Ever wonder what no one tells you about buying a house? Or maybe you’re house-hunting and wondering how much of a mortgage you can afford? The size of your mortgage, in addition to your down payment, will determine what price range you want to be looking in. And there’s no shame in starting small because there are a lot of overlooked expenses for first time home buyers...
1. It’s never too early to talk to a mortgage broker
If you’ve never applied for a mortgage before, start by getting pre-approved. The process of meeting with the Mortgage Advisor and outlining your income, assets and liabilities can be an eye-opening experience which will determine how much of a mortgage you can afford. The Advisor will also ask you about your down-payment savings and help you with the funding if haven’t accumulated sufficient amount yet.
If you haven’t met you realtor yet, we will connect you with the best professionals in the industry. Any realtor you work with will ask you what price range you can afford. The pre-approval process is intended to let you know how much the lender is willing to fund you. We will also walk you through the credit report information and help determine the optimal strategy to improve your score if needed. In the lenders’ world, the higher the credit score the better the interest.
2. Borrowing capacity
We will look at your financial situation to determine your borrowing capacity. This simply refers to the maximum amount of money you are capable of borrowing based on your income, your existing debts, whether you’re buying with someone else, and any other liabilities you may have, such as dependents. Bear in mind that the figure that you are presented with is the maximum mortgage amount. It’s a good idea to draw up a budget based on your income and expenses to determine what you can realistically repay on your mortgage per month. Remember to factor in costs associated with owning a home.
3. Speaking Down Payment
When you are shopping for an owner occupied primary residence, you are required to have at least a 5% down payment saved up. For example, you would need at least $15,000 for a down payment if you want to buy for $300,000.
We can help our clients to find alternative solutions to supply down payment for their purchase. The solutions may include:
Flex loan
HELOC (Home Equity Line of Credit)
Borrow from 3rd party between owner’s sale and new home purchase
Another thing to remember, if your down payment is less than 20% of your purchase price, you are required to pay for insurance on your mortgage. Your lender will calculate the premiums basis down payment you do have. You are able to include the insurance costs in your mortgage, but that does make them more expensive.
4. Closing Costs
It is very wise to budget another 1,5% - 2,5% of your purchase price for closing costs. In addition to buying the home, you will have legal fees, property tax and/or strata fee adjustments, house insurance (a condition of your mortgage is that you must have house insurance) and actual costs to move into your new home.
It is up to you to have the money available for when it’s needed. We work with flexible lenders to offer you a small line of credit in case you decide to use this funds. In the months after buying a home it can be hard to qualify for additional credit, especially if you’ve maxed out your mortgage amount. We recommend our clients to think in advance and consider shopping for extra funds at the moment of qualifying for mortgage.