4 Key Steps to Take Before You Write an Offer on a Home
Many emotions come with such a big decision. Take your time and don’t try to rush the process, this should be an enjoyable part of your life. This is going to be one of the biggest financial purchases you make so be sure to have a plan in place before you pull the trigger on a property purchase.
Here are 4 key things you can do to try to be organized as you move forward with the home buying process.
1. Collect Your Down Payment
Many people think that you are required to have 20% of the purchase price of a home for a down payment. Less than 20% down would require mortgage default insurance but, the amount that is required is only 5% of the purchase price for your down payment on anything $0-$500,000.00. If your home is over $500,000.00, 5% down payment is the required on the first $500,000.00 and 10% down is required on the amount over and above that up to $999,000.00.
Down Payments can come from:
• RRSP’s: as first time home buyers you can withdraw up to $35,000.00 per person, (or $70,000.00 per couple) from your RRSP’s without incurring tax. The First Time Home Buyer’s Program allows you to withdraw these funds and pay them back over a 15 year period.
Protip: the funds have to be in your RRSP account 90 days before you can withdraw them.
SUPER protip: watch our youtube video an learn how you can use and RRSP loan to purchase a home with zero down payment!
• Your personal chequing/savings account
• A gift from an immediate family member
• Your tax return: remember that if you max out your RRSP’s in one year, you are likely to receive a large tax return in the following year.
2. Decide on a Budget
Take into consideration the amount of money you can afford to spend each month on a house. Along with your mortgage payment you will have to include insurance, property tax and utilities in your monthly budget. Many mortgage brokers work with clients to max out their home purchase price. We’re happy to help you achieve that number, but we want your monthly cash flow to be comfortable. We typically provide 2 numbers for clients: The maximum purchase price that your income and down payment will allow, and the purchase price that matches your ideal monthly budget. Being “house poor” is the worst feeling. We want our clients to be able to feel comfortable with their monthly cash flow.
3. Get a “fully-underwritten” mortgage pre approval
Online mortgage calculators and “quick chats” with a mortgage professional are not a mortgage preapproval. Many times per week we speak to clients that have been “pre-approved” and their deal is falling apart. When you decide you’re ready to start looking for a home, you need to make sure that you’ve worked through a fully underwritten mortgage pre approval. This means that your mortgage professional has:
• Reviewed your income documents
• Reviewed your credit documents
• Asked you for a piece of ID to confirm your name/address matches your credit bureau
• Pull your credit report (yes, a hard credit hit)
• Talked to you about the type of property you want to purchase; meaning a condo, a single family home, locations etc. to make sure that property type, combined with your file will work at a specific lender.
4. Obtain a Rate Hold
Once you’ve gone through all of the work of submitting your documents and organizing your file, make sure to ask your mortgage professional to send a rate hold to the lender. Lenders can hold a rate for up to 120 days. This gives you plenty of time to find a home without the worry that the rates or your payments would change. Although we live in a country where rates are fairly stable, a rate hold is a “free option.” Why not take a rate hold just in case we were to see a change. Make sure that your mortgage professional follows your pre approval all the way through to put the rate hold in place for you.
Rely on your mortgage professional to answer any questions you may have and make sure you are fully ready move forward on this decision. A mortgage is most likely one of the biggest commitments you will ever make.
