Buying a house is a significant investment for your future. It’s also a lot of work. Before you jump into the market it’s always good to speak with a financial advisor about your current financial situation, and what your first step towards owning your first home should be.
There are also various products and services on the market that can help you understand and narrow down the road to home ownership. The only problem is just that – there are too many! How are you suppose to know which financial products and services are good for you? And where do you start?
Here are tips that can help you get started:
Before you seek out professional advice about buying a home you should evaluate your borrowing capacity. This means you have to go through your budget, figure out what assets you currently have, how much money you have saved, how much money you owe (debts), and if you have an RRSPs.
Once you know where you stand financially you’ll have a better understanding of how much you’re going to be able to put towards your house, and how much you’re going to have to borrow.
According to the Canada Mortgage and Housing Corporation the first rule of affordability states that the maximum amount of your housing costs should not exceed 32% of your gross income. The second rule is that you’re monthly debt payments should not exceed 40% of your gross income. Make sure you take this into account when you’re reviewing your budget.
The next step is making an appointment with a mortgage broker. These professionals can help you determine what your options are in term of mortgages. You can also check out the Financial Consumer Agency of Canada for more information and advice about owning your first home. Remember: brokers are the middlemen and can show you different products and services that best suit your financial situation, but it is up to you to educate yourself about the housing market as best you can!
The premises behind mortgage insurance is that it protects the lender against mortgage default. This is a popular option when considering buying a home because it helps the potential buyer purchase their home with a minimum down payment of only 5%. But be careful because the interest rates can be around 20%.
Basically if you save more than what your minimum down payment is going to be, you’ll be in better financial standing! This is another reason why you should keep a close eye on your budget and see where you can save more money for your first big investment.
It’s wise to know about mortgage insurance, along with life insurance. Even though this is your first home it’s better to be prepared for any situation rather than deal with the drama of the worst case scenario (i.e. what happens if your spouse passes away, are you going to be able to make mortgage payments on your own?).
Canada’s Home Buyers Plan (HBP)
In Canada we’re lucky to have a government who provides us with information and options when it comes to buying our first or last home. The HBP is a program that gives you the option to withdraw up to $25,000 from your RRSPs and put it towards buying or building a home. Before you jump up and down make sure to read the rules and regulations associated with the program!
Hope these tips have informed and encourage you to make a solid plan towards buying your first home. Don’t forget to always evaluate your budget and financial situation before making any big (or small) purchases, and talk to professionals – they’re paid to help!