A lot of young professionals who are first-time homebuyers, getting into the housing market can be a challenge, whether it’s saving up enough money for a down payment, finding the right home or securing a mortgage in order to buy it.
From tighter mortgage lending standards to higher interest rates, there is a lot to learn about securing a mortgage for the first time.
Where do you even begin when applying for a mortgage? Let’s start with the basics.
Ensure You Have A Sufficient Down Payment
One of the biggest hurdles to buying a home is saving a sizable down payment. Since home valuations have surged considerably in recent years, it has become harder to gather enough upfront cash, especially in pricey markets such as Toronto, Vancouver or Montreal.
Unsure of the dollars and cents? Here is what you need to know, based on your home-buying budget:
- Less than $500,000: A five-per-cent of the purchase price in the minimum down payment
- $500,000 to $999,999: 5% of the first $500,000 and 10% of the purchase price above $500,000
- Over $1 million: 20% of the total purchase price
If your down payment is less than 20%, you will be required to purchase mortgage loan insurance, which can be paid up-front or added to your monthly mortgage payment.
What’s In Your Credit Report?
Take some time to check your credit score and if needed, improve it. Your credit score ranks your financial health on a scale between 300 and 900 and indicates the level of risk you pose to the lender. The higher your score, the lower the risk and the higher the chance you’ll secure a better mortgage rate or terms.
Budget What You Can Afford
Prioritize your finances, be it for your retirement or your child’s post-secondary education. Budgets are a necessary tool to accomplish long-term prosperity.
Work with a professional real estate agent who can point you to housing types and locations that are aligned to your budget. And if you still can’t afford it, you may choose to wait until you’re in a better financial position.
Speak with a Financial Advisor First
It would be wise to book an appointment with a financial advisor or speak with a mortgage broker before you go house hunting and apply for a mortgage. By doing so, you can receive professional advice from someone who can help you determine if you’re eligible for a mortgage.
Eliminate Outstanding Debt
It is estimated that the total household debt of Canadians is in excess of $2.5 trillion, with mortgage debt representing more than 68 per cent of this total figure.
It is crucial to first minimize or eliminate outstanding non-mortgage debt, from credit cards to car and student loans.
By decreasing your debts, you can then concentrate on either saving a bigger down payment or contributing more to your monthly mortgage costs.
Big banks and online financial institutions offer some of the lowest interest rates in decades, allowing many people to enjoy lower monthly payments. At the same time, there are other benefits, terms and conditions that some might not offer. It is imperative to shop around, do some research.
Finally, it is vital to get pre-approved for a mortgage before you start shopping for a home.
This will give you confidence of having a mortgage ready to go before you start house shopping. You’ll have a good idea of how much you can spend, what is out of your price range, and what will be suitable for your household budget.
Source: RE/MAX Blog