First Time Home Buyer
Doing anything for the first time can be
scary, especially when it's something as big as buying a
house! As a First Time Home Buyer the process can be
overwhelming, but don't worry, we will explain all your
options and recommend financing solutions to get your
mortgage approved at the lowest possible rate and terms
possible for you. We will show you how to make home buying a
reality today! Watch our video explaining everything you
need to know as a First Time Home Buyer in Canada. We will
walk you through the entire process from start to finish. If
you are looking for a specific topic please scroll down and
you will find many resources and topics for First Time Home
Buyers
1. The Professionals You Need
Buying a home is a complicated process
especially for a First Time Home Buyer There are many people
involved, and many steps 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.
Did you know the use of a mortgage broker
is absolutely free? They work for you to make sure you get
the best rate and product possible! Also did you know Real
Estate Agents do not charge a buyer any fees? Their
commission comes strictly from the proceeds of the sale of a
property. Every person buying a home should work with a
mortgage broker and a real estate agent not only because it
doesn't cost you anything but because they work for you to
find you exactly what you want. They will save you time and
money! We will make sure you are working with all the right
people.
2. Determine What You Can Afford
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:
Mortgage + Property Taxes +
Heat + All Other Debts
TDS =
----------------------------------------------------------------
< 42%
Gross Annual Household
Income
Mortgage + Property Taxes + Heat
GDS =
------------------------------------------ < 35%
Gross Annual Household Income
A mortgage
broker can help you calculate how much you will qualify for.
Brokers work for you, not the bank. The best part is their
services are absolutely FREE!
Click the link below to contact a mortgage broker in your area.
Contact a Broker Now!
3. Getting Pre-Approved For a Mortgage
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.
See the
"Pre-Approvals" page for more details.
4. Know What
Documents You Need
Here is a list of the documentation
you will need to collect to acquire mortgage financing with
any lender in Canada:
-
Job Letter from your employer for
confirmation of employment.
-
Proof of income such as a
recent pay stub for salaried employees or three years of tax
assessments or T4's for commissioned or self-employed
individuals
-
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 or High-Ratio Mortgage
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.
6. Down Payment Options
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.
RRSP Home
Buyers Plan Document
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.
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