As we see the snow melting away, patches of green grass popping up and the warmer weather of spring arriving, many people start to think about purchasing a new home. Whether it is a first home, moving up to a home more suited to the family needs or building a shiny new home, many people get the itch this time of year to make a change.
Buying a new home involves a lot of pre-planning and fore thought. This is one of the biggest purchases most people will make in their lifetime so one does not want to jump into anything without putting some careful thought into what they are going to buy. You want to ensure you get the best value for your dollar.
One of the first steps in considering a move is to figure out what type of home best suits your needs (how many bedrooms, do you want a garage, what is the best location for your needs, etc.) You want to make sure you assess your current and future needs and what characteristics are important to you.
Once you have the type of home figured out, you will need to determine if you are financially ready for a mortgage. Getting your mortgage pre-approved before you start looking for a home to purchase will help you determine what kind of price range you can afford.
A number of factors come into play when determining an affordable price range; your current annual household income, other debt that you currently owe, and the amount of the down payment available for the purchase. Typically buyers will need a minimum of 5% of the purchase price as the down payment. Any down payment less than 20% is considered a high ratio mortgage. These mortgages were introduced through the National Housing Act in an effort to help Canadians in owning their own home. The privilege of a lower down payment comes with an insurance premium cost that is added to the amount of the mortgage being financed.
When going through the pre-approval process, the lender should look at how much you can afford and explain what that means to you financially. Sometimes, how much you can afford is not always the maximum amount you should be looking at as a purchase price. For example you may need a newer vehicle in a few years which will add to your monthly debt load, interest rates may have gone up by the time you need to renew your mortgage which will increase your payment.
Similar to the house you buy, the price isn’t the only consideration.
Since there is more involved than just punching in a couple of numbers to determine your price point, it is important to find a lender that you trust and can build a relationship with.
Contrary to popular belief, there is more to the borrowing process than getting the best interest rate. Interest rate is important but there are so many other factors to take into consideration during the process (pre-payment options, accelerated payments, etc.). This is a long term relationship, so you want someone who will be looking out for your best interests.
Part of the whole mortgage process is finding a mortgage specialist that you feel comfortable with. You want to find someone who is knowledgeable on all aspects of mortgages, is trust worthy, offers great service and is focused on doing what is best for you. The lender you choose now will be the one you go to for future financing needs so it is important to find someone who looks at the full picture and takes into consideration what best benefits you.
Now the fun begins! Get out there and find the home of your dreams. Work with your realtor, tell them your long wish list and let them do their thing. Enjoy the process of house hunting, finding the home that is just right for you. While looking at homes, keep in mind any renovations that you might want to do. This is the time to be applying for the financing for any renovations, especially if you are doing a high ratio mortgage with less than 20% down. Your mortgage specialist can explain the benefits of this during your pre-approval process. CMHC 2013 Mortgage Consumer Survey showed that over 50% of home buyers anticipate doing renovations within the first five years so applying for the financing at time of purchase is the best time to do it.
Now you are armed with a bit of knowledge to get you started on the journey of purchasing your dream home. Good luck and have fun! Spring has sprung, the grass has riz. I wonder where your new home is! Happy house hunting.