Are you ready to take the big plunge – buying your first home? You might be expecting a new baby or have a great new job. Now, you may have the means to settle down.
First-time homebuyers face a lot of new mortgage terminologies, such as Loan to Value (LTV), Gross Debt Service (GDS) and Total Debt Service (TDS). What do these terms mean and how do they impact your application.
Follow these must-have tips for first-time homebuyers so that you can find the best home for your family.
Download our FREE Homebuyers Guide to buying your first home!
You can also download our Simplified Homebuyers Guide, which is a comprehensive guide to the steps and guidelines for purchasing your first home.
First Time Homebuyers
Why is home ownership better than renting? Homeowners can build up equity with their housing payments. Eventually, they can even draw on this equity for home improvements, using Home Equity Lines of Credit (HELOCs).
Homeowners are seen as more stable members of the community. Local municipalities are more likely to listen to your opinion. You gain prestige when you own land.
Your children can decorate their own rooms however they want. You can add a new deck to entertain guests in your spacious backyard.
The homeowner has a piece of land that is all his own. But, before you can move in, the Canadian government wants to make sure that you can afford a new home. This is the Qualification phase.
Can You Afford a Home?
Bankers use the Total Debt Service Ratio or Gross Debt Service Ratio to determine if you can handle mortgage payments. These are based on volumes of mortgage data accumulated over the decades. How are these ratios used?
Tip 1: Only buy what you can afford.
Your lender will look at all of your income and compare it to your debt – student loans, credit card bills, automobile loans and your future housing loan. The Gross Debt Service Ratio recommends that your monthly housing costs not exceed 39% of your gross monthly income. The mortgage brokers want to make sure you have enough disposable income to make your mortgage payments on time.
Finding the Right Mortgage
Budgeting for a new home can be very expensive. Instead of just adding your mortgage payments to your housing costs, you will need to include insurance, lawn maintenance, closing costs, taxes and so forth.
Most real estate is so expensive that people need financing. A mortgage is a contract where the broker agrees to pay for the home, in exchange for your regular, timely payments.
You must make timely payments. If you miss any payments, you are technically in default. Therefore, you need to find a mortgage that you can afford. Be prudent and don’t take on too heavy of a debt service load.
Financial institutions have created the Credit Score to reflect your creditworthiness or financial well-being. The credit report lists all of your loans and your repayment history.
Tip 2: Try to maintain a good credit rating.
The banks keep very good records. If you have missed a payment, it will probably be listed on your credit report. Late payments reduce your credit rating; a high credit rating increases your chances of getting a loan.
While everyone will encourage you to maintain a good score, Advantage Mortgage understands that sometimes this is impossible. That is why we offer bad credit mortgages. We have brokers, who will give you a second chance.
20% Down Payment
Historically, bankers have recommended that you place at least a 20% downpayment on your mortgage. You must pay this out of your pocket.
Tip 3: Save up for the downpayment
Saving up for a downpayment shows that you are financially able to satisfy some of the first time home buying requirements. When you pay the highest downpayment, you can get the best long-term deal. If you don’t have the requisite 20% downpayment, some mortgage brokers will require you to purchase mortgage insurance.
Mortgage Terms & Conditions
You and the lender will agree to acceptable terms and conditions, which include the amount, interest rate, length and repayment schedule. You can choose from a variety of lengths for your mortgage (5 years is the most popular). You can choose a variable interest rate (it fluctuates) or a fixed interest rate (it stays the same).
Get a Home Inspection
We know that there is a lot of emotion involved in finding the right home. Certain homes just “feel right.” But, don’t let emotion lead you into making a bad decision.
Even if the home is great, there might be some repairs that should be completed. Now is the time to have these home repairs completed. That is why we recommend that you get a home inspection. You can make your home purchase offer contingent upon certain repairs being made.
Compare Multiple Brokers
Public lenders might have some very limited loan packages available. You might only have one option – “take it or leave it.” We, at Advantage Mortgage, have multiple brokers offering different terms and conditions.
Tip 4: Compare offers from multiple brokers.
Don’t settle for one mortgage offer when you can compare amongst many offers. With multiple brokers from Advantage Mortgage, you can find just the right fit for your family. This could lower your servicing costs and allow you to buy more home for the buck.
Advantages of a Mortgage Broker
Buying your first home can be an exciting time mixed with hope and a little uncertainty. When you carefully research all of your options and plan accordingly, you can optimize your chances for success. We’ll help connect you with the best mortgage lender for your circumstances.
When you go to a public lender, you might find “one size fits all.” Not, at Advantage Mortgage. The advantages of a mortgage broker include the freedom to tailor terms and conditions to fit your exact needs.
You can talk to the mortgage brokers and discuss your situation. Review their terms and conditions. Find a mortgage lender that specializes in your exact type of property, income and buying circumstances.
When you apply for a mortgage, a high Equifax score goes a long way. Be prudent and only purchase a home that is affordable.
When your mortgage is the right fit, you sleep better at night. You can afford both your housing payments and the rest of your living expenses. You can enjoy your new home after reviewing the multiple mortgage options available from our mortgage lenders.