First time home buyer? 

Here’s some information on getting started with your finances.

Are you beginning to think you should buy your first home? Well, being a first time home buyer can be stressful but it can also be an incredibly exciting, fun and rewarding time as well. There are several steps that you can do straight away to make your home search smoother – the first of these steps is getting a mortgage pre-approval and a down payment. It is not that exciting but it is important to know before you get to the fun parts – like showings & offers.

What is a pre-approval?

A pre-approval essentially determines what price of home you can afford, which in turn will allow you to focus your property search.  When you get a pre-approval you will also find out your monthly mortgage payments associated with your maximum purchase price and what your mortgage rate will be for your first mortgage term. Applying for a pre-approval is free, and it will help you when it comes to buying that perfect first home. Being pre-approved shows to Sellers that you are organized, prepared and bringing a serious offer, if you are a first time home buyer or a seasoned Seller.

What is a down payment?

Well, a down payment is the amount of money that you put towards the purchase of your home. That down payment is then combined with your mortgage, making up the purchase price of your new home.

How much do I have to put down?

The minimum amount that you will need for your down payment depends on the purchase price of the home that you would like to buy.

If the purchase price of the home is less than $500,000 – the mininimum amount of down payment required is 5% of the purchase price. If the purchase price of the home is between $500,000 and $1 Million then a down payment of 5% is required on the first $500,000 (as before), then an additional 10% for the portion of the purchase price above $500,000. Properties above $1 Million require a minimum down payment of 20% of the purchase price.

How can I calculate my minimum down payment?

Suppose the purchase price of your wonderful new home is $350,000. You will need a down payment of 5% of the purchase price. The purchase price ($350,000) multiplied by 5% comes to a total of $17,500

What if your purchase price was $600,000? Your minimum down payment will be 5% on the first $500,000 ($500,000 x 5% = $25,000), then on the remaining $100,000, your minimum down payment will be 10% ($100,000 x 10% = $10,000), added together means your total down payment would be $35,000

So I have my minimum down payment… now what?

If your down payment is less than 20% of the price of your home, you’ll need to purchase mortgage loan insurance. Mortgage loan insurance protects the mortgage lender in case you’re not able to make your mortgage payments. It doesn’t protect you. There are exceptions when being granted loan insurance so it is wise to check with your lender.

What does loan Insurance cost me?

A premium is a fee you pay to get mortgage loan insurance. Mortgage loan insurance premiums vary depending on the amount of your mortgage. Premiums will also vary depending on the amount of your down payment. The bigger your down payment, the less you’ll pay in mortgage loan insurance premiums.

There are a couple of ways to pay your premium, you can either add them to your mortgage loan or pay them in a lump sum up front.

Yes, but HOW MUCH?

Deduct the down payment from the price of your home. Then take that amount and multiply it by the insurance premium, you can find a loan insurance table on the CMHC website (Click here for CMHC Insurance Premium Table) you will get your insurance premium. Then add that to your loan. There will then be additional fees as the amount of the loan is now higher.

So that is a basic overview of what you should start to think about regarding finances, buying a home is a major step in your life. Although it is not the most interesting subject when buying a home, it is the most important. After all, if you have not got your finances in order, purchasing a home will be a struggle from the beginning. This blog on first time home buyers is only for informative purposes, and we both strongly encourage you to talk with your bank or mortgage broker. If you do not know of anyone, ask us – we have people who we trust 100% that have helped our past clients. The Information provided can be easily found on www.Canada.ca/ (Click here for Information from Canada.ca)