Buying Your First Home

Tips and Steps You Should Know
If you’ve never owned a home, one of your main financial goals is probably to own your own home. You’ve probably already gone through the steps for buying a first home in your head — considering how much of a down payment you can afford, decided what you want in a home, and which neighbourhood would be best. Still, there are a few places where help buying your first home — or just some tips for buying a first home — can be very helpful. Let’s take a look at what you need to know.

Mortgages for first time home buyers

Deciding on the right mortgage solution can be a challenge. In many respects, it can be very useful to get some advice from a professional mortgage advisor. They can help review your financial goals overall and help you decide, for example, whether it would be better to have the certainty that comes with fixed rate mortgages or the potential savings you’d get from a variable rate mortgage.

A good mortgage advisor can also help you figure what you’ll be able to truly afford when it comes to a down payment, as well as how much you’ll have to borrow so you can buy a home that fits your price range.

Mortgage advisors also help you make sure your mortgage fits your overall goals. This is important because when you buy a home you need to have a realistic “game plan” that ensures you’ll be able to pay down the mortgage — and at the same time stay on track towards reaching other goals, like planning for your retirement or saving for your child’s education.

Can you afford to buy?

Before you consider buying a home, the most important thing to know is how much you’re able to spend. This means planning ahead for the expenses of homeownership.

In addition to the home purchase price, you can also expect to have other significant expenses, like heating, maintenance, property taxes, and perhaps renovation.

As a rule of thumb, try and make sure your monthly cost of housing is not more than 32% of your overall gross monthly income. These costs include the monthly payment for your mortgage, your heating expenses, and property taxes. (Mortgage professionals call this PITH — Principal, Interest, Taxes, Heating.)

A lender will add up the overall housing cost and then figure out what percentage these costs are of your overall gross monthly income. This number is the Gross Debt Service ratio, or GDS. To get a mortage, your overall GDS should be under 32% of your monthly income.

The second rule of thumb is that your entire monthly debt payment load should never be over 40% of your income every month. That includes your housing costs plus any other debt payments, like credit cards, car loans, or more. The total amount you spend every month making debt payments is the Total Debt Service ratio, or TDS.

Based on these figures and the amount you can spend on a down payment, you or your advisor can work out how much you can afford to spend on a home. Usually, saving up the down payment is the most challenging part of affording a new home. The larger the down payment you can make, the better your rates will be.

Fixed or variable rate mortgage?

The first decision you’ll be faced with when sitting down at the bank to get a mortgage is related to mortgage rates, specifically fixed or variable rate loans. One of the key benefits to working with someone is they can help consider the way mortgage payments fit your financial situation both now as well as in the future — and make sure the mortgage is affordable in the long term.

What does this mean? For example, variable rate mortgages can provide lower rates today, but the rate might go up in the next few years. If this happens your payment also goes up, potentially affecting your ability to save towards other financial goals.

If this scenario is a problem for you, then it’s worth considering the security that comes with fixed rate mortgages. Professional mortgage advisors can help determine which overall solution is best for you.

No or bad credit history?

If you’re new to Canada, you might not have any Canadian credit history. In other cases, your credit history might have issues like foreclosures, bankruptcies, or consumer proposals. In this case, getting a mortgage can be very difficult.

As a newcomer to Canada, there are mortgages available from traditional lenders which are open to borrowers like you — though some approval is still required.

If you’ve lived in Canada for a while but still have no credit history, or a bad credit history, getting a mortgage can be more of a challenge. You may need to find a private lender, or consider Rent to Own.

Rent to Own programs, like those run by HOS Financial, work by connecting you with a private lender who purchases the property on your behalf. You pay them rent while living in the home you want, then at the end of the program — usually two or three years — you can get a traditional loan at the usual low rates.

The key benefit of Rent to Own is it’s possible to get a home regardless of your credit, and credit repair experts are available to help rehabilitate your credit while you live in the home.

For example, say you’ve never owned a home but you have had credit trouble in the past. With Rent to Own, you could choose and live in the home you want right now. Each month a portion of your rent payments would go towards a future down payment on a traditional mortgage. At the same time, you’d work with the HOS Financial credit repair team to get your credit report back into shape during the run of the program.

At the end of the two year period, you would be able to walk into a traditional lender (like a bank or credit union) and get a normal mortgage at a low rate. The down payment would be taken care of — you would have already saved it up while living in the property.

If this sounds like an option that would be helpful for you, contact HOS Financial today to discuss your situation with their consultants. They will be able to help you understand what your options are.

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