Tips for First Time Home Buyers

Canada has the highest rate of home ownership in the world. Two out of three families in Canada own a home. Why? Because real estate is an amazing investment.  Now, with the increasing cost of houses, first time buyers need to get their foot in the door of property buying. Need some convincing? 80% of millionaires made their first million off real estate. Case and point.

Once you decide you want to buy a home, you need to be realistic and smart about what you can afford. If you (like the majority of buyers) will be financing your home with a mortgage loan, you need to know exactly what that means. A mortgage is a loan that uses your home as security. It is registered as a legal document against the title of your property. Take the time to learn and understand terms such as “the principle,” “Interest,” “Amortization Period,” “Maturity date,” and the “Term.” Understand all these aspects of a mortgage and you are ready to find your broker.

Getting a mortgage broker:

When you’re ready to look for a home, you’ll need to determine who will get you financed. Most people will use either a mortgage broker or a bank. Over 25% of Canadians use mortgage brokers, along with 47% of all first time homebuyers. Why? Mortgage brokers tend to be used for “subprime mortgages”(individuals with poor credit or other unique circumstances). Most Canadian banks have ties to the broker channel in some way, by either directly or indirectly funding mortgages.

Today banks are picky. Many banks base their lending criteria on quantifiable data, like income to debt ratios, credit ratings, etc. It is more difficult than ever before to meet your bank’s criteria. Since the credit crisis in 2008, it is harder to get approved by a bank. Even if you do meet their criteria, know it’s appropriate for you.

Pre Approval:

A mortgage pre-approval is when the lender reviewed your financial information and determined the maximum amount of money they’ll lend to you. To determine how much you qualify for, banks use a set of ratios that determine how much of your income will be used to pay down your current debt. The two ratios used are Gross Debt Servicing (GDS) and Total Debt Servicing (TDS).

Down Payment:

There are a number of resources for your down payment :

1. RRSP withdrawal: up to $25,000 per borrower can be used for your down payment. You must repay these funds in 15 years, and cannot take out RRSPs that have been in the account for less than 90 days. 
2. Borrowed Funds:

This is common for those who have good incomes and money that’s available through a line of credit.

3. Sweat Equity:

This is available if you have assisted a builder in the building of your future home.

Closing Costs:

To transfer your name to the title, you’ll need to talk to a notary or lawyerIn B.C., first time buyers are subject to a property transfer tax. This tax is 1% of the first $200,000 of your purchase and 2% of the balance. However, in B.C., if your purchase is less than $425,000 you wont have to pay PTT. 

Writing the offer:

Amazing! You found a place you are ready to buy. Be sure to take your Realtors advice into consideration when writing your offer price. Always be prepared to face a counter offer in case your first offer price is not acceptedAlso have subject to financing in your offer. 

Start Financing:

Inform your Broker as soon as your offer is accepted. Your Broker may need to update your documentation and will need all documents related to the property you’ve purchased.

At this point, determine which term, amortization, down payment amount etc. you will proceed with. Your Broker should advise you what your options are regarding; pre-payment privileges, rates, and expected turnaround times.

Remove Subjects and Give a Deposit:

This happens when you are totally committed to purchasing the property. You remove all of the subjects that protect the buyer (subject to financing, inspection, etc.). Your financing should be settled, the inspection should have passed as sufficient, appraisal was sufficient (if necessary), and strata documentation was sufficient, and whatever other conditions you had in your purchase contract are satisfactory. After removing subjects you have 24 hours to provide a deposit cheque.

Closing:

Time to go to your notary or lawyer to complete the transaction. You will be instructed to bring them a bank draft or certified cheque to cover the balance of the funds to close, along with proper ID.

Moving Day:

You have the keys, you’ve arranged for movers, and the old owners have finally left. It is always advised to change the locks as you don’t want extra keys floating around. Once that’s done, time to bring in the boxes and like that, you’re done! You’re happy new homeowner!

For more information about buying your first home contact Ben [email protected] – 604.222.2262