First Time Home Buyers

 

Buying a home is a complicated process especially for a First Time Home Buyer.  There are many people involved, and many steps which can be overwhelming for even the hardiest person. We have developed a team of professionals who specialize in every area of the home buying process so you don’t ever have to worry about what you may have missed. We understand that the home buying process can become very expensive so we have negotiated discounts with all our partners to save you money.

As a First Time Home Buyer it is important to determine what you can afford before you start to shop for a home. Lenders determine affordability by looking at your Gross Debt Service ratio (GDS) and your Total Debt Service ratio (TDS). The GDS ratio is based on what you can afford to pay each month including only mortgage payments, property taxes and heating. The maximum GDS ratio is 35%. The TDS ratio includes everything covered under GDS plus all your other financing obligations. Maximum TDS ratio is 42%. The ratios are as follows:

 

A mortgage broker can help you calculate how much you will qualify for. For general information on what you would qualify you can visit our Mortgage Calculators to determine what you can afford.  For a more accurate mortgage approval or to receive your official mortgage pre-approval certificate apply online or contact one of our Brokers. Brokers work for you, not the bank and the best part is their services are absolutely FREE!

The next step in the home buying process is to obtain a pre-approval from a bank or lender. A pre-approval is simply a rate hold, typically for 120 days. This allows you to shop for a home without the risk of interest rate changes. The pre-approval also provides you with a purchase price for which you can shop. A mortgage broker will help you acquire the pre-approval so you are confident you have the best product.

Here is a list of the documentation you will need to collect to acquire mortgage financing with any lender in Canada:

·  Current banking information

·  Evidence of your down payment amount which could include 3 months bank statements, investment statements, gift letter, sale of existing property, etc..

·  Address and contact information for your lawyer

·  A copy of the Offer to Purchase

·  A copy of the MLS listing

·  Contract and building plans, if you are having a home built.

5) Choosing a Mortgage Product

A conventional mortgage is a loan for no more than 80% of the purchase price of the property. The remaining amount required for a purchase (20%) comes from your resources and is referred to as the down payment. If you have to borrow more than 80% of the money you need, you'll be applying for what is called a high-ratio mortgage.

You do not require a down payment when you buy a home. Any purchase where the down payment is less than 20% is considered a high-ratio mortgage, and the mortgage must be insured by the Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial Canada (Genworth). The insurer will charge a fee for this insurance. The amount of the fee will depend on the amount you are borrowing and the percentage of your own down payment. Typical fees range from 1.00% to 3.50% of the principal amount of your mortgage. This amount can be added to the principal portion of your mortgage so you would not be required to pay this out-of-pocket at closing.

b) Fixed Rate or Variable Rate Mortgage

A fixed-rate mortgage will not change throughout the entire term of your mortgage. As a result, you'll always know exactly how much your payments will be and how much of your mortgage will be paid off at the end of your term.

A variable-rate mortgage will be set in relation to prime at the beginning of each month. In other words, it may vary from month to month. Historically variable-rate mortgages have tended to cost less than fixed-rate mortgages when interest rates are fairly stable, however they are higher risk due to the uncertainty of future interest rates.

c) Short Term or Long Term Mortgage

The term is the length of the current mortgage agreement. A mortgage typically has a term of six months to 10 years. Typically the shorter the term the lower the interest rate will be.

A short-term mortgage is usually for two years or less. A long-term mortgage is generally for three years or more. Short-term mortgages are appropriate for buyers who believe interest rates will drop at renewal time. Long-term mortgages are suitable when current rates are reasonable and borrowers want the security of budgeting for the future. The key to choosing between short and long terms is to feel comfortable with your mortgage payments. After a term expires, the balance of the principal owing on the mortgage can be repaid, or a new mortgage agreement can be established at the then-current interest rates.

d) Open or Closed Mortgage

Open mortgages can be paid off at any time without penalty and are usually negotiated for very short terms. They are suited to homeowners who are planning to sell in the near future or those who want the flexibility to make large, lump-sum payments before maturity.

Closed mortgages are commitments for specific terms. If you want to pay off the mortgage balance, you will need to wait until the maturity date or pay a penalty.

The size of a down payment can vary. Depending on the type of mortgage, down payments generally range from 0% to 25% of the purchase price. To obtain a conventional mortgage, home buyers are required to put down at least 20% of the purchase price. You can also choose a high-ratio mortgage and buy a home with no down payment. This option is called a high-ratio mortgage and it requires you to purchase default insurance. First Time Home Buyers have many options available to them today. 100% Financing has become a very popular product in the rising market value environment across Canada. Your down payment can come from the following sources:

·  Cash

·  Investments

·  RRSP's (See "Home Buyers' Plan" below)

·  Gifted funds from family

·  Loan or other borrowed funds

·  Sale of existing property

·  And more...

7) RRSP Home Buyers Plan

The RRSP Home Buyers' Plan (HBP) allows First Time Home Buyer's to withdraw up to $20,000 from their own RRSP's for the purchase of a home. The withdrawn amount must be repaid within 15 years, subject to a minimum annual repayment that is 1/15 of the amount withdrawn. If the full $20,000 is withdrawn, the minimum annual repayment is $1,333. If less than the minimum is repaid in any particular year, the balance is added to the taxpayer's income.

 

8) Finalizing Your Purchase

A mortgage broker will walk you through the entire process from the beginning of acquiring a pre-approval to sending you to a lawyer to close your mortgage and to the date you take possession of your new home. The mortgage broker is simply responsible for finding you the best mortgage rate and product, and then helping you the home buyer complete all underwriting required by the lender to complete the mortgage. Once the lender has approved your income, down payment, and property, they will forward funds to your lawyer. The lawyer is then responsible for completing the mortgage registration. You will be require to meet with the lawyer prior to closing to complete and sign all documents necessary to transfer title of property and register the mortgage. The entire mortgage process can be completed in as little as 2 weeks from the time of purchase if all requirements are completed on time.

Contact Us

The home buying process for a First Time Home Buyers can be overwhelming. Although we have provided a lot of information for you on our website, sometimes it is best to talk directly with a professional to help answer any questions you might have. We are always here to help! Our services are FREE and we will make certain you are taken care of every step of the way!

If you have any questions, please feel free to contact us anytime.