how to buy a home
how to buy a home in canada
how to buy a home in nova scotia
how to buy a home privately
how to buy a home with equity
how to buy a home
how to buy a home in canada
how to buy a home in nova scotia
how to buy a home privately
how to buy a home with equity
Buying a home is the single biggest purchase most of us will make in our life time. It is also probably one of the single most important decisions we will make because where we buy a home will determine where we live and where our children may grow up. Quality of live, amenities nearby and availability of work all have to factor into our decision. How to buy a home is also complicated by where do I buy a home, how much home can I afford and what type of home do I want ?
If you are reading this you have probably found this article on line and you do not know me from Adam. You have no reason to believe what I have to say and you are wondering what I'm trying to sell you. You are probably wondering what qualifies me to give advice on how to buy a home in Canada? So first let me explain why I am qualified. I've listed and sold houses as a Realtor for 42 years. I've appraised properties for most of Canada's major banks for 40 years as a licensed appraiser and I'm on RBC's, CIBC's and Scotia Bank's list of approved real estate appraisers. I have also been a licensed mortgage broker for 30 years advising and helping many customers and small business people with their financial needs. For these reasons I have a unique perspective on the home buying process from all 3 diciplines relating to buying, valuation and financing.
There are different reasons why individuals decide to buy a home. To most it is just simply the desire to have your own place. Others want to build equity instead of paying rent. (equity is the difference between what you owe and the value of the property.) Building equity is important in your overall financial planning as the equity in your home is tax free in Canada. Over my long career I have seen many of my customers make more tax free money from the sale of their home than any of their investments. Whatever your reason once you decide you want to own a home the first step is to get pre-approved for a mortgage. Here are some things to understand about a mortgage pre-approval. When you apply the lender will check your credit and verify your income. In Canada there are two basic types of mortgages.
Conventional- uninsured. This requires a minimim of 20% down payment and you just deal with the lender.
High Ratio-insured . This requires a minimum of 5% down payment and you deal with the lender who has the loan insured by a third party like CMHC or Genworth. Here the insurer charges a premium normally 2-4% and adds it to the mortgage so there is a cost and you do pay it back in your mortgage payments. Any mortgage over 80% of value is high ratio and has to be insured as mandated by the Bank Act in Canada.
Note: In some provinces 100% high ratio-insured mortgages are available to qualified individuals. Normally through a credit union.
To qualify for a mortgage today you need a good credit score and employment. The amount you are approved for depends on your income and debt. Most lenders will usually allow a 40% gross debt service. eg $30,000 annual income x 40% = $12,000 divide by 12 = $1,000 your monthly payments can not exceed $1,000 per month.(Including other monthly payments)Depending on the interest rate you qualify for your mortgage payments will cost you 5-6 dollars per $1,000 on a 25 year mortgage before property taxes. So say worst case $100,000 would cost you $600 per month (PI Principle and interest) If the annual taxes were $1200 per year you divide that by 12 = $100 per month and add that too your mortgage payment so your monthly payment with taxes is $700 (PIT Principle Interest and Taxes)
Once you obtain your pre-approval you know how much home you can afford. Remember although you may be pre-approved you have to be comfortable with your own monthly cashflow so you now know your maximum allowed payments but don't forget the term "House Poor" Only you and your partner should decide what you can afford based on your life style and cash flow requirements.
Now does this pre-approval mean you can go out and buy any home you want ? Not nessacerily . You are approved but the lender and mortgage insurer have to approve the property you buy. You can run into problems with rural properties, mobile homes or any property with a commercial component. Each lender has different polocies in relation to what the appraiser can use in his/her evaluation. For example most lenders won't allow a barn or any out building except a garage.
Most lenders mortgage polocies are designed to finance residential properties only so if you are thinking you might want that little horse property or something where you can live and operate a small business be sure and discuss that with your lender to avoid any dissapointments or misunderstandings.
My next article will explain the next step in how to buy a home so be sure to follow my blog about how to buy a home in Canada.I built this web site to help you learn the steps to buying a home.
Happy Home Buying
Larry
how to buy a home
how to buy a home in canada
how to buy a home in nova scotia
how to buy a home privately
how to buy a home with equity
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