Everything you need to consider before you buy your first house.
Buying a house can be challenging for a first-time home buyer. There are so many steps, tasks, and requirements, which can leave you anxious about making an expensive mistake. To remove the mystery of the process, so you get the most out of your purchase, here is a rundown of what you need to consider before you buy. At The Urban Farmhouse, we help you with these questions and so much more!
6 Questions a First-Time Home buyer Should Consider.
1. How’s Your Financial Health?
Before cruising the MLS ® listings or falling in love with your dream home, do a serious audit of your finances. Be prepared for both the purchase and the ongoing expenses of a house. The outcome of this audit will tell you whether you’re ready to take this big step, or if you need to do more to prepare. Follow these steps:
Look at your savings. To qualify for a mortgage you will require a minimum of 5% down with upwards of an additional 1.5% to cover the closing costs What are real estate closing costs? The additional expenses required to complete the sale, these include lawyer fees, title transfer fees, moving expenses, appraisals, etc. Saving the downpayment and closing costs can be the biggest hurdle for first-time home buyers! However, First-time home buyers do have the advantage of borrowing their downpayment from their RRSP’s, this is called the Home Buyers’ Plan (HBP). And in some circumstances, there are options for gifted down-payments (from a family member) or even borrowed down-payments. If this interests you please connect with our mortgage associate – click here for details
Review your spending. You need to know exactly how much you’re spending every month—and where it’s going. This calculation will tell you how much you can allocate to a mortgage payment. Make sure you account for everything—utilities, food, car maintenance and payments, student debt, clothing, kids’ activities, entertainment, retirement savings, regular savings, and any miscellaneous items.
Check your credit. Generally, to qualify for a house loan, you’ll need good credit, a history of paying your bills on time, and a maximum Total-Debt-Service (TDS) ratio of 40 – 44%. A minimum credit score of 600 is required to qualify but a score of 680 or higher will ensure there are more lending options.
2. What Type of House Would Suit You Best?
There are multiple types of residential properties available: a single-family house, a duplex, a townhouse, and a condominium are the most common. Each option has its pros and cons, depending on your homeownership goals.
3. Which Specific House Features Do You Want?
While it’s good to retain some flexibility in this list, you will want to decide what things are important enough to make the “must-have” list compared to the “would like” list. Understanding this upfront and communicating them to your real estate agent will ensure you stay on track throughout the process. Some of your “must-haves” could be; 3 bedrooms on the same floor, attached garage, specific neighborhood. Some of your “would likes” could be; an updated bathroom, close to a park, on a quiet street, etc.
4. How Much Mortgage Do You Qualify for?
Before you start shopping, it’s important to understand how much a lender is will give you to purchase your first home. You may think you can afford a $300,000 house, but lenders may think you’re only good for $200,000 based on factors like how much other debt you have, your monthly income, and how long you’ve been at your current job.
Make sure you are pre-approved for a mortgage before you start shopping. In many instances, sellers will not even entertain an offer that’s from a buyer that is not pre-approved. A Mortgage Associate is a wonderful asset for first-time home buyers. They are able to shop around to find the best product to suit the buyer’s wants and needs. Check out our New Mortgage page to learn more about getting started with a pre-approval.
Calculate Your Monthly Payment
Your monthly mortgage payment will depend on your house price, down payment, loan term, property taxes, homeowners insurance, and interest rate on the mortgage(which is highly dependent on your credit score). Use the mortgage calculator below to get a sense of what your monthly mortgage payment could end up being.
5. How Much House Can You Actually Afford?
Sometimes a lender or bank will pre-approve you for more than you would like to spend. Just because they say you could qualify for $300,000 doesn’t mean that you should actually borrow that much. Many first-time home buyers make this mistake and end up “house-poor” with little left after they make their monthly mortgage payment to cover other costs, such as clothing, utilities, vacations, entertainment, retirement savings, house maintenance expenses, etc As a first-time home buyer it is easy to overlook this.
6. Who Will Guide You Through the House buying Process?
As a first-time home buyer, you want professionals on your team. A real estate agent, mortgage associate, home inspector, and real estate lawyer are great assets to have before you start. This will ensure you have all of your basis covered so that you can concentrate on finding the perfect house!
At The Urban Farmhouse, we have both a real estate agent and a mortgage associate, and we have excellent referrals for a home inspector and real estate lawyer. We have you covered!