Few events in life are as complex as the process of buying your first home. In order to demystify it a bit, we’ve compiled a short list of tips, including a breakdown of mortgages and which homeowner incentives may be most beneficial, to make sure you get the most out of your purchase.
1. Learn About the Mortgage Stress Test
While Canadians may be at least familiar with the newly introduced mortgage stress test, not everyone may understand exactly what’s involved or who it affects. To start, only those potential buyers who are applying for a mortgage loan through a traditional bank will need to pass this test. However, if you’re working with a credit union or a lender who is not federally regulated, you most likely will not face this hurdle.
Beginning in late 2017, the federal government introduced the stress test as a more rigid set of rules for banks to follow in order to determine if potential homebuyers could qualify for a mortgage and, if so, how much. The idea is that because mortgages have sat at relatively low rates for a while, they will only continue to increase. These new rules are intended to protect the borrower from the possibility of defaulting on their mortgage loan and losing their home.
2. Discuss Different Lending Options
Unless you have the cash on-hand to purchase a new home outright, you’ll need to obtain a mortgage or a loan to purchase a property. The first step is usually getting pre-approval from your bank or lender, especially if you plan to buy in a competitive housing market. During this process, you’ll be presented with a few different lending options. Here’s a quick breakdown of these:
Fixed Mortgage: This type of mortgage keeps your interest rate consistent throughout the term of your loan and, therefore, is not impacted by rates in the economy. It can be a good choice for buyers who are wary of higher interest payments being tacked on to their monthly house payment.
Variable Rate Mortgage: With this type of mortgage, your rate is tied to that of the prime lending rate. So, if the Bank of Canada raises its lending rate, your mortgage rate also increases. Likewise, if the prime lending rate decreases, so too will your mortgage rate.
HELOC: Otherwise known as a home equity line of credit, this loan is only an option if the borrower has at least 35 percent of their down payment at the ready. A HELOC can be used if the homeowner is looking for more flexibility in their loan or easier access to funds.
If you’re looking for an easy way to find the best mortgage rates, try using a rate comparison site, where you can quickly find and compare each lender’s offerings.
3. Read Up on Homeownership Incentives
If you’re struggling to come up with the funds necessary to buy a new home, looking into different homeownership incentives can boost your chances of being able to own property. For the cash-constrained, the recently introduced First Time Home Buyer Incentive may be beneficial, as it works as a shared equity mortgage between the buyer and the federal government, effectively lowering mortgage costs. The incentive offers buyers up to 10 percent of the home’s purchase price to put toward their down payment. To qualify for the incentive:
- Your annual qualifying household income must be less than $120,000.
- You have at least the minimum downpayment at the ready, which equates to 5 percent of the first $500,000 of the home’s purchase price.
- You are borrowing less than four times your qualifying income, or no more than $480,000.
Other incentives worth looking into include The Home Buyers’ Plan and GST/HST New Housing Rebate.
4. Come Up with a Plan for Décor
Buying your first home comes with a lot of added costs. From shelling out for closing costs to home insurance and land registration taxes, home buying fees can add up fast. But you’ll still need somewhere to sit once all your boxes are moved in, as your home won’t decorate itself.
With that in mind, try making things a little less overwhelming by starting with the most important rooms, such as your living room and bedroom. Buy furniture for these priority areas first and space out the rest of your big-ticket furniture items for when you have more room in your budget.
Home Buying – The Bottom Line
These tips should help you get started on the path to homeownership by filling in any gaps or knowledge you may have about purchasing a new home. But there will still undoubtedly be things that come up requiring some expertise, so surround yourself with a knowledgeable team, including experienced lenders and a good real estate agent, who can help guide you through the process from start to finish.
2018 ·