First time home buyer?
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.
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.
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)
Timeline for
First -Time Home Buyers
You have your pre-approval, you have your finances in order, you know how much you can afford and now you want to get to the exciting part. Being a first time home buyer there are so many things to consider, we have created this handy little timeline to ensure your priorities are in order and help you understand what to do first.
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Looking for that perfect home
Finding a beautiful home that is perfect for you can take time, anywhere from one week to a year depending on just how big or small your list of ‘wants’ are and how you are willing to compromise . By providing your realtor a list of the things that you must have and a list of things that you do not want, is the place to start. While a wish list a great place to start, it is wise to keep in mind that you may have to make concessions or compromises depending on what properties are available. When you do find that perfect property, you will want to put in an offer. Your realtor will then help you to decide on an offer price, negotiate on your behalf and look out for your best interests.
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Congratulations. Offer accepted. Now it’s time for the home inspection
It is in your best interest to get a professional to inspect your potential new home in order to uncover any ‘red flags’ that may not be visible to the naked eye, (i.e. lack of insulation, moisture… etc.). In some situations when the market is very hot and properties are selling in multiple offers, a home inspection is not done. In a situation such as this, prospective buyers will enlist an inspector to do a pre-offer inspection, or the seller will provide a pre-list inspection so that everyone can see what is right and wrong with the property from the start. This provides potential buyers the peace of mind to put in an offer without a home inspection condition.
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Finalizing your mortgage
So you have been to the bank to get your pre-approval (please see previous blog), Now that your offer has been accepted, you must go back to your lender so that they can finalize your mortgage. During the pre-approval process, they examined your financial history and now they are going to be looking at the purchase price of your new home to ensure it is in line with their policies. There is a possibility that your lender will require an appraisal to verify that the house is worth the purchase price. If not they will then ask you to come up with the difference. At this time, you will also finalize your monthly mortgage payments, your amortization rate, your loan type and term. Once you have been given the okay and signed the mortgage commitment, you are free to remove that financing condition and you’re one step closer to getting your keys.
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Lawyers
Your lawyer will now see you through to closing and picking up your keys. Your lawyer will review the accepted offer, making sure that all the t’s are crossed and i’s dotted. Your realtor can refer you to a lawyer that can handle your home purchase.
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Closing
You have completed your inspection, your mortgage is finalized, you have spent the last couple of weeks thinking where your furniture will go and now your closing date is approaching. At closing you will pay your lawyer, provide any necessary documents and your lender will release your loan. Your lawyer will handle this transfer and take you through all the documents that you need.
Congratulations!
You have just purchased your very first home! Now, every transaction is different. Some can be smooth and some can be a little turbulent. Some can take two weeks, whereas others can take a lot longer. Regardless of how long it takes, choosing the right realtor for you is the key. They are able to guide you through every step and help steer clear of the obstacles.
Are you looking to buy your first home? If you are, please contact us at info@andyandpaddy.com and see why we go the extra mile for our first-time home buyers. Let our family help your family.
How can we help?
You want to find the right home, in the right location, at the right price – and you want to do it quickly, with minimum hassle. The best way to do that is to work with a professional realtor who understands your wants and needs, your time frame and your financial boundaries.
You’ll save time. We can help you pinpoint homes that fit your needs and dismiss those that don’t.
You’ll get the right information. As Sales Representatives, we know the neighbourhoods and will provide you with accurate information on market conditions, values, taxes, utility costs, services and amenities.
You benefit from experienced negotiators who are representing your interests. We will manage your offers and counter-offers, ensuring that you get the best possible price for your home.
We look forward to the opportunity to speak with you.
