Picture this: You’re getting ready to buy your very first home. You’ve saved a 10% down payment and even narrowed down some neighborhoods you want to live in. But did anyone tell you about getting pre-approved for a mortgage? Or, about the type of features that suit your needs best? What about CMHC insurance? There’s a lot of things many first-time buyers don’t know about the home buying process until they’re in it. Here are five things everyone should know before buying their first home:
- You should get pre-approved to determine your home affordability
Before you start your home search, get clear on how much you can actually afford. A mortgage pre-approval is a great way to understand your home affordability and can save a lot of time and stress when searching for a home. Although it’s not mandatory, pre-approval offers first-time buyers a handful of advantages that ensure a positive home buying experience. It allows you to set a realistic budget from the start, it provides insight into your home price affordability and makes the process much more enjoyable and memorable.
- You can get a mortgage outside your bank
A common mistake among many Canadian homebuyers is that they will often go straight to their bank for a mortgage without ever exploring any other options. If you didn’t already know this, Canadians are able to secure a mortgage outside of the big banks. Other lenders like credit unions or monoline lenders also offer strong mortgage products that may be more suitable to your needs. For instance, many first-time homebuyers break their mortgage before the end of their five-year term and some lenders have larger penalties for this than others. Since mortgage products, features and terms vary from one lender to the next, shopping around is key and will ensure that you lock in a mortgage that’s right for you.
- You have to pay CMHC insurance with a down payment of less than 20%
In Canada, the minimum down payment range is 5% to 20%. If you’re a first-time buyer with a down payment anywhere between 5% to 19.99%, you’ll be given a high-ratio insured mortgage. This type of mortgage requires you to pay CMHC insurance, which allows you to borrow up to 95% of the purchase price of a home and protects the lender in case the loan defaults. The cost of this insurance typically ranges between 2.8% to 4% of your overall mortgage amount. However, if you plan to put down 20% or more, you won’t have to pay this as it will be considered a conventional mortgage.
- The Canadian federal government has incentives for first-time buyers
In the last few years, the Canadian government has introduced many helpful programs to assist people who are buying their first home. These programs include:
- There are additional costs beyond your down payment
Many first-time buyers become so fixated on coming up with a down payment that they often forget about the other costs associated with buying a home. These can include closing costs, legal fees, mortgage insurance, monthly living expenses, moving costs and the list goes on. Forgetting to factor in these expenses could impact your overall home affordability or may even leave you unable to meet your monthly obligations after moving in. Check out our Closing Cost Calculator to help you estimate some of these additional expenses so that you can adjust your budget accordingly.
If you’re a first-time buyer getting ready to start the process, don’t stress! At Homewise, we know that buying your first home and securing a mortgage can feel overwhelming. That’s why our team of dedicated mortgage advisors is here to support you every step of the way. We’ll help you shop around and give you a full view of the options available in the market to help you lock in a mortgage that aligns with your goals and needs.
Apply online in just five minutes today!