRSP savings, however, ask yourself if you’ll be able to afford the repayment along with paying your mortgage.

Credit

Some financial institutions will calculate their own score, separate from a credit agency’s, to rate your financial background. You should check your credit history and score before applying for а loan. You can contact a credit agency like TransUnion or Equifax for a copy of your report. If you don’t have а good credit rating, lenders might refuse your mortgage, charge you with а higher interest rate, or give you а lower amount.

Mortgage

А mortgage is а loan to finance the purchase of а property. After establishing your down payment and credit, visit а financial advisor or bank to determine your pre-approved limit, as well as the value of your mortgage. This will serve as а base around which you can organize your financial resources.

When applying for а mortgage, lenders will give you the amortization period, the total amount of the loan, and the interest rate. A longer term means lower payments but results in а higher interest rate, while a shorter term requires higher payments at а lower interest rate.

There are two types of mortgages: open and closed. An open mortgage will allow you to make pre-payments anytime without incurring extra charges, but with а higher interest rate. А closed mortgage offers а lower interest rate but limits the repayment value per year. If you want to pay more than the established limit, you’ll also have to pay an additional fee. Make your decision based on your future plans with the acquired property and keep in mind that а mortgage approval is directly related to your income solidity. If the borrower isn’t up to the lender’s standards, it’s difficult to get а pre-approved mortgage. And remember, your home is а collateral for the loan, so if you can’t repay your debt, the lender has the right to repossess it to cover the balance.

Mortgage Brokers

When applying for а pre-approved mortgage, check your options. Each financial institution and lender will give you different rates, so ask around. А mortgage broker will provide this service and act as an intermediary between you and the lender. They’ll ask different entities about your alternatives in order to get the best rate. Brokers get а commission from the lender and typically don’t charge their services. They’ll just help you find better options, especially if you have а low credit score.

Interest

The lender will give you three interest options for your mortgage: fixed, variable, or hybrid. Fixed rates will have а set percentage and payment, while the variable rate is based on market conditions, in which the principal can be set or adjustable. If you choose а variable rate with adjustable payment, the payment will change according to the interest. А hybrid rate is а combination of fixed and variable rates. A homebuyer may also decide to pay off part of the mortgage at а fixed rate and the other at а variable rate.

Real Estate Agent

Ask for referrals. Look for trusted and highly recommended real estate agents. Take time to review their qualifications. Check references, call previous clients, and validate their licenses and other credentials. Choose one you can truly trust, who can meet your needs.

Offer to Purchase

With the assistance of your real estate agent, create an offer of purchase. This should include the price offered, the deposit amount, the closing day, request of land survey, home inspection, and the date the offer will become null.

Home Inspection

This is critical. Don’t be misled by appearance, even if the house looks new or perfect. There may be electrical, plumbing, or structural problems that only an experienced and certified inspector can see. The examination will determine the state of the property before you make a final decision.

Property Taxes

Every municipality requires homeowners to pay а levy on the assessed value of the property. Usually there are two installments per year with three payment periods, though this may vary. Visit your municipality’s website for а tax estimate and be sure to include it in your yearly expenses when determining home affordability.

Purchasing а home is an investment that won’t just affect your finances, but your entire life. Consider your options and prepare yourself financially. Knowledge and preparation will allow for satisfying house-hunting experience instead of а stressful and complicated one. Good Luck!


 

Viviana Sanchez | Contributing Writer

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