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Are you looking to own your very first home? 

Whether you’re looking for a house, a townhouse or condo, this is one of the biggest decisions you’ll ever make. It might seem difficult at first but you’ll be a home ownership expert by the time you finish reading our step by step 1st time home buyers guide. If you’ve already started the process, feel free to skip ahead!

Down Payment

A down payment is a sizable amount of money that you pay before the loan takes effect. It’s an initial payment to show that you are earnest in paying off the loan. The larger the down payment, the less you will have to pay in installments later on. Furthermore, the larger your down payment, the more influence you will have on mortgage term proceedings. 

Example:  If you want to buy  a property that is worth $500,000, and you make a down payment of $50,000, the amount you owe the seller is $450,000. This remaining balance, $450,000, will become your mortgage.

Not only does the down payments reduce the total amount of your mortgage, it also helps when bargaining with lenders. The more money you put down, the more power you will have to negotiate lower interest rates and other conditions with mortgage lenders.

The above are down payment minimums; you are allowed to pay a bigger down payment if you can afford it.

Mortgage Pre-Approval

A Mortgage pre-approval is generally a quick, simple process. You provide the mortgage lender with your personal financial information, including your income, debt and assets etc. Based on your information, the lender will give you an assessment as to how much they’d be willing to lend you toward a home purchase. 

Mortgage Term

A mortgage term is the amount of time that the mortgage is in effect and the total time period over which the buyer has to pay off the mortgage. This also involves the conditions made in the mortgage agreement. 

Amortization

Amortization refers to the amount of time that a buyer would take to pay off the principle and interest amounts in mortgages. The longer the calculated amortization, the greater the interest and smaller the installments. 

Fixed vs. Variable: What’s the Difference?

A fixed rate mortgage means that the rate of interest is set beforehand and stays the same throughout the mortgage term. 

A variable rate depends on the lending rate of banks and is highly dependent on the lending rate decreed by the Bank of Canada, meaning that it can fluctuate a lot. 

Deciding between a fixed and variable interest rate is one of the most challenging decisions when applying for a mortgage. It’s a tough decision to make because no one can predict what will happen in the future and the future has a great impact on interest rates.

What is the Stress Test?

Starting January 1, 2018, the Office of Superintendent of Financial Institutions (OSFI) implemented the ‘Stress Test’.  The test requires the buyers to show that they can meet payments if the interest rate is raised during the mortgage term.The stress test uses a predefined interest rate (qualifying rate), to gauge your ability to meet your mortgage payment if interest rates were to increase.

What are Land Transfer Taxes?

A land transfer tax has to be paid to the province (except Alberta and Saskatchewan) once you have paid the mortgage and the land transfers to your name. The tax rates on the value of the consideration are as follows:

• amounts up to and including $55,000: 0.5%

• amounts exceeding $55,000, up to and including $250,000: 1.0%

• amounts exceeding $250,000, up to and including $400,000: 1.5%

• amounts exceeding $400,000: 2.0%

• amounts exceeding $2,000,000, where the land contains one or two single family residences: 2.5%

Property Taxes

Property taxes become applicable once you own your property, If you live within a municipality, you will pay property taxes to your city or town. If you live outside of a municipality, you will pay property taxes to the province or territory you live in.

How much you owe in property tax is determined by various factors. The general municipal tax rate, the current tax rate, education tax rate and the value of your property all influence your property tax amount owing. 

Property Taxes and Utility Adjustments

Once you have a property to your name, all of the outstanding utility dues and taxes on the property are your responsibility to handle. Many of these costs are typically paid or reimbursed during the closing of the home and are factored into the purchase price.

Appraisal Fee

An appraiser assesses the value of the property you’d like to buy to ensure that you’re paying a reasonable price. If you are applying for a loan to purchase or refinance a home, most lenders will require an expert to appraise it and give it a valuation that will represent it in the market.

Home Insurance

Home insurance provides compensation to repair or rebuild your home if it’s damaged by fire, flooding, or other unexpected events. If a tree falls on it, you’ll be covered, for example.

Legally you aren’t required to purchase home insurance, but most lenders require prospective home buyers to have it.

Title Insurance

Title insurance is the legal ownership of your home. Title insurance protects you against things like forgery, fraud, and identity theft. 

Extra Costs

You might see a lot of extra costs during your mortgage term that might throw your financial plan into disarray. These extra costs come as a result of rising interest rates and land transfer taxes. 

Home Inspection

A home inspector evaluates the structures and systems that make up your potential home to check that everything is in good working order. Doing a home inspection can help save you money and avoid surprises in the long run.

Although a home inspection isn’t mandatory, the Canada Mortgage and Housing Corporation recommends that you include a home inspection as a condition when you make an offer to buy a home.

Should I hire a Real Estate Agent?

Real estate agents can play a key role in making your journey to becoming a homeowner much simpler. A good realtor will help you find the ideal home, negotiate on your behalf to help you get the best deal, coordinate a home inspection and deliver your closing documentation.

Using a realtor also allows you to have access to the MLS, which is operated by the Canadian Real Estate Association. This gives you more options not available to the public.

At Planulife we specialize in Real estate, Mortgages and Investments we have experienced team members that could help you navigate the home buying process from the beginning to the end.