The process of securing a mortgage and buying a house is a potentially intimidating one. Those entering the housing market for the first time, including many Millennials, can become overwhelmed if they don’t receive solid advice. Heed the following six tips and enter the housing market with confidence.
No surprise, lenders will be more willing to extend you credit if you have a good credit history, coupled with strong earnings. Lenders differ in how they calculate their formulas, but generally speaking large debt loads are not looked upon with favour, particularly if they include lingering credit card debt. Working to get your plastic in order will pay off.
Student debt is often tougher to eliminate, but your payments should at least be kept current.
A consistent, high salary is ideal, but those in the gig economy can use income statements and tax returns to demonstrate stability, particularly if they have a significant long-term client.
Nobody’s perfect, of course, but having a decent credit score is a strong start.
A Minimum Down Payment is Required, but Bigger is Better
The more money you put down on your new home, the less risk is perceived by lenders. In Canada it’s mandatory to put down a minimum of 5% on homes under $500K. That rate goes up for more expensive homes or for people with lower credit ratings.
Those who are unable to put down 20% (which includes most of us) will be required to purchase loan insurance.
Current homeowners may be able to finance their down payment by selling their current home, but this obviously doesn’t work for first-time home buyers.
Some are fortunate enough to have RSPs or other forms of savings accumulated or a parent or other family member that is willing to step in and help. If not, second jobs or lifestyle changes are not uncommon for those hoping to become homeowners. Browsing homes online while you save will help keep you motivated.
There Will Be Legwork
Nothing worth doing is completely easy, right? Of course there will be applications to fill out, financial documents to dig up, and conversations to be had. It’s all very doable, so long as proper time and attention are allotted. Plan accordingly.
It’s Important to Set Your Budget Carefully
If you have good credit and a sizable down payment, you may get approved for a large loan. That doesn’t mean you have to take it all.
If you fully extend yourself to buy the most house possible, you’ll be able to invite all of your family and friends over and show it off! After the tour you can serve them Kraft Dinner, because that’s all you may be able to afford.
It’s important to consider your monthly income and expenses and determine how much of a mortgage payment you can stomach. Don’t forget that there are expenses inherent in home ownership that don’t necessarily apply to renters, such as property tax, insurance, and that phone call you’ll have to make after the furnace craps out. Be wise, consider your personal priorities, and set a price point that works for you.
Research the Market and Predicted Interest Rate Trajectories
Nobody can tell you with absolute authority which direction the housing market will head in the near or long-term future, nor can they forecast with certainty potential upcoming interest rate adjustments. That doesn’t mean they won’t try! Housing has been red hot in Canada and most analysts expect interest rates to tick upwards soon. Educate yourself and consider the implications. Would a fixed or variable rate be better for you?
Help is Important and Available
There are processes to initiate, jargon to decipher, and market forces to assess. Mortgages come with various interest rates, fee structures, and penalty clauses. Even veteran home buyers should not go into this alone.
A good mortgage broker will work for you, helping you make solid decisions and acquire the mortgage that works best for your unique situation. It’s important to note that the broker does not work on behalf of the lender, but on behalf of the homebuyer.
Pinsky Mortgages offers free consultations. Contact us today and start your journey towards homeownership with professional help on your side!