What You Should Know Before Buying a Home
Buying a home can be a daunting process. It is one of the biggest and most important financial decisions people make. It thereby is a process that requires time & effort to ensure you get the home you want for the right terms and price. Below are some of the top things you should know before getting into the housing market
Career: Lenders want to see applicants in a stable career. This typically means at least two years at a job, or within the same field of employment. If applicants switch careers, know that lenders will want to see steady employment from an applicant in their new career before they will consider them for a mortgage. If candidates are self-employed, the process can be more complicated as lending standards are tough. It is highly recommended that applicants seek out the assistance of a mortgage broker about getting the right product for their needs and long term goals.
Learn The Basics: The basics of saving, credit, and budgeting are crucial to an individual’s long-term financial security. Saving will be critical when it comes to being able to afford a down payment. A recommended method is to start putting aside 10% of a monthly paycheck, this over-time will help build up substantial savings. Inquire with your bank about a tax-free savings account. This allows people to set aside money tax-free throughout their life.
Lenders want a picture of how people manage their money. They will do this by looking at an applicant’s credit and repayment history. Lenders will use this as a metric to predict a borrower’s future financial behavior. Thereby, it is important for individuals to ensure they have the best credit possible when applying for a mortgage. This will assist in getting more funding and having access to better rates. Practically, this means paying off credit cards and other credit obligations each month.
Budgeting is a key to saving and knowing how much you can afford. Budgeting can help you dictate what spending is essential and what is not, a key tool for helping you save. There are numerous apps or programs that can assist with this. Try setting aside the amount your monthly mortgage payment will be in order to ‘prep’ yourself for the real thing.
Associated Costs: There are numerous costs associated with a mortgage. A down payment is one of the largest expenses. The minimum a borrower currently needs in Canada is 5%, however anything less than 20% will require a customer to pay a loan insurance premium with CMHC. In conjunction, borrowers will have to pay closing costs, home and title insurance, appraisal fee’s, property transfer tax, and lawyer fee’s.
Have Some Cash In Reserve: As a potential home owner, ensure you have some money on hand in case there are unexpected costs that arise once you take possession of the house. While a home inspection is likely to catch potential problems with the home, it is recommended you keep some money on hand just in case something does arise.
Be Realistic About Fixer-Uppers: The idea of a fixer-upper in a great neighborhood for a good price is a very romantic idea. However, in reality they can be a little more work than expected. Consider your timeline and budget. How long will you be living in the house while renovating? Will you be doing all the repairs yourself? Have you budgeted in case you have to live in a hotel for a period of time?
That stated, “Sweat Equity” can save thousands if done right. Home improvement projects can drastically increase the value of a home.
Mortgages are complicated, you need an expert. Before you go house shopping and find the home of your dreams, be in contact with a mortgage professional. It will be helpful to know where you stand and how much you can afford before getting to deep into the buying process.