Buying a home for the first time can be one of the most important decisions in one’s life. If you are planning to buy your first ever home, you must be very excited about it. Don’t get too excited, however, as the whole process of going for a mortgage and buying a home can become a daunting and frustrating task pretty fast. You only add to your frustrations if you aren’t equipped with the right knowledge about the process of buying a home.
We have tried to make your first step towards buying your beautiful new home a little easier. We are listing down some tips you can follow and ease yourself into the buying process. Read and keep these points in your mind while going for a mortgage and eventually buying a home. Here are 10 effective tips for first time home buyers for you to follow.
Financial planning and Mortgage affordability tips
- Calculate Your Budget To Check Your mortgage Affordability
Before buying a home or even applying for a mortgage, the first thing you need to look into is your budget. Having a clear idea about your affordability will make things easier.
You need to ensure that you can afford the home you want to buy. If you buy a home that’s too expensive, you may not be able to keep up with the monthly mortgage payments. Make sure you have your budget laid out before making such an important decision so as those monthly payments don’t become a burden on you in the long run.
Maxing out your budget for an expensive and important decision such as this hardly ever turn out well.
2. Track Your Credit Score And Try Making It To The Excellent Range
Your credit score is your credibility as a borrower in the eyes of a lender. Any prospective mortgage lender would request to have a look at your credit score through a credit bureau before making any lending decisions. That’s where a good credit rating is your best bet - it can make a huge difference in how favorable the mortgage and interest rates, including other mortgage terms turn out for you.
It helps open up your options regarding mortgage offers and there’s a greater chance that your mortgage and interest rates are lower and more favorable to you. Before applying for a mortgage, evaluate your credit score so you can approach a lender with a sense of clarity on the mortgage offering that you’re willing to accept.
If your credit history is not enough to get a mortgage, first take some steps to improve it to a level that qualifies you for a loan.
In Canada, the minimum credit score for a mortgage loan is 600 - for big banks and other traditional lenders, generally a minimum score in the 600-620 is needed to qualify for a mortgage.
Additionally, other criteria to qualify for a mortgage loan from big banks makes it quite a difficult task. However, if your credit score is not as good as this, you can still choose from small lenders. The options available to people with bad credit histories and scores are credit unions, trust companies and subprime lenders.
It’s still recommended that you improve your credit history to appear credible and earn the trust of a good lender.
3. Check Whether You Have The Down Payment Amount Readily Available
The down payment you make depends on the price of home you will buy. In Canada, the minimum down payment on homes worth $500,000 or less, for instance, is 5%. If you plan to buy a home you need to have the down payment amount ready and available with you.
Without securely having the down payment amount on hand, it can be difficult and problematic to apply for a mortgage on a new home – it’s a necessary part of the process. Have a saving plan in order to afford a down payment for the house you intend to buy. Once you have the amount saved up, you can select from a range of mortgage plans that suit your needs and that you can afford to pay the down payment for.
Mortgage application tips
4. Get Your Documents Ready
To avoid any last moment hassles, you may need to get all the required documents ready. To qualify for a mortgage, you will be needing to show your identity, employment status, your monthly income among other things. Make sure that you have the proper documentation for this – some of the documents you need to take with yourself may include your driving license, your latest tax returns, your social security card, bank statements, brokerage statements and marriage license (if you’re married).
Gather all these documents and make a file so that you can avoid any delays and problems on your part when applying for the mortgage.
5. Get A Pre-Approval Before Starting Looking For A Home
The first person to call when you finally decide to buy a home shouldn’t be a real estate broker but a mortgage broker or a bank. Before you start looking for your dream home, we suggest you get yourself pre-approved for the mortgage. It will increase your credibility in the eyes of the seller and will make them take you seriously as a buyer.
6. Keep Looking For The Right Mortgage
While looking for a mortgage, don't rush things. Never settle for the first mortgage offer that you see. A common mistake that first time buyers make is to rush their decision and to get stuck with a house that isn’t to their liking, due to a lack of patience and experience. Keep your eyes open for other opportunities in the market - take your time to evaluate every opportunity that comes your way and compare it different to others in terms of favorable rates and other mortgage terms before making a decision.
It may interest you to know that even a half percent difference in the mortgage rate can cause a huge difference in your total payment for the house (down and monthly payments combined). Try to look for a mortgage broker who can bargain on your behalf - they may also help you bring the best available offers to the table.
Mortgage closing tips
7. Keep Additional Expenses In Mind
Buying a home is not just limited to the down payment and monthly installments you make. It is crucial to keep the extra expenses in mind - a good rule of thumb is to keep at least 2% extra in your budget for expenses like land transfer fees, legal fees, life insurance, tax adjustments, survey certificates, repairs and moving costs. Keeping an extra amount in your budget for the sake of preparedness will help you manage these extra expenses as, when and if they come up.
8. Stop Using Your Credit Card Until You Have Finally Closed Your Deal And Got The Home
This is essential - you may not know this but the lenders might look at your credit at least two times before closing the deal.
If you keep on using your credit card, and the lender comes across any unforeseen changes that may impact your credibility, such as changes in your balance, you may end up in a lot of trouble. This may cause delays or shake the confidence of the lender at the last minute, and you may even be disqualified for the mortgage if you appear doubtful to the lender.
So be aware and keep your credit card untouched until you have closed the deal and you have the keys to your new home.
9. Don't Forget To Apply For Home Insurance
After successfully getting a mortgage and purchasing your new home, don't forget about getting your home insured. With home insurance, even if there’s a mishap or unforeseen circumstance, you can still make an insurance claim as a last resort.
10. Save Money For Timely Payments
Getting a mortgage and buying a home is not the end of the story. You will have to adjust your budget for the foreseeable future to account for monthly mortgage payments over time. Missing a payment reflects badly on your credit score, so be wary.
Moreover, you will have to pay utility bills, as home ownership comes with its own set of separate expenses. To keep everything smooth we would suggest you save up for these new expenses and save up some money for a rainy day.
We hope these helpful tips familiarize you with what goes into the home ownership and mortgage process and that you’ll make better, more informed decisions for a fruitful experience. Moreover, we recommend you to carry out thorough research about types of mortgages, interest rates and other available options before investing in home ownership.