29 Dec How to Get Financing as a New Home Buyer
Not sure what to do to get your first mortgage? Here are my top 6 tips to get financing as a new home buyer.
- Start Saving Now
In Canada, you now need to have a down payment worth a minimum of 5 per cent of the purchase price. If you haven’t started saving up yet, there’s no time like the present.
If you have RRSPs, you can also access that money for your down payment as a first time home buyer. The Home Buyer’s Plan (HBP) is essentially an interest-free loan to yourself. Learn more about the HBP program from the Canada Revenue Agency here.
- Get Your Financial House in Order
Do you pay your bills on time? If not, you may have a hard time qualifying for a mortgage, or be forced to pay a higher interest rate. Make your personal finances a priority and get organized. Make at least the minimum payments on bills each and every month. Paying in full is even better. A great credit score makes it easier to get the mortgage you want.
- Start Collecting Your Paperwork
There are several documents your lender will need to determine if you can get a mortgage. To prepare, you can gather items like:
- Recent paystubs
- If self-employed, copies of your Notice of Assessment from the CRA for the last 2 years
- Copies of any other outstanding loans (ex. car loans, student loans, etc.)
- Proof of down payment
If you make an appointment to see a mortgage specialist (see the next point below), they will let you know which documents to bring along.
- See a Mortgage Specialist and Get Pre-Approved
It’s a good idea to get pre-approved for a mortgage before starting the house-hunt. The pre-approval process will let you know how much money you are allowed to borrow. By knowing your price range in advance, you won’t waste time looking at homes you can’t buy.
A good mortgage specialist will also take the time to sit down with you and explain the process of financing your first home. They can estimate the various fees you’ll need to pay on closing day and explain items like mortgage terms and amortization periods. With all of this information, you’ll be better equipped to make your first home purchase a good decision.
- Don’t Buy a Home You Can’t Afford
Be honest with yourself. If you’re struggling to meet your current rent, don’t fool yourself into thinking you can afford an even bigger mortgage payment. A house comes with large property tax bills. Home insurance is also much more expensive than renter’s insurance. Don’t forget to account for variable expenses like electricity, heat and repairs.
- Do a Trial Run
If homeownership is still a year or two away, why not try living on your new budget now? As a bonus, the money you set aside during your trial run can help you grow your down payment. And the bigger your down payment, the smaller your mortgage payments will be.