First you will need to figure out how much you can afford and want to pay for a house. Just because on paper you can afford to purchase a $500,000 home, does not mean you are comfortable with the expenses of it. You will need to figure out what you can afford and then how much are you willing to pay. This is what we do when we sit down to do a pre-approval. For more info. read our blog “Pre-Approval: The First Step in Buying a Home”.
During the approval process we will determine how much of a mortgage you will ‘qualify’ for. The amount you can purchase for is determined by the mortgage amount plus your downpayment.
If you have at least a 20% downpayment:
-avoid paying the mortgage insurance cost (0.6%-4.5%)
-may pay a higher rate
-qualify at the higher if Bank of Canada’s benchmark (currently 4.99%) or your mortgage rate plus 2.0% *this applies to purchases after January 1, 2018 – prior to can qualify on actual rate
i.e. – if you have a mortgage rate of 3.29%, it will have to be qualified using 5.29%
If you have less than 20% downpayment (minimum 5%):
-pay mortgage default insurance (can be added to the mortgage amount-except the tax on it)
-get the best rates
-qualify at Bank of Canada benchmark rate (currently 4.99%)
i.e – if you have a mortgage rate of 3.29%, it will have to be qualified using 4.99%
When determining how much of your hard-earned cash you are going to use as a downpayment, you also need to consider the other costs of buying. These are referred to as closing costs. Here is a brief list.
-land transfer tax – *as a first-time buyer you can get a rebate of up to $4000 (This jumped from $2,000 to $4,000, January 1, 2017)
-prepaid property taxes
-utility setup fees
Read our blog “Costs of Buying a Home-in Addition to the House“ for more detail.
Once you know how much you can spend you must also determine what is most important to you in a home. In most cases there will need to be compromises. Remember the first home you buy will most likely not be your forever home. Think of it as a stepping stone. In a few years you will have built up some equity in the home and most likely be making more money and then can move on to the next stepping stone or if you are really lucky, your forever home.
This information applies to anyone buying a home, whether it is your first or your fifth. If you are thinking about buying within the next year or so, give us a call to book an appointment. We will help you get started on your road to home ownership. Our aim is to make it as painless as possible and explain everything along the way.