First Time Home-Buyers Guide
Buying a home for the first time? Our guide is here to help.
STEP 1: Is home ownership right for you?
Purchasing a home is probably the largest financial transaction you will ever make. To make sure that you are making the best possible choice for you, ask yourself a few questions;
- What do you really want in a home?
- What is your current financial situation?
- What are your financial requirements?
- What are your lifestyle needs?
Make sure you are aware of all the cost associated with purchasing a home.
- Upfront costs: down payment, closing costs, and any applicable taxes will need to be paid upon purchase of property
- Ongoing costs: mortgage payments, property taxes, insurance, utility bills, condo fees, routine repairs and maintenance
- Major repairs: large and expensive repairs and renovations your home will eventually need, such as roof replacement or foundation repair.
Are you ready to own a home?
- Are you financially stable?
- Do you have the financial management skills and discipline to handle this kind of a purchase?
- Are you aware of the costs and responsibilities associated with being a homeowner?
- Are you ready to devote time to regular home maintenance?
STEP 2: Are you financially ready to own a home?
It is important to determine how much you can afford to spend on a home before you even start looking. Your mortgage payment will probably be your largest financial expense, however, there are going to be other costs that you need to know about. The more you know about your current financial situation, the more prepared you can be when you meet with a mortgage broker. The following calculations are going to help you determine how much you can afford:
Calculation 1: How much are you currently spending?
Line of credit
**Total all of these numbers and subtract them from your monthly net income, the difference is the amount of money you will have left over each month after payments.**
Calculation 2: Affordability Calculator
Calculate how much money you could spend on a house every month without jeopardizing your financial stability. A lender will look at your current assets, debt, credit history and the amount of money you will be able to put down for a downpayment. Based on this information, a mortgage broker will use two financial formulas to determine the amount of money you will be able to borrow, based on this information.
The two formulas used are:
- The Gross Debt Service (GDS) Ratio: the percentage of your gross income (before deductions) required to cover the costs associated with sustaining your home. These payments include mortgage payments, property taxes and heating.
- Canada Mortgage and Housing Corporation (CMHC) uses 32% of your gross income for the GDS ratio.
- The Total Debt Services (TDS) Ratio: the percentage of your gross income before deductions required to cover the costs associated with your home, such as mortgage, property taxes and heating, plus your other debts, such as lines of credit, vehicle payments or credit cards.
- Canada Mortgage and Housing Corporation (CMHC) uses 40% of your gross income for the TDS ratio.
Calculation 3: Upfront Costs
Upfront costs are costs that you are going to need to pay upon the purchase of your home to close the deal. You must have this money in your bank account at the time of purchase. These costs include: Down payment, home inspection and appraisal fees, Insurance costs, land registration fees, prepaid taxes or utility bills, legal or notary fees, repairs or renovations, moving costs and GST.
STEP 3: Financing Your Home
It’s time to meet with a lender and confirm that you are financially ready to purchase a home. They will discuss interest rates, explain to you the process and then get you approved for your mortgage.