How to Prepare for Your First Home Purchase

Are you ready to buy your first home? Before you pop the champagne and start prepping for your housewarming party, there are a few processes you need to go through.

Researching your mortgage options and applying for mortgage financing is the most important step.  Find out what you need to know to get started today with our first-time home buyers guide to applying for a mortgage below. 

Understanding Your Finances

You may think you are ready to buy your first home, but are you really? A house may be the biggest purchase you make in your lifetime, so it’s important to take a step back and examine your financial situation closely.

Assessing Your Financial Health

Before diving head-first into house hunting, you should thoroughly evaluate your financial health, including your household income, monthly expenses, existing debt payments, and the amount of savings you have available. Being house-poor is the last thing you want to be, so take the time to review your financial situation carefully before deciding on purchasing your first home.

The Role of Credit Scores in Home Buying

Few lenders will work with you if your credit score is lower than 600, so before you start applying for a mortgage, it’s wise to check your credit score first. If there are any errors, now’s the time to have them corrected before you apply for a mortgage. In the event that your credit score is low, you can take the steps necessary to raise it to a level where you can qualify. Even if you have a decent credit score, you might want to consider increasing it now. The higher the credit score, the lower the rates, saving you hundreds of dollars in interest fees.

To give your credit score a much-needed boost, start working on it several months in advance and follow these tips:

• Check your credit report for errors and address any issues you notice.
• Always pay your bills, such as loans, utilities, and credit card payments, on time.
• Keep your credit card balances below 30% of your total limit at all times.
• Avoid closing old credit accounts and limit the number of new credit applications.

Budgeting for Your Home Purchase

Perhaps the most important step you’ll need to take before you start shopping for your new home is determining the budget range you should be looking at.

Determining Your Home-Buying Budget

The home-buying process and homeownership thereafter come with a plethora of financial responsibilities, which include:

• Mortgage down payment
• Home inspection and closing costs
• Regular home upgrades and maintenance
• Monthly utility bills
• Home insurance
• Property taxes
• Condo fees (if applicable)

A licensed Mortgage Agent at The Mortgage Advisors can help you determine your budget by examining your monthly income and expenses and calculating your debt-to-income ratio. Ideally, your total monthly housing expenses should be no more than 39% of your gross household income, and your total debt payments should not exceed 44% of your monthly income.

Saving for a Down Payment

Saving enough funds for a down payment is often the most challenging part of buying a first home. You must put down at least 5% of your home’s purchase price, but you can (and should) put down more to reduce your monthly payments.

If you have trouble saving for a down payment, consider asking a family member for financial assistance. As long as you can afford regular mortgage payments on your own, receiving all or a portion of your down payment as a gift should not be a problem.

Exploring Mortgage Options

Once your budget is set and the down payment is safe and sound in your account, it’s time to explore the various mortgage options and government programs available to you as a first-time home buyer.

Types of Mortgages for First-Time Home Buyers

As a first-time home buyer, you will have the option to choose between a fixed-rate mortgage, an adjustable-rate mortgage, or a variable-rate mortgage.

• Fixed-rate mortgage. With a fixed-rate mortgage, the interest rate remains constant throughout the entire loan term. As such, the borrowers benefit from constant, predictable monthly payments.
• Adjustable-rate mortgage. Adjustable-rate mortgages have a floating payment that can increase or decrease with interest changes based on the prime rate. 
• Variable-rate mortgage: Variable-rate mortgages have a fixed payment, however, the interest can fluctuate with increases or decreases in the prime rate. Such mortgages typically offer lower rates than fixed-rate mortgages. They come with the risk of future rate increases, but on the flip side can also benefit from future rate decreases.

Government Incentives for First-Time Home Buyers

There are several incentives available to first-time homebuyers. One is the First Home Savings Account, which allows you to contribute funds tax-free, to buy or build your first home faster. In addition, the Home Buyers’ Plan (HBP) allows first-time homebuyers to withdraw funds from their Registered Retirement Savings Plans (RRSPs) to buy or build a qualifying home.

Your mortgage agent will explain all the available incentives and help you decide which ones are right for you. There’s a lot to learn when it comes to navigating through your first mortgage. Fortunately, a mortgage agent will help you every step of the way. You can check our mortgage calculator for a first estimation or contact us to schedule your consultation today.

Pre-Approval and Its Importance

Before you start looking for properties, you should get pre-qualified or pre-approved for a mortgage. This will help you to understand exactly how much you can afford before you begin house hunting. It can also signal to sellers that you’re serious about buying and have the money ready to purchase now. To secure a mortgage pre-approval, you would need to get in touch with a licensed mortgage agent or broker like our team. We can lend a hand from there.

The Benefits of Working with a Mortgage Broker or Agent

The mortgage options that your bank offers might not be the best for your financial situation. But you won’t know what other options are out there if you don’t shop around. The role of a mortgage agent is to do just that—assess your needs and review all the different mortgage plans and rates to find a mortgage that suits your budget and lifestyle. So before you contact your bank, reach out to a mortgage agent to review all of your options and secure a pre-approval.

Getting All Your Documentation Ready

Your mortgage agent will need several documents from you to start the process. This will include income and employment verification, as well as proof of down payment. Your mortgage agent will tell you exactly what documents to have ready for your first meeting and as part of the conditions when you are approved. 

The Home Buying Process

Aside from securing mortgage financing, you will, of course, need to find the property you would like to call home!

Finding the Right Real Estate Agent

Finding a great real estate agent is key to finding the right home for your needs and budget. Your real estate agent will act as your guide, helping you navigate the complexities of the home-buying process and negotiating on your behalf once you’ve found a house you’d like to purchase. They will also handle all the paperwork involved in closing the transaction.

Home Shopping and Making an Offer

The home shopping process can involve anything from researching the properties online to attending open houses or scheduling showings with your real estate agent. During these viewings, you get to see the places you’re interested in first-hand and evaluate whether they meet your criteria in terms of size, amenities, location, and price. Once you find the home you love, your real estate agent will draft an offer and help you and the seller work out a mutually acceptable agreement.

Final Word

Without a doubt, buying your first home is an exciting—yet nerve-wracking—journey. From evaluating your finances and saving for a down payment to going house-hunting and exploring your mortgage options, the process entails numerous steps that will keep you on your toes as a first-time home buyer. Luckily, you don’t have to go through this process on your own. Contact The Mortgage Advisors today to receive expert guidance with your home financing.