Owning a home is so much more than just the purchase process. The journey to homeownership is a series of small, very important steps. These small actions may range from ensuring you have good credit to saving for down payments and eventually securing a mortgage.
For most of us, owning a home will be the biggest investment of our lives and most of us may need a loan to finance the process. This means for you to own a home you will need good credit, a stable job and enough cash to finance the down payment.
Navigating through the buying process can be overwhelming, but you can make the process go smoothly by informing yourself from the outset on the steps to finding a home that meets your needs and is within budget. Below are some factors that will help you put it all into perspective.
Consider Your Lifestyle
The home you plan to buy should be compatible with your way of life. Consider the distance to your job, access to social amenities and the feel of neighbourhood. These things will greatly affect the way you live.
Your marital status will also influence the type of neighbourhood you want to live in. If you are single (and ready to mingle!), amenities that expose you to new people such as restaurants and coffee shops may be high on your priority list. For individuals who have families or are planning to have children, availability of schools, playgrounds, kids' activities and the safety of the area are all things you’ll want to consider before making your decision.
The layout of your home should reflect your lifestyle. For instance, if you are a handyman you may want a home that has enough space in the basement or garage to store your tools. Alternatively, if you like to entertain, you may want to have a large dinning area, bonus room or outdoor space where your friends and family can gather.
Assess your lifestyle now and in a few years to come. Will it remain the same? Defining your needs beforehand will help you get the type of house that meets your needs.
Make A List Of Wants And Needs
Before you start your search for your perfect home, take a few minutes to develop a list of wants and needs. It is important to separate luxuries from necessities. This will help you prioritize your search - your home must first meet the basic practical needs before indulging in wants.
To get you started, envision the features that must be present in your new home. List the number of bedrooms and bathrooms you need, type of kitchen, garage, and yard layout. These are the components of a home that you should not compromise on.
Next, write down the things you'd like and that make your life comfortable, in order of priority. The house that you choose should meet most of your wants, but be realistic and create room for compromise. Don't forget to carry the list with you during your house hunting.
Many people live from paycheque to paycheque and thus cannot sustain owning a home. If you are one of these people, a good budget plan is necessary.
Start by listing down all your sources of income for every month. Next, list all your household expenses. This way you will be able to know where your money goes to and where you can cut back. You will also be able to determine your surplus and how much can go into savings.
Figure out the average costs of owning a home and make sure your budget has room for these expenses. If you need further help in planning a budget to prepare for homeownership, this online budgeting tool is a great resource.
Save For Down The Payment
Saving money isn't always easy, especially when it involves thousands of dollars. But if you are planning to purchase a house, saving for down payment is a must. To make it less overwhelming, break it down into small achievable actions. With a few cutbacks, you may find yourself in a position of buying a house sooner than you think!
The amount you put down determines your mortgage plan. Although you are only required to put down a minimum of 5% of the home price, it is best practice to put down at least 20% to avoid the additional cost of mortgage insurance. It will make your approval process easier and your month payments smaller.
So how do you get to save for down payment? Create some room in your budget to ensure that you have some surplus that you can turn into savings. You might consider a part-time job for an additional source of income or cut back on unnecessary expenses. You can set up a regular automatic savings plan too; this way money will be deposited into your savings account automatically before you can spend it on something you may not need right now.
First-time home buyers also have another option: the Home Buyer's Plan, which allows you to use your RRSP's as a down payment without paying additional taxes on what you withdraw.
What we're saying here is that coming up with your down payment isn't as scary as you may think; there are a lot of options out there!
The Mortgage Process
When you apply for a mortgage, you're applying for a loan to purchase an asset. The key thing to keep in mind during the mortgage process is that a pre-qualification is different from pre-approval. While a pre-qualification will give you an approximate amount of how much money you can borrow, it's only a stepping stone. Your final approval could be a very different number.
The other difference? You don't actually need a pre-qualification. You can skip it and go straight to a mortgage pre-approval. A pre-approval proves that you have the necessary resources to help you secure a purchase.
One thing we would recommend before you start the approval process - check your credit. You can pull your report from Equifax and/or TransUnion and check for anything that needs to be cleaned up. Working on your credit right away will only put you in that much better of a position when it comes to actually getting your pre-approval.
To get pre-approved, you'll need to provide the lender with supporting documents that show your credit history, tax returns, debt-to-income ratio, and income. A pre-approval helps speed up the loan approval process. Final loan approval will occur when you have been appraised and the credit applied for is attached to a particular property.
When working with a new home builder, your service representative is a great resource in this process. No matter what your questions, there's a 99% chance they've heard it before and have answers for you. Plus, they can give you recommendations on a good mortgage specialist.
The best way to find your ideal home is to arm yourself with as much information as you can ahead of time. By having a clear understanding of your lifestyle, your wants and needs, how to budget and how to get approved for a mortgage, you have already started down the path to discovering the right home for you. Above all else, keep your end goal in mind and you’ll find your dream home faster than you think.