Are You Ready For Home Ownership?
Before taking the first steps toward buying a home, determine if you’re ready for home ownership.
1. Do You Have The Finances?
Planning ahead from a financial perspective is key to your success in buying a home. Before you start shopping for a home, you need to determine your financial readiness. Based on your down payment, income, existing debt and regular expenditures, determine how much you can afford to pay every month and the price range of home that works within that budget.
Determine Your Down Payment
A down payment is the amount of money that you put towards the purchase of a home and pay up front to obtain a mortgage. Your mortgage loan is the balance that is due once the down payment has been deducted from the purchase price of your home.
Under current legislation, the minimum amount you’ll need for your down payment depends on the purchase price of the home you’d like to buy. If the purchase price of your home is $500,000 or less, the minimum down payment is 5% of the purchase price. If the purchase price of your home is $500,000 to $999,999, the minimum down payment is 5% of the first $500,000 of the purchase price and 10% for the portion of the purchase price above $500,000. If the purchase price is $1,000,000 or more, the minimum down payment is 20% of the purchase price of the home.
Obviously, the larger the down payment you make, the more you save in the long run in monthly principal and interest and the overall interest paid during the lifetime of your mortgage.
Determine If First Time Home Buyer Incentives Are Right For You
With the release of the federal Budget 2019 in March, there were enhancements to an existing first time home buyer incentive and the introduction of a new one. Here are the highlights:
Home Buyer’s Plan (H.B.P.)
The H.B.P. allows first-time home buyers to withdraw funds from their R.R.S.P. to purchase or build a home without having to pay income tax on the withdrawal. Amounts withdrawn under the H.B.P. must be repaid to your R.R.S.P. over a 15 year period.
In March 2019, the federal Budget 2019 announced the amount that first-time home buyers can withdraw tax-free from their R.R.S.P. to buy a first home would be increased immediately from $25,000 to $35,000 , effective for H.B.P. withdrawals made after March 19, 2019.
First-time home buyers purchasing a home jointly with a spouse or partner can now each withdraw up to $35,000 from their own R.R.S.P. under the Home Buyers Plan, for a total down payment of $70,000.
First-Time Home Buyer Incentive Plan
Also introduced in the March 2019 Budget, the First-Time Home Buyer Incentive would allow eligible first-time home buyers who have the minimum down payment for an insured mortgage to apply to finance a portion of their home purchase through a shared equity mortgage with Canada Mortgage and Housing Corporation (C.M.H.C.).
This incentive would be available to first-time home buyers with household incomes under $120,000 per year. At the same time, participants’ insured mortgage and the Incentive amount cannot be greater than four times the participants’ annual household incomes. Terms and conditions for the First-Time Home Buyer Incentive are scheduled to be released by C.M.H.C. later this year.
Seek Professional Mortgage Advice
Speaking to a qualified Mortgage Broker will help you navigate through the mortgage process and find the solution that best fits your situation.
Getting Pre-Approved
Mortgage pre-approval is a critical step needed before the house hunting process begins. Getting pre-approved for a mortgage confirms how much financing you are approved for to buy your new home, allowing you to start the house hunting process focusing on properties within your price range and budget. Then, when you find that perfect dream home, you can proceed knowing that you have already met the necessary financing conditions.
2. Assess Other Life Priorities
If you are about to start a family, a business or have other financial obligations, consider how this will factor into buying a home. If there are major costs in your near future assess how this will affect your ability to commit to a mortgage.
3. What Are your Short and Medium Term Goals?
In addition to addressing your short term needs, also take a bigger picture, medium term view. Ask yourself: Do you plan to stay for a long period of time or a short time? The first-time buyer should assess their current career, and the neighbourhood that he or she is planning to move into. Will the neighbourhood still be the right location in 5 or 10 years? These are all-important questions to ask.
If you’ve determined that home ownership is right for you, now would also be a good time to speak with a real estate professional. You’ll have questions that you’ll want answers to – along with professional advice.
They’ll guide you through the entire home buying process – from showing you homes that match your criteria to negotiating the best possible price for your new home. They’ll also draft the contract of purchase and oversee the contract to completion.
They understand local market conditions better than you do and are experts in their field. They’re best positioned to negotiate with the seller’s representative and act as your advisor, consultant and negotiator until the deal is closed. They’re services are free to the home buyer. Why go it alone?
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