#1 – Making Sure You Fully Understand How Much The Minimum Down Payment Is
Did you know that your minimum down payment is determined by your home’s purchase price? The absolute minimum down payment in Canada is 5% for homes that cost $500,000 or less. What I find the biggest hurdle for first-time home buyers is saving up for that down payment, and this is why a savings plan is essential. A savings plan can help you set a target down payment goal. This is important, because a larger down payment will decrease the amount you need to borrow for the home. Once you’ve done that, and you figured out what the down payment amount is you can afford. You can use any mortgage calculator to estimate what your monthly payments will be.
#2 – Pre-Approval, Pre-Approval, Pre-Approval
So, you’re looking at home listings and visiting open houses and who you’re going to call? hopefully not your realtor:) Most Canadians think the first step in the home buying process is to contact a realtor and start looking at homes. This is actually incorrect. Once you have saved up enough for your down payment amount, the first thing you should do is get a mortgage pre-approval. Call your mortgage broker specialist first before your realtor so you can know exactly for sure what it is you can afford.
#3 – Make Sure You Can Afford The Home That You Want
Many of us dream of buying a home, but we also need to be realistic about what kind of properties we can actually afford. Your household income, personal monthly expenses, and home costs like property taxes, condo fees, heating and electricity bills all factor into the total amount you can borrow. What you can qualify for vs what you can actually afford are very often 2 very different numbers. Using a mortgage payment calculator to estimate the maximum home you can afford is always a great idea.
#4 – Shop Around
You shop around for a home when you’re home hunting, so make sure you do the same when you’re looking for a mortgage. Don’t just go to your local branch and expect to receive the best rates, because you probably won’t. You should use an accredited fantastic mortgage broker who will have access to over 40 different lenders and will negotiate rates on your behalf. Keep in mind that, even a half percent point less on your mortgage rate can make a huge difference in the regular payments and the amount of interest you’ll pay over time.
#5 – Use a Mortgage Broker.
Did you know mortgage brokers can get your mortgage at a big bank but at a lower rate? Mortgage brokers compare mortgages from a variety of banks and financial institutions to find the best options for you. In addition to the big banks, mortgage brokers have access to mortgage products and special rates from trust companies and credit unions. They also work with smaller lenders who don’t have the same overhead costs as the big banks and therefore often have lower rates of fewer fees. The best part is, most mortgage brokers don’t charge you for their services. It is the lender that pays the broker’s commission. All the negotiating and paperwork is handled by the broker, and they will assist you in the application process from pre-approval all the way through the home appraisal.
#6 – Taking Advantage of Government Programs
As a home buyer, there’s various programs that could apply to your situation. Whether it’s a rebate you may qualify for or a tax efficient way of funding your down payment, there are a number of government programs that can help you potentially save some money. There’s things like the Home Buyer’s Tax Credit, the Canadian Government Home Buyer’s Plan, otherwise known as HBP. You might also qualify for a land transfer tax rebate. The best way to be fully informed of all the different options is to make sure you work with an experienced mortgage broker.
#7 – Keep On Saving
Your down payment or monthly mortgage payments are just the beginning of your home purchase journey. There are lots of additional costs that come with buying your first home, such as closing costs, land transfer, tax, and CMHC insurance. That’s why a savings plan is essential, even after you’ve saved enough for your down payment.
Here’s a Pro Tip.
A good rule of thumb is to reserve between 3 and 5% of your home’s purchase price to cover the closing cost of your home. You can use any mortgage payment calculator to estimate just how much you’ll need.