Your First Time Homebuyer Mortgage Guide

Buying your first home is such an exciting time but there's so much a person doesn't know with their first home purchase and the mortgage process that goes along with it. In this guide we'll share what is important to know when it comes to getting your first mortgage.

What to do before applying for a mortgage...

If you are thinking you'll want to buy a home in the next year, there are a few things you can do to set yourself up for success.

1. Focus on Credit. You can improve your credit score by paying off any collections along with making sure that all monthly payments are made on time and for the amount that was supposed to be paid. Lenders like to see no late payments or credit issues at all, but if that's not possible, a full year of clean history helps.

2. Save your Down Payment. In order to purchase your first home you'll need 5% of the purchase price for the down payment (or slightly higher if buying over $500,000). It is best to have the money set aside either in a first time homebuyers