Purchasing your first home is an experience that brings with it a bunch of emotions: Excitement, anticipation, self-doubt, and stress, among others. It’s a major life milestone and will be, up until that point, undoubtedly your largest financial decision. So, no pressure, right?
Unfortunately, there is some pressure involved for first time home buyers. And a little bit of stress. But, with the right planning – and the proper resources – you can ensure your first home buying experience is as stress-free as possible.
With that in mind, here are four handy tips.
Determine your affordability
First and foremost – even before you fall in love with that corner condo unit or semi-detached near the good schools – you’ll want to make sure the financials make sense. After all, the joy of owning a home can quickly turn into stress if you take on more mortgage than is financially feasible and become house poor.
There are handy tools to help you answer the question “ how much mortgage can I afford.” One favourite among first time home buyers in Ontario is a mortgage affordability calculator.
Say you have a household income of $120,000. Simply plug that into a calculator (allowing it to estimate property taxes, heating costs, and condo fees. You can also input your own values as well) and let the calculator do the work for you.
According to the calculator, you would qualify for a home that costs $761,856. You can also toggle the down payment amount and mortgage rate to determine monthly costs.
With our estimate, if you were to put 20% down and qualify for the best available mortgage rate of 2.37%, your monthly mortgage would cost $2,364. Now you can create a new budget to see if that first into your financial plans.
Speak to a professional
Your first destination when deciding to buy a home might be the bank. You already have an existing relationship with them, they know your financial details, and you might even have a specific banking professional you like to work with.
That’s a great place to start.
However, you can also pick the brain of a mortgage broker – an unbiased mortgage professional who has access to dozens of lenders (which might even include your bank of choice) and who knows the industry inside out.
The best part about mortgage brokers is that their services are free – they’re compensated by the lenders that fund the mortgages for their clients. So you can rest assured that the advice you receive is given with your best interests in mind.
Mortgage brokers can also explain the process in a simple way and answer any questions you might have during the mortgage origination process.
Set aside cash for unexpected costs
When people think about the expenses involved with buying a home, their mind instantly goes to a down payment. That makes sense, as it’s the largest expense – often costing tens and upwards of hundreds of thousands in some cases.
Keep in mind, though, that there are additional expenses as well. Most experts suggest setting aside an additional 3% of the home price for closing costs. You’ll need to cover taxes, an optional home inspection, legal fees, title insurance, and an appraisal, among others.
Speak to a mortgage professional to get a better idea about how much, exactly, you need set aside. This will save the stress of having to come up with the cash at the last minute.
Compare today's top mortgage rates
Shop around for the best mortgage rate
As mentioned, buying a home is one of the biggest financial decisions of your life. And it’s expensive. That’s no secret.
However, a few minutes of your time spent researching can save you thousands over the course of your mortgage. Let’s take a look at another example.
Remember that hypothetical home you qualified for, which costs $761,856? With the best available mortgage rate of 2.37%, we determined it would cost $2,364. That same home, though, could cost 2,560 if you were to use a current competitive bank five-year fixed rate of 2.99%. That’s a savings of $196 per month and $2,352 per year. And, over the course of the five year term, that would equate to a savings of $11,760.
The bottom line
With these four simple tips you can save yourself a lot of worry when buying your first home. Of course, there will always be nerves involved with making such a large life decision, but the proper preparation will help you focus on the fun aspects and not the worrisome ones.