Guest Blog Post By: Brandon Lacaille
In today’s competitive seller market with house prices steadily rising, the goal of homeownership can feel daunting at times. The good news is that this goal is not as far-fetched as the younger masses may believe — and there are ways to prepare yourself successfully!
Find an Honest Mortgage Broker
This tip is essential, especially for a first-time buyer, because a good broker will work with you and ask questions that could be easily overlooked. This can earn you a more personalized mortgage, as a broker will take your information and compare it to all lenders they have available (also saving you multiple credit checks.)
Pay off Debts
Any debts that have accumulated including student loans, vehicle financing, or even credit card debt, should be cleared before purchasing a home. This will help build your credit score which will earn you lower interest rates. Being debt-free also substantially increases your purchasing power as your income will no longer be tied up, allowing you to buy more house — or even earn a lower interest rate!
Building a down payment is vital in the mortgage process as it is a deciding factor for qualifying for a conventional or a High-Ratio mortgage. This will determine whether you will need mortgage default insurance. A larger down payment will earn you more purchasing power, much like paying off debts. In Canada, we have a benefit where first-time home buyers can use their Registered Retirement Savings Plan (RRSPs), up to $35,000 per person, for their down payment without paying taxes on that money. To be noted, this does come with a risk,
Using the Home Buyers’ Plan (HPB) gives you 15 years to “pay yourself back” or the total amount will become taxable. Also, consider a separate savings account (separate from your emergency fund), in which you can funnel a percentage of your income into for your down payment.
Getting Pre-Approved can save stress and heart ache for anyone involved in the home buying process. It allows you to refine your search for a new home while giving you guidelines for your financial comfort zone. This also makes you a more attractive buyer, as sellers prefer to deal with pre-qualified buyers.
Rates aren’t everything
The lowest rate does not mean you will save more money or that your mortgage will be less costly. Of course low rates are something to be sought after, but the APR (Annual Percentage Rate) is much more critical. The APR not only includes the interest rate, but also any fees or charges that will be paid for the loan. Prepayment privileges or penalties could also be a factor in which to consider before interest rates.