Wondering if you’re ready to become a homeowner? In this post, we cover what you should have prepared before you buy a home.
Do you want to buy a home this year? First of all, congratulations! The real estate market is fast and exciting right now, and this will be a thrilling part of your 2021. Since the market is hot, you’ll want to have everything in order before you even start looking for a home. This way, you’ll be one step ahead once you find a home you love. Whether this is your first or your fifth house, the process is the same, so preparation is key.
Everybody’s home buying journey will look a little different. Still, there are a few tips everyone can follow to plan ahead. Take a look at these handy preparation suggestions before you start searching!
Get your budget in place
A budget is essential if you want to buy a home. Figuring out what you can afford is a basic first step to put you in the right direction and help you narrow down your search. Naturally, you’ll want to consider your income, and how much you bring in each month. Your income will likely make up the bulk of your payments, so it’s easy to work out those numbers.
But remember, the home itself won’t be your only expense. You’ll need to plan for other associated costs.
Land transfer tax, lawyer fees and moving costs are a few other aspects of the home buying process that you’ll need to consider. You can read more about these costs on our blog here! These costs won’t take up as much money as the home itself of course, but they do add up. Make sure you plan ahead for those and have the funds to pay for them when the time comes. If you’re looking to buy an older home, consider any repair costs you might need to handle.
Keep in mind you can also look at homes below your budget too! It’s good to have a focused price range, but there’s nothing wrong with checking out more affordable homes. You never know what you might find.
Securing a mortgage is a key part of the home buying process. It can also be confusing and a little intimidating. A mortgage pre-approval can help take some of the stress away from getting a mortgage for your home. A mortgage pre-approval is when a lender decides how much they can loan you for a mortgage, and the rate they’re willing to give you. While this doesn’t promise mortgage approval, it gives you a good idea of what to expect. Mortgage brokers can provide pre-approvals, and they find suitable potential lenders to save you an extra step.
Saving for your down payment
When you start saving for your down payment, think about your budget. The purchase price of the home you buy determines your down payment, so think of a rough estimate for your future home’s price. You can definitely start saving for your down payment before you find the perfect home. Saving up takes time, so it’s never too early to begin setting money aside to buy your first home.
The minimum down payment amount is at least 5% of a home’s purchase price. Keep in mind that more expensive homes may require a larger down payment. In Canada, down payments of less than 20% require you to get mortgage default insurance. This protects the lender if it turns out you can’t make your mortgage payments.
To start saving for your down payment, you can start putting money into a separate account. We usually recommend contributing to your RRSP as you can withdraw up to $35,000 tax-free to use for your downpayment. If you want to learn more about the benefits of contributing to your RRSP, check out this blog post.
Add to it regularly, and make it an account exclusively for your down payment. You can also pay off your high-interest debt, and save some extra money from interest payments. It’s also best to pay for a down payment with your own funds. Since you’ll already have some mortgage debt, you should avoid taking out another loan. Do your best to keep your debt low! For more tips to save for a down payment, check out our previous blog post here.
First-Time Home Buyer Incentive
Finally, if you’re looking to buy a home for the first time, consider the First-Time Home Buyer Incentive. This program helps first-time homebuyers lower their mortgage payments through a shared equity mortgage. The Government of Canada shares the home’s investment and provides a 5 to 10-percent contribution to your down payment. This means buyers get a bit of a break and have some of the home-buying costs taken away.
With this contribution to a down payment, buyers don’t need to save quite as much money. It also means buyers can secure a smaller mortgage with a bigger down payment. Homeowners who take advantage of this incentive repay the value within 25 years, or when they sell the home (whatever comes first). You can find more information on the incentive here.
If it’s your goal to buy a home this year, we would be happy to help! Give us a call at Clinton Wilkins Mortgage Team at 902-482-2770, or get in touch with us here.