FIRST TIME HOMEBUYER- YOUR COMPLETE GUIDE TO BUYING A HOME IN 2019.

FIRST-TIME HOMEBUYER: YOUR COMPLETE GUIDE TO BUYING A HOME IN 2019.

“Owning a home is a keystone of wealth-Both financial affluence and emotional security.”

-Suze Orman

10 Helpful Tips in Helping You Buy Your First Home.

Buying a home is going to be one of the biggest investment that you will make in your lifetime. Don’t let the amount of information stop you from achieving your dreams of homeownership.

Now listen up and listen closely. Here are 10 easy tips in helping you become a first-time homebuyer.

VERIFY CREDIT REPORT

There are a couple of things to look for when qualifying for a mortgage. Credit score being one of them. Start by checking your credit score. The best way to obtain your official credit report is through the credit bureau of Canada — Equifax or Transunion. Each year you are able to obtain 1 free report, so take advantage of it! Other options are Borrowell, and Credit Karma; they are a free third-party service provider. Though it is not the official report, it is still a very powerful tool to see your credit live! Treat your credit report as your Adult Financial Report Card, lenders use this to see how responsible you are and how much they can trust you!

In Canada, credit scores range from 300 to 900 points. Of course the higher the score the better. The magic number to qualify with an “A” lender is 680+. Having a credit score of less than 680 could mean a significantly higher interest, monthly payments, and also a larger down payment. I would suggest delaying this big investment until you’ve built up your credit or even seek out other options like Rent-to-Own programs to get you started.

DEBT-TO-INCOME RATIO

How much debt are you carrying under your personal name? This can include, car loans, cash loans, student loan, credit card debts, just to name a few. Lenders look at your Debt-to-Income Ratio (DTI) to determine how much debt you are carrying and how much of your monthly income is going toward debt payments. This provides reassurance that your budget can easily absorb new debt in the form of… you guessed it mortgage payments. If you are carrying a large amount of debt compared to your income, your DTI will be high and you will most likely get declined by the lenders. Those who still get approved will probably be going through a private lender resulting in higher interests and fees. Ultimately meaning more money out of your pockets in the long run. Programs such as Rent-to-Own maybe something to seriously consider to help ensure that you get where you need to go.

To calculate your DTI, simply add up all your monthly debt payment then divide the total by your gross monthly income. Rule of thumb is to have a DTI of 36% or less.

EMPLOYMENT & INCOME

Your employment and income play a major role in determining how much loan you are entitled to qualify for. Generally speaking, banks will require a minimum of 2 years of employment history. If you have recently just started your job, a rent to own program may be something you should consider. The amount of income you produce predicts the purchasing power that you have.

To determine approximately what you are qualified for, take your income (or combined income) and multiply it by 4 (with a perfect portfolio, multiply by 5). Eg. Combined income= 100k x 4= 400K. The purchasing power based solely on income alone would be approximately 400K.

DOWNPAYMENT

Mortgage lenders will require a down payment as a form of security to protect themselves. With you having some skin in the game means you will be more responsible with their money. It also acts as a protection for them, simply because they did not loan out the full value of your home, and in cases that you were to default on the loan, there is a higher chance for them to make a full recovery from the loss.

Traditionally you are required to put down 10 to 20% of the purchase price of your home. Technically, you don’t have to put any money down when financing a home in today’s world, but you are encouraged to put more down. If you can’t afford to put at least 10% down, you may want to reconsider investing in your first home. If you do not want to waste any more time and is financially lacking the down payment. A Rent-to-Own program may be an option for you to start living in your home while saving up towards the down payment. Anything lower than your 20% and you will have to pay for Private Mortgage Insurance (PMI). In Canada Mortgage Default Insurance, commonly referred to as CMHC Insurance. This insurance is there to protect the bank in case you fail to make your payments. PMI can cost between 0.3% to 1.50% of the mortgage, depending on the size of your down payment and your credit score.

RENT-TO-OWN

If you are ready to become a homebuyer, but financially not ready to qualify for a mortgage, Rent-to-Own program may be an option for you to start living in your home. Rent-to-Own programs are generally set for 2-4 years. This will provide you with the necessary time needed to start saving up towards the down payment, rebuild and repair your credit, decrease your debt ratio, and clean up whatever else may be holding your back from being able to qualify for a mortgage today. Rent-to-own will provide you with the opportunity to start working on your hurdles whilst living in your home. See it as a homeowner in training!

