For those of you contemplating buying your first home, the dream is both exciting and daunting at the same time. Home ownership can be very satisfying but comes with costs and responsibilities and the process can be intimidating. This article will help break down the process and give you confidence in tackling this dream!
Establish a Budget
First, you need to come up with an idea of how much home you can afford. To help narrow this down, you can look at your current income before deductions from all sources, and from both partners if you are a couple.
A good rule of thumb is that you shouldn't budget more than 32% of your gross monthly income on housing costs (including mortgage payments, taxes, insurance, heating, and half of condo fees). So, if your gross income is $5,000, then you can budget $1,600 on housing. Some lenders will allow up to 40%, however. With a $250,000 mortgage at 3% over 25 years, for example, the payment would be $1,183 per month.
Also, you need to consider other debt payments, including car, credit card, installment loans and personal loans. Added to housing costs, the total should be less than 40%, but some lenders can go up to and over 50%.
Additionally, lenders will look at your credit history to determine what interest rate you will qualify for. Late payments and credit cards pushed to their limits will make things more difficult and costly when it comes to mortgage financing. Next, you need to come up with a down payment for your home. Savings, gifts from family and loans can be good sources.
First time buyers can also borrow (tax-free) from their RRSP savings up to $25,000 per person toward their down payment. This plan is available for people who have not owned a home in roughly the last five years.
Some lenders may also be able to offer mortgages with flexible down payment options - including as low as 5% down, and sometimes with rebates to help with closing costs.
With all of these variables to consider, it pays to have professional help. Working with a mortgage broker allows you to have different lenders compete for your business, giving you much greater options to choose from, and the potential to save thousands of dollars over the course of your mortgage and lower your monthly payments. All this typically costs nothing extra to the homebuyer.
Land Transfer Tax Rebate
First time buyers in Ontario are eligible to receive a rebate of up to $4,000 in Provincial Land Transfer Tax (LTT). This is another benefit available to first time buyers, and is typically processed through your real estate lawyer when processing your transaction.
Get in Touch!
Contact me to explore the possibilities. If you are currently renting, you could be in a position to own a home already! My goal is to make your home-buying process enjoyable and stress-free.