First Time Home Buyers - Part 1

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How Much Can I Afford?

Getting pre-approved for a mortgage will get your home buying off to a fantastic start. Just ask us and we would be more than happy to give you the names of some great mortgage brokers. You may also use one of the many online calculators to help you figure out how much home you can buy. Check your bank website, in the mortgages section, for their calculator. Also, you can check the calculators on www.cmhc.ca, which can help you start to understand an affordable range for your house shopping. Lenders use two important ratios to determine how much home you can afford. These are your Gross Debt Service (GDS) ratio and Total Debt Service (TDS) ratio. GDS is your monthly mortgage payment, property taxes, and heating costs divided by your gross monthly income. It should not exceed 32%. TDS is your entire monthly debt payments (homeownership costs plus credit card payments, loan payments, and other debts) divided by gross monthly income. It should not exceed 40%.

How Does a Real Estate Agent Help?

A real estate agent will help you find a home best suited to fit your needs. When you enlist the help of an expert REALTOR®, you're not just gaining support to buy or sell a house – you're gaining an ally who'll help you make the most out of your home. REALTORS® can guide you through every step of the process, explain the current market, help navigate complex paperwork and offer invaluable advice. When you're ready to make a move, get a REALTOR®.

What are Closing Costs?

Closing cost are the additional expenses that come due when you complete the purchase of your home. They include Lawyers Fees, Land Transfer Fees, and Disbursements. When you buy a home you need to hire a lawyer to complete a title search (to make sure there are no outstanding liens against the property and that the vendor actually owns the property), ensure documentation has been completed properly, register your mortgage and register you as the new owner of the property. Most provinces charge a fee for documenting an ownership change for real estate. Disbursements are expenses that the seller has paid in advance, such as property taxes and utilities. You reimburse the seller for these pre-paid expenses. The amount of closing costs will vary depending on where you live and the kind of home you purchase.

What are the Best Mortgage Options?

When choosing your mortgage you will need to choose between a variable and a fixed rate mortgage. The options that are right for you will depend on your situation and your personal preferences. Variable rate mortgages have an interest rate that fluctuates with your bank's prime rate. In time of declining interest rates or stable low interest rates, a variable rate is usually the most inexpensive. With a variable rate mortgage, the payment you make is fixed, however, if interest rates rise, more of your payment is applied towards paying interest. When interest rates decrease, more of your payment is applied to the principal. A fixed rate mortgage has an interest rate that does not change during the term of the mortgage contract. Even if interest rates rise or fall, the interest rate you pay does not change. You are protected if interest rates rise. There are many other mortgage options available such as payment frequency, additional payments, length of term, etc. We will discuss these in a future article. The most important choice for first time home buyers is between a variable rate mortgage and fixed rate mortgage.


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