GET PRE-APPROVED FOR A MORTGAGE

Once you have all your finances in order and have determined how much you can afford. Next step is to get a pre-approval. To apply for a pre-approval, you’ll have to seek out a lender — either the bank or a mortgage broker. Pre-approval letter provides an ideal purchase price to your realtor so they can start building home listings for you. Home sellers also use this information and will likely make an offer to those with a pre-approval letter before those without one. One thing to keep in mind is to compare the different mortgages offered from each bank and mortgage brokers that you visit. Choose the one that fit your needs. Remember to stick to your ideal limit. A pre-approval also doesn’t mean you have to spend the full maximum amount that you are approved for.

EXPENSES

When buying a house there are other expenses tied to it. It is not usually the price tag of the house but the cost. Even if you can afford the monthly mortgage payment, there are other costs that you must be aware of like maintenance fees, property tax, and home insurance. Upon closing on the property there will be additional hidden fees known as the closing costs. Such fees include the attorney fees, appraisal fees, title insurance, property transfer taxes, and inspection fees, which can add up close to about 5% of the property. Determine how much you are willing to spend and stick with it!

FINDING YOUR REAL ESTATE AGENT

Best way to find the right real estate agent is to seek out referrals from friends and family. This will narrow down your search; more than likely someone who had a positive experience with an agent will provide them with credibility. In addition to referrals, make sure you do your own research. Ensure the agents that you are seeking are buyer agents and not listing agents. Buyer agents are there to represent you in your purchase. When hiring an agent it is important to set up interviews. Making sure you find someone you will be comfortable working with. Ask many questions; learn about their history as a realtor, experiences, strategies, skill, and past negotiations on offers. Are they familiar with the city and the neighbourhood?

You will be expected to sign a buyer’s broker agreement and agency disclosure. These documents will explain the expected responsibilities between you and your agent.

Once you have found your real estate agent, it is time to go shopping!

HOUSE HUNTING

This is where the fun begins! Start by having an ideal house in mind. What type of house are you looking for? How many bedrooms and bathrooms? Did you want a garage, a basement, a backyard? Where did you want your house to be located in? Are there any schools, shopping centre or grocery stores nearby? Remember to always keep your budget in the back of your mind. Once you have that general thought, let your agent know to start devising a list of potential homes for you to see. Make sure you perform research on each potential property. Inspect the photos and floor plans provided, and if possible drive out to check the neighbourhood and walk scores. Narrow down the number of properties that you plan to take your agent to go see.

There are some simple unspoken rules that one should follow when looking for your first home. Be respectful to your agent and value their time. You are most likely not the agent’s only client so remember to schedule your appointments ahead of time and don’t forget. When running behind schedule, call and let your agent know so he can make arrangements. Keep in mind that your agent is paid based on commission, meaning that they don’t get paid until they help you buy your house. Use common courtesy, don’t waste your agent’s time if you are not set on buying a home.

SECURING THE PROPERTY

Once you have found your ideal home it is time to put in an offer. At this stage, things can get heated and emotional. Remember to always keep your budget in mind in instances where multiple offers are being made commencing a bidding war. Think logically not emotionally! Stay within your agreed upon limit.

Keep your chequebook handy and be prepared to write an offer. Generally, an earnest deposit is required in securing the property. Earnest money deposit is made to the seller to represent you in good faith of buying the house. It acts as a promise to the seller and also buys you time to do your due diligence.

SEAL THE DEAL!

Once your offer has been accepted by the seller, you will have some time to do your due diligence. During this time, make sure all your finances are in order. You will need to conduct a title search on the property, and an appraisal and inspections upon closing. A final walk-through should be done on the last day before closing. Your final walk-through is to ensure that the property’s condition hasn’t changed since your last visit and any agreed-upon repairs are made by the seller.

When all the terms and conditions are met, the remaining contracts will need to be signed to finalize the purchase. If there are any documents you are uncertain of, do not hesitate to ask your agent to explain it in detail. Keep in mind that your agent is not a lawyer and it is best to seek legal advice when needed. Once all your documents are signed and set…

Congratulation! You are now a proud homeowner!