A First Homebuyer's Guide
Owning a home for many people is definitely a dream, but with
that dream comes numerous realities that need to be
addressed. Many experts suggest looking at a home purchase
as a lifestyle investment, not a financial investment.
Making mortgage payments indirectly forces you to save but
it can take 15 to 30 years to pay off your home before it
finally becomes a substantial asset. However, if you can see
yourself mowing the lawn on the weekend and doing home
repairs, then being a homeowner may be for you.
It is a wise idea to arrange financing before you begin
shopping for your first home. Being prequalified by a lender
will help you focus on homes you can afford as well as make
you more attractive to potential sellers. In addition to
qualifying for a mortgage, you will of course, need a down
payment. Down payments generally vary from 5 per cent to 20
percent, but down payments greater than 20 per cent will
most likely buy you a better rate. Lowering the down payment
definitely increases leverage, which is the opportunity to
make a profit using borrowed money, but it also
significantly increases your monthly payments.
New homeowners are usually quite surprised to find that the
down payment is not the only cash requirement when it comes
time to purchase that house or condo. Things like closing
costs that could include loan origination fees as well as
upfront points or prepaid interest, appraisal fees,
application fees, title searches, title insurance, surveys,
recording fees, attorney's fees and even your first months
homeowners insurance fees can all be expected. And we cannot
forget to add the previous homeowner adjustments for things
such as prepaid heating or property taxes that usually add
up to be between 3 per cent and 8 per cent of your purchase
To ensure you can afford the monthly payments on your new
home, the housing expense ratio works by comparing basic
monthly housing costs to the buyer's gross, before tax,
monthly income. Basic costs include things like insurance,
property taxes and of course, the mortgage payment itself.
Your qualifying income will be assessed on your steady cash
flow from your salary, any self-employment income, child
support or alimony payments and pensions received. On the
expenses side, monthly payments on items such as student
loans, instalment loans, and credit card balances older than
10 months are added to basic housing costs and then divided
by gross income. For a typical conventional loan, your
housing cost should not exceed 28 per cent of your monthly
The total obligations to income ratio is the percentage of
all income required to service your total monthly payments.
Buying your first home can definitely be a challenge but it
can also be a very rewarding experience.
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