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First Time Home Buyer's Guide
What you need to know about buying your first home
1. First Thing To-Do - Find a Mortgage Broker
Find a Mortgage Broker to work with
They work for you and not the Bank/Lender
They have access to multiple Lenders and are not limited to a single product
They are an expert in their field, focusing solely on Mortgages
Find out how much you are Pre-Approved for an determine what price point of a home you can realistically afford
2. How Much Can I Afford
A maximum of 39% of your total income can
go towards your housing costs
Includes your Mortgage Payment
Includes your Property Tax Payments
Includes your Heating Costs
Includes Strata Fees
Total Debt Cost
A maximum of 44% of your total income can go towards your housing costs AND total debt payments
Includes all housing costs
Includes all debt payments (credit cards, vehicle loans, student loans)
Percentages are based on current lending guidelines/ Credit Score and are subject to change.
Quick Mortgage Number Facts
These numbers are approximations based on current interest rates/lending guidelines and are subject to change.
Monthly Vehicle Payment
Credit Card Debt
Every $20,000 of income will service a mortgage amount of $100,000.
This is assuming you have no other debt
Every $400 monthly payment you have in debt payments cancels out $100,000 of mortgage money.
Every $14,000 you have in credit card debt will cancel out $100,000 of mortgage money.
Every $100,000 mortgage amount your payment will be approximately $425/month.
This is assuming a down payment of less than 20%.
Every $10,000 that you increase your mortgage the payment increases by approximately $42/month.
3. Down Payment - How Much Do I need?
If you have less than 20% down payment your Mortgage will be insured and have insurance premiums added to your Mortgage.
Minimum Down Payment Amount
5% down payment is the minimum required if the property is worth $500,000 or less
10% down payment is required for any amount over $500,000
Example - purchase price is $600,000
5% of $500,000 $25,000
10% of $100,000 $10,000
Total Down Payment $35,000
4. RRSP Home Buyers Plan
The Canadian Government’s Home Buyer’s Plan (HBP) allows first time home buyers to borrow up to $35,000 from your RRSP for a down payment, tax-free. If you are purchasing with someone who is also a first-time homebuyer, you can both access $35,000 from your RRSP for a combined total of $70,000. However, since the HBP is considered a loan, it must be repaid within 15 years.
In order to be eligible as a first-time homebuyer you must meeting the following criteria:
• RRSP funds you borrow must be in your account for at least 90 days prior to withdrawal
• You cannot have owned a home within the previous four years
• If you are buying with a spouse (or common law partner) who is not a first-time homebuyer, you cannot have lived in a house they owned for 4 years
• You have entered into a written agreement to buy or build a qualifying home
• You must intend to live in the home within one year of purchase as your primary residence
• If you have used the Home Buyer’s Plan before, you cannot have any outstanding balance due
• You must make the withdrawal from your RRSP within 30 days of taking title of the home
• You must be a Canadian Resident
5. First Time Home Buyer Incentive
The First-Time Home Buyer Incentive is a shared-equity Mortgage with the Government of Canada. It offers:
• 5% or 10% for a first-time buyer’s purchase of a newly constructed home
• 5% for a first-time buyer’s purchase of a resale (existing) home
• 5% for a first-time buyer’s purchase of a new or resale mobile/manufactured home
The Incentive’s shared-equity Mortgage is one where the government has a shared investment in the home. As a result, the government shares in both the upside and downside of the property value.
By obtaining the Incentive, the borrower may not have to save as much of a down payment to be able to afford the payments associated with the Mortgage. The effect of the larger down payment is a smaller Mortgage, and, ultimately, lower monthly costs.
The homebuyer will have to repay the Incentive based on the property’s fair market value at the time of repayment. If a homebuyer received a 5% Incentive, they would repay 5% of the home’s value at repayment. If a homebuyer received a 10% Incentive, they would repay 10% of the home’s value at repayment.
The homebuyer must repay the Incentive after 25 years, or when the property is sold, whichever comes first. The homebuyer can also repay the Incentive in full any time before, without a pre-payment penalty.
6. Closing Costs
In addition to your down payment how much funds will you need?
Appraisal/ Property Inspection (if more than 20% down payment)
All amounts are estimated and subject to change.
7. Items to Discuss with Your Mortgage Broker
Amortization & Length of Term
• Amortization is the length of time that your entire Mortgage will be paid in full. If you have an insured Mortgage (less than 20% down payment) the maximum amortization you can have is 25 years.
• The length of the term (generally 1-5 years) is how long the term is and you have your interest rate for. At the end of the term your Mortgage will come up for renewal.
Payment & Pre-payment Options
• You will want to have a conversation about choosing monthly, bi-weekly, weekly, or accelerated payments with your Mortgage Broker.
• Make sure you find out what the pre-payment options on your Mortgage are. Typically, they are 15-20% per year.
• Find out how frequently you can make pre-payments. Some Lenders will only allow it on the Mortgage anniversary date or once per year. Other Lenders will allow you to do it once per month.
Fixed or Variable Rate
• A fixed rate will not fluctuate throughout the term of your Mortgage
• A variable rate will fluctuate as the Prime Lending Rate changes
• This is a conversation you should have with your Mortgage Broker as there are several factors to consider and they can help determine the best option for you
Penalty to Break Your Mortgage
• 7 out of 10 people will break their Mortgage before it comes up for renewal
• 60% of Mortgages will be paid out or restricted within 3 years
• When you break your Mortgage early (before the term is up), you will have to pay a penalty to the Lender
• Not all Lenders calculate this penalty the same way
• Ensure you have a conversation with your Mortgage Broker about the details regarding the penalty if you need to break it early
8. Credit Score - Does It Impact Getting A Mortgage
Minimum Score to have an Insured Mortgage
What Impacts My Credit Score?
If you have late payments reporting on your credit bureau this will lower your credit score.
If you have collections, judgements, consumer proposals or bankruptcy.
If you have exceeded the limit on a credit card, this will lower your credit score - ideally you should aim to be at 70% of your limit.
Lenders like to see a minimum of 2 active and current trade lines (loans/ credit cards)
The longer you have a trade line, it will increase your score - tip: do not cancel that credit card you have had forever
Lenders like to see a minimum of $2,000 limit on your credit cards
Your credit score will impact whether you can qualify for a Mortgage and potentially what rate and terms a Lender will offer you.
• Always Work with A Mortgage Broker
• Make Sure You Take the Time to Get Pre-Approved
• Make Sure You Understand What You Can Afford
• Make Sure You Know the Costs You Will Need to Have to Close
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