My specialty is making home ownership a reality for any first-time home buyers in Lethbridge. Part of that process includes talking my clients through the home buying process on a daily basis.
Buying a home doesn’t have to be daunting and you don’t have to go through the home buying process feeling helpless and unsure. Here are some of the things you will need to know before moving forward with your home buying journey.
How Much Can You Afford for Your First House?
First, we need to find out what you can afford in monthly housing costs. Lenders follow two simple affordability rules to determine how much you can pay.
The first affordability rule is that your monthly housing costs shouldn’t be more than 35% of your gross household monthly income. Housing costs include monthly mortgage principal and interest, taxes and heating expenses— known as P.I.T.H. for short. For a condominium, P.I.T.H. also includes the monthly condominium fees.
Lenders add up these housing costs to determine what percentage they are of your gross monthly income. This figure is known as your Gross Debt Service (GDS) ratio. Remember, it must be 35% or less of your gross household monthly income. In some cases with individuals who have exemplary credit (680 or more) lending institutions may allow you to go to 39% GDS and 44% TDS. If you don’t know your credit score, use 35% for GDS and 42% for TDS for your own calculations.
Your Maximum Home Price
The maximum home price that you can afford depends on several factors, but the most important are your gross household income, your down payment and the amount of debt you have.
This is where I, your Mortgage Broker, come in to help you determine what you can afford for your first home based on your budget calculations. There have been many recent changes made to the requirements needed to own a home, including how a person can qualify. That means that it can become quite complicated, but don’t worry that is exactly why I am here, to help you navigate through the process.
For most people, the hardest part of buying a home—especially as a first time home buyer—is saving the necessary down payment. Many people will not have 20% of the purchase price to put down. With mortgage loan insurance, you can purchase a home with as little as a 5% down payment. Mortgage loan insurance protects the lender and, by law, all Canadian lending institutions require it for any down payment less than 20%. The way it works is if the borrower defaults (fails to pay) the mortgage, the lender is covered by the insurer. The cost for this type of insurance is in the form of a premium that is added to your mortgage and included in your monthly payments.
Most mortgage loan insurance products require homebuyers to provide the down payment from their resources, such as savings, investments or RRSPs. A gifted down payment from immediate relatives is also acceptable. Borrowed down payment is another source under certain circumstances
Getting a Mortgage Pre-Approval
A mortgage pre-approval is obtained when your Mortgage Broker works with a lender who will determine if you do in fact qualify for the amount of money you are seeking. By going through this process before you start shopping for your first home, you can have more confidence knowing that once you have found the right property, you can confidently present an offer to the seller.
Some of the important things that you need to have readily available to ensure your home buying experience is smooth are:
- -Your personal information, including identification such as your driver’s license
- -Details about your job, including confirmation of salary in the form of a letter from your employer, most recent pay stub, Canada Revenue Agency Notices of Assessment, etc.
- -Your other sources of income
- -Information and details about all bank accounts, loans and other debts
- -Proof of financial assets
- -Source and amount of down payment and deposit
- -Proof of closing costs (legal fees & property tax adjustments)
Lethbridge Mortgage Broker
If you need any assistance in finding the right professional to suit your needs, I am pleased to provide you with referrals.
This first-time home buyers guide should help you to navigate the homeownership process, but there may be more questions that you have. Please do not hesitate to ask me and I will always do my best to provide you with the answers you are seeking. Give me a call anytime at 403-894-8836
Lastly, and most importantly, congratulations on taking a step towards becoming a homeowner!