First Time Home Buyers

Ah yes! Are you a first time home buyer? Does the thought of actually owning a home, a condo or town home get you excited? How about the idea of that key on your key chain actually belonging to a home you own and not the one you rent or your parents own. Hopefully after reading this article you will have a better idea of what it takes to buy your first home and what this journey will bring.

Let’s Start Off by Identifying Which Sort of Buyer You Are

There are actually two kinds of first time buyers:

The first one would be those of you that have lived with your parents and have decided it’s time to leave the nest. This may be because of you getting married, or perhaps you feel that it is time for you to have the independence you truly desire.

The second kind of first time buyer are those of you that have been renting a home. In your case perhaps you are there because you moved into a new neighbourhood and did not want to commit to purchasing yet, or you were waiting to save up your down payment or your financial situation has changed and you can now qualify for a mortgage.

For whatever reason you are motivated to take this step, Team Todd C. Slater is excited for you, and we will be here to take you every step of the way, of course answering any questions that you have. Remember, the only dumb question is the one that is not asked!

What Are the Steps to Buying Your First Home?

Well let us show you and of course during this process, remember, you can always call us our fill in that question box at the top of the screen. SO ARE YOU READY? Let’s begin!

Step 1

Financing

This truly is the best place to start during your First home buying experience. Before you start looking at homes, it always best to know what you can afford. For most people they can generally figure out what they can afford, but there is more to it then that. There are rules and regulations that all lenders will follow and some of these you may not be aware of. There are so many examples and at Team Todd C. Slater we will take you through them all, but for now we will talk about the basics.

High Ratio Mortgage

Currently in Mississauga, Oakville, Milton, Brampton, Toronto and all Ontario markets, high ratio mortgages are insured by CMHC (Canada mortgage and housing corporation, which is government owned) and GENWORTH, which is owned by GE Capital. A high ratio mortgage is a mortgage amount of more then 75% of the purchase price.

For example: You would like to purchase a home for $300,000 and are putting $30,000 down. This would mean that you have a mortgage of 90% of the purchase price and this would be a high ratio mortgage. So why do we make such a big deal about mortgage insurance? Well, the fact is it costs you the buyer 2 to 3 percent of the actual insured amount. So in this case the cost of insurance will be between 6,000 to 9,000 dollars. In most cases this will get added to the mortgage amount, and your payment will go up slightly. This fee unfortunately is not negotiable and has been put in the bank act to protect the lenders.

Credit Rating

Your credit rating is VERY IMPORTANT! The lenders will always look at your credit report to analyze how you pay back debt. If you are not sure what your current credit is like, you can actually go online at Equifax and request a credit report on yourself.

So where does your credit rating come from? Typically it will come from credit cards, loans, student loans, car leases and any other form of get now pay later example. So you know, that Visa payment you figured you could miss for 2 months but catch up the next month just affected your credit rating. When a lender sees that you pay your bills on time and the right amount, it is easier for them to approve your mortgage request. So one more time, your credit is very important and especially when it comes time to buy your first home.

Deposit

A lot of our first time buyers ask: "Todd, is the deposit what we are putting down on the home and the rest is mortgage?"

Actually the deposit is a sum of money given when you make an offer on a home. In most cases this amount is $5,000 to $10,000. This money has to be ready in a certified cheque or money order and has to be given to the office of the Realtor who’s sellers home your are buying when your offer has been accepted. This is much easier explained in person, but the concept is very simple. When a home owner accepts your offer to buy their home, they need a commitment from you that you will close on the day of closing. The idea of walking away from thousands of dollars is hard for most people, so this solidifies in the sellers mind you are serious about their home and will be closing when you should.

Down Payment

A little earlier we spoke about high ratio mortgages. This is where the down payment comes in. If you put down more then 25% then you will have a conventional mortgage. If you put down a down payment of less then 25% of the purchase price, then you have a high ratio mortgage and you will pay mortgage insurance. One thing to keep in mind when calculating how much you are putting down is closing costs. This can alter your down payment substantially and is something should work out when calculating what you can afford.

Closing Costs

It would be great if all you had to do is come up with the deposit, down payment and mortgage and that would be it. There is one other important thing though: closing costs. These include a land transfer tax and lawyer fees, which will be approximately $1,200 to $1,500. (I would recommend getting several quotes from some our Professionals.) There is title insurance also, which has become very important in the last few years. First Canadian Title is a great source of information for that. And of course there are some minor adjustments. We recommend keeping 1.5 to 2 percent aside for closing costs.

Pre approval vs Approval

When you go to the lending institution of your choice, they will ask for several things:

1. The first thing will be, are you employed, for how long, and do you have a pay stub and tax return. Make sure you bring these items, it will make the process much quicker.
   
2. Next they will ask about your credit and will ask to check it. If you have already done that, give them your report. It is actually not good to have too many credit reports requested within a short period of time.
   
3. Then they will ask for confirmation of your down payment.
   

This entire process will end up giving you a pre approval, not an approval. The point of this exercise is to give you a price that you can qualify for and that your lender will give you that amount based on the home you purchase. That’s right, lenders do worry about the actual home they are putting a mortgage on. So here is the best advice we can give you as your Realtor. We are always going to put a condition on financing in your offer when you find the home you want to buy. By doing this we will be protecting you, to ensure that you and the home meet the banks requirements together.

Now that you are armed with your pre approval from your lender, we are ready to go... almost. Let's talk now about getting you started on the path to home ownership. Call us today at 1-866-TODD1st (863-3178). You'll find the personal touch when working with the real estate professionals of Team Todd C. Slater will provide you the confidence you're making all the right decisions along the way, avoiding costly mistakes when making such a big decision. Contact us now and we'll get started right away!