If you’re stumbling upon this article, odds are you’re looking at buying your first home. Well, congratulations from us to you!
This is an incredibly exciting and monumental time in your life! This is a thrilling time buy, and you likely have many questions you’re being plagued with, as buying your first home a huge decision. There are plenty of items you will need to get in order before you make such a significant investment – lucky for you, this article was written with you, the first-time homebuyer, in mind! We are here to help guide you!
Here are some important elements to consider:
The bringer of good news: First-Time Home Buyer Incentive
If you haven’t heard, the Canada Mortgage and Housing Corporation has some good news for you! They are offering First Time Home Buyers a very valuable incentive: a shared-equity mortgage with the Government of Canada. This means that the Government of Canada wants to help you buy a house by lending you a portion of the down payment. According to their website, this incentive offers:
- 5 or 10% for a first-time buyer’s purchase of a newly constructed home
- 5% for a first-time buyer’s purchase of a resale (existing) home
- 5% for a first-time buyer’s purchase of a new or resale mobile/manufactured home
The Incentive’s shared-equity mortgage means that both you and the government have a shared investment in the home. That means you can put down more on a house, which can mean either smaller mortgage payments or a more valuable house!
Adulting means accountability: When will I have to pay the Incentive back?
As with any loan, you will of course need to repay the Incentive. The repayment amount is based on the percentage of market value at the time of repayment. If you borrowed 5% of the value of your home when you purchase it, you will pay back 5% of the value when you sell it. The loan is due in 25 years, or when you sell your property – whichever comes first. If you are in a position to pay the incentive back in full before either of these times, you can do so without a prepayment penalty.
What’s your budget?
The most important element to consider before you purchase a home is your budget. This is a bit of a loaded question to ask yourself because there are a few different things that will determine exactly what your budget should be. Let’s take a deeper look.
Knowing your costs: How much is my down payment?
Your down payment is the funds required to put down as part of the purchase price of your home. All mortgages in Canada require some cash down. If a down payment is 20% of the purchase price or more, this is called a conventional mortgage. If the down payment is less than 20%, the buyer will require mortgage default insurance provided by institutions such as the Canadian Housing Mortgage Corporation (CMHC) or Genworth Financial. The insurance is purchased by the buyer and protects the lender in the event of default. The premium gets included in your mortgage loan and you pay it off over the course of your mortgage.
If your first home costs less than $500,000, a conventional mortgage requires a downpayment of $100,000. However, if you purchase default insurance, you could put down as little as 5% or $25,000.
The Star of the Show: Pre-approval
If you are buying your first home, you are probably spending a lot of time looking at online listings and pinning dreamy decor to your “First Home” Pinterest board. We get it, these things are some of the most exciting parts leading up to buying! But the truth is that you should be taking your first step in a lender’s office. Your REALTOR® will want to confirm you are preapproved to ensure that they are showing you properties that make sense for you!
Work with a Mortgage Professional
You can seek a pre-approval with any financial institution. We recommend seeing a mortgage broker because they find the right lender for your situation. For a pre-approval, be prepared to rustle up these items: proof of assets, income, a nice-looking credit bureau (okay the lender gets this for you), confirmation of employment, and a few other a la carte documents. Pre-approval gives you the confidence to shop within your budget! While we all love to look at dreamy homes, it’s important to be realistic when it comes to seriously looking into purchasing your home. Having a pre-approval will allow you to start looking at the market within your budget; once you know the maximum amount you can borrow, you can start to get a feel for what your first home will look like!
Professionals: they are here to help you!
The Internet is loaded with resources for first-time homebuyers, so much so that it can be overwhelming; information overload is a real thing! You should be consulting with professionals to understand where to begin and how the process will work for you.
Your Real Estate Team
A Real Estate transaction is a complex purchase that involves a legal contract. As great as Google is at solving your everyday qualms, we encourage you to leave it up to some real professionals in your corner. Beyond the highly valuable services of a mortgage broker, we highly recommend the professionalism and expertise of a REALTOR®. Not only can they help with market knowledge, but they can all help navigate and negotiate, which often turns out to be quite an emotional affair!
Your certified Home Inspector
We also recommend that you rely on a certified Home Inspector and include an inspection condition in your offer. A home inspection can help identify some potential issues with a property and many inspectors will offer a little crash course on regular home maintenance.
Lastly, you will need to have a lawyer represent you in the transaction. Alberta Real Estate Law requires a solicitor to handle land transfers, that is to say, purchasing or selling a piece of real property. Brining a lawyer along with you for the home buying journey will save you a lot of unnecessary confusion. The lawyer’s job is to be alongside you for the stressful and sometimes overwhelming parts of buying. They will review contracts and prepare mortgage documents from your bank or lender, they will also handle the Land Titles Office. You must understand the ins and outs of the eventual transaction; your lawyer will work closely with you, your real estate professional, and your mortgage broker to verify every single document involved in your transaction is legal and binding.
So now that we’ve added ourselves to the list of Google resources, we’re sure that you’ve got lots of information to ponder. But, if you take anything from this article, let it be the First Time Home Buyers Incentive and PRE-APPROVAL! These are two critical pieces for you to take forward with you in your home buying journey. Good luck, stay involved, and of course, enjoy the process!