For new comers like us –buying our first home is the biggest investments that we are going to make. When we arrived to Canada, we are fortunate that my cousin and her family welcomed us to stay in their place, we stayed with them for almost 7 months before we moved to a house that we rented for 10 months. When my husband and I decided that we are moving out of my cousin’s place, my husband was insisting that instead of finding a place to rent, we might as well buy our house. I still remember how the financial advisor told us that we cannot buy a house that time, “I am sorry, even if you have the money to put as down payment, you cannot be approved. You need to build your credit history first.”
No, we do not have that big money to instantly buy a house, to buy a house, we need a mortgage.
Most Canadian families have a mortgage and almost all first-time homebuyers like us need a mortgage to make their purchase – and this is how my husband and I are able to get our very first home, our Green House.
I must admit, when my husband and I were looking for a house, we didn’t know what to do. There are a lot of people that we know who have been telling us what to do and what not to do, some are giving us their suggestions while others are sharing their experiences, maybe, listening to different people with different advice is not really helpful at times.
So like what I said, when we started looking for a house, we do not have any set of requirements or even ideas of what kind of house we should be looking for. Our concern was just to find a house that we can afford.
But then we are lucky to find our “Green House,” what’s even amazing is that the house was actually sold and the owner put it back in the market because the supposedly buyer had some problems with the approval of their mortgage with their financial institution. On the day that we first saw the house, we immediately placed an offer and our offer got accepted on the evening of the same day. That fast, eh!
Easy or fast it may seem, but, I must say that buying and owning a home is one of the biggest emotional and financial decisions that we ever made. Our Green House may not have the best location, it may not be the biggest or it may not be the expensive-looking house but I will always be thankful that we found and lived in it.
Renting and buying a home is far different from one another, both has its pros and cons. Each family may have their own reasons for renting or buying a house, indeed, there is no ONE BEST DECISION for everyone and what is applicable to someone you know may not be applicable to your situation. In buying your very first home, it is best to consult the “experts” rather than listening to other people around you, and when I say expert, I meant, a financial advisor, a real estate agent.
Aside from this, consider asking your self some questions about buying a house. Here are some of the things that you may want to consider before jumping into the decision of buying a house?
What do I look for in a house? In deciding to buy a house, decide what type of property you prefer, is it a detached house, townhouse or condominium or semi-detached or duplex? Do you need several bedrooms, more than one bathroom, or a garage? Where do you like to leave, which neighborhood do you prefer?
Do you have a steady job and income? As I have mentioned, most homeowners in Canada got their house through mortgage, it is hard to get approved for a mortgage if you do not have a steady and permanent job. You should be able to prove that you have reliable and provable earnings to get approved.
How much can you afford? is an important first step for house-hunters because it provides an accurate feel for the amount of house you can afford and will address any possible issues before you begin your search.
Are you financially ready for home ownership? Another important step that a homebuyer should do is to get a full analysis of his credit and income. You can request for a credit check with your financial advisor or a broker, they can do this free of charge. Or you may want to get a detailed credit report to either Equifax or Trans Union at a cost between $20 to $25. The best lending rates are usually reserved for those with a score of 750 or higher. Once you receive your credit report review it and check for any discrepancy and should you find any, have it corrected at once. It is always best to know what is your credit standing before applying for the approval of your mortgage.
Do you have any money saved for a down payment? In Canada, there are options available to assist a first-time homebuyer. Most banks require a 20% down payment or what is called conventional mortgage. Conventional mortgages have the lowest carrying costs because they do not have to be insured against default.
Low down payment insured mortgage is available for those who are not able to put a 20% down payment, a homebuyer can put as low as 5% down payment under this program. However, low down payment mortgages must be insured to cover potential default of payment (mortgage loan insurance), as a result, their carrying costs are higher than a conventional mortgage because they include the insurance premium.For more information about mortgage loan insurance visit the Canada Mortgage and Housing Corporation (CMHC) website.
A first-time homebuyer may also be able to borrow from savings you have put into a Registered Retirement Savings Plan (RRSP) and use that money as a down payment, this is called the Home Buyer’s Plan (HBP). First-time home buyers are eligible to use up to $25,000 in RRSP savings per person ($50,000 for couples) for a down payment on a home. The withdrawal is not taxable as long as it is repaid within a 15-year period.
Do I still have enough money for the closing costs? Aside from the down payment, there are other hidden costs that a homebuyer should be prepared for. These are the one-time costs including real estate agent’s fee, lawyer or notary’s fees, moving expenses and other costs associated with buying a home. Other costs also includes registration fees and various homebuyer taxes. On the other hand, other recurring costs which you should also know are property tax, house insurance, and maintenance as well as cost for utilities like heat, hydro, water and sewer services.
RBC Royal Bank, Mortgages for First Time Home Buyers. Retrieved May 22, 2014.
CHMC, Buying a Home. Retrieved May 22, 2014.