Buying Your First Home in Canada in 2019, Made A Little Easier.
Have you been saving up for the past year, five years or decade? Hoping to purchase a home, and trying to get your down payment together? This is a great first step if you are looking at buying your first home in 2019. Hopefully this article can help you with some how-to guide style pointers to make your first home purchase a success in 2019.
With homes being one of the best long-term investments that you can make, your decision to buy this year is among many people making smart money choices. The process to buying a home can be quite overwhelming, so hopefully this how-to guide provides you with a little bit of first-time knowledge.
SAVE FOR YOUR DOWNPAYMENT
First, before you even reach out to a Realtor to start searching for your dream home, save up some money. Keeping your cash in hand for a down payment is one of the most important stages of first time home buying. There are several things to keep in mind when saving for a down payment:
1) The larger the down payment the better. This is true in more than one way. With a solid down payment, you increase your chances of being approved for that dream mortgage. You also will qualify for a better interest rate, which means saving thousands of dollars over the repayment of your loan. With a good down payment in hand, you will need to borrow less from the bank – meaning savings in the long-term repayment plan.
2) A 20% down payment means extra savings. If you are able to save a down payment of 20% (or more) of the purchase price of your home, you will qualify to save the mortgage insurance. This can save you additional thousands of dollars on your first home purchase.
For example: Say you are hoping to buy this sweet character home for $275,000 for your first home. If you are able to save the minimum 5% down payment amount of $13,750 you could qualify for a mortgage with CMHC (Canadian Mortgage and Housing Corporation). However, you will be responsible for an additional $10,450 in mortgage insurance. So, instead of your remaining mortgage amount being $261,250 you would be borrowing $271,700. Note, this is almost the entire amount of your purchase price. In other words, your down payment virtually disappears and you are paying interest on almost the complete purchase price of your first home.
If you are actually able to save 20% for your down payment your repayment picture could look quite a bit better. In this scenario you would be putting $55,000 down and the amount you would be borrowing would be 220,000. That is saving you the $10,450 mortgage insurance, plus almost $1000 dollars each month on your mortgage payment (calculated at 3%).
Saving 20% for your down payment may not be possible. The situation is different for each first time home buyer. It might be better for you to purchase with 5% down, and at least start your long-term investment today – only you can fully consider these options.
3) A bigger down payment helps you negotiate your mortgage rate. While the difference in saving a 5% and 20% down payment can be difficult, it is something to consider for more reasons than just mortgage insurance. The bigger your down payment, the more able you will be to negotiate a better rate on your mortgage.
REMEMBER THE CLOSING FEES
When you are looking at property to buy your first home, it is important to remember the finances you will need for closing fees. Closing fees include: land transfer tax, legal fees, home inspection (optional but recommended), and applicable taxes. Remember to consider these fees when you are thinking about what you can afford in your first home purchase. Your lender (mortgage specialist or bank) will be certain to ask you how much you have set aside for closing fees. Did you consider the $2000 land transfer tax, the $750-1000 dollar legal fees, title insurance, and $500 dollars for a home inspection? If you have these dollars set aside before consulting a mortgage specialist, it can help you secure financing for your home purchase. It also saves you the hassle of running after multiple things under a tight deadline of your offer being accepted, and the closing date.
CONSIDER YOUR CREDIT SCORE
Your credit score is your report card from money lenders on how trustworthy you are to pay back your loans. This helps lenders assess how much risk is involved in lending money to you. Your credit score is a rating between 300 and 900, and that number is used for this assessment. The higher your credit score, the better rate you will be able to get on your mortgage. This is important to know as you budget your home buying affordability.
SHOP AROUND FOR MORTGAGES
When you are looking for mortgage rates to buy your first home, it is advisable that you look around. Try to consider at least two different lenders, so that you can gain an understanding of the borrowing picture. If there is a large discrepancy between the first two lenders you approach, you might want to consider a few more. This will help you gain a sense of the average mortgage rate, and approval amount. Then you are set to know when you see a deal. It might mean a little bit more time meeting with lenders, and filling out paperwork. But, remember, your home is a big purchase. You don’t buy a house every day, so it is worth the extra time you put into it. Buying a house, especially your first one, can be a daunting task. The more information you collect, the less intimidating the process will seem.
CONNECT WITH A REALTOR AND START HOUSE SHOPPING!
This brings us to the point where you are ready to start house shopping! Contact your Realtor, someone you can trust and who is interested in working with you to meet your needs. Comb through the MLS listings, check out Realtor.ca. Here you can even look into neighbourhoods you like. You can find information on the demographics, schools, transit and walkability score – depending on what is important for you.
Then, be sure to look into some of the exciting GOOD news for 2019 that has made first time home buying a little bit easier…
WHY FIRST TIME HOME BUYING IN 2019 IS MADE A LITTLE BIT EASIER
With a small adjustment to the infamous “stress-test” that made borrowing for a mortgage incredibly difficult (especially for first time home buyers) over the past number of years, there is good news on the horizon. The Bank of Canada has lowered the borrowing rate for the first time since September 2016 (3 years). The drop brings this borrowing benchmark down from 5.34 % to 5.14 %. Why does this affect home buyers, and particularly first time buyers? Well, with the lowered interest rate, both insured and uninsured mortgages are made a little easier to qualify for. This means when buyers measure their income versus their debt ratio to discover their “affordable” mortgage amount, they may qualify a little easier. This also means that your qualifying rate for a mortgage will be lower, positively impacting your monthly payments.
Earlier in this same calendar year, the federal Liberals released their budget for 2019. This included incentives to help first time home buyers. Be sure to read up on some of these initiatives (including CMHC matching your 5% down payment). This can help you reach approval, and affordability as you seek to purchase your first home!
When you are looking at buying your first home in 2019, remember the following things. Save for your down payment. Try make this payment as big as possible (within your personal means) to take advantage of savings. This will help you save the mortgage insurance necessary on smaller down payments. It will also help you in negotiating for a better mortgage rate, saving you money each month – and paying off your investment quicker. Don’t forget to set some money aside for the closing fees. Check your credit score and know your score before you meet with mortgage lenders. This will help you understand your approval rate, and negotiate better deals. Shop around for mortgages a little bit, once you get a feel for what is available for your needs, make the informed decision.
Find a trusted Realtor who is comfortable for you to work with. Find someone who is concerned with your purchasing needs, dreams and goals. Ask your realtor a few thoughtful questions before you commit to working together. Ensure your Realtor is absolutely the right fit for you.
Shop around, learn about the neighbourhood you are looking to join.
Finally, take advantage of the new rules for first time home buyers; including reduced benchmarks for borrowing set by the Bank of Canada. Also, be sure to check first time homebuyers incentives set by the federal government in the 2019 budget. Good luck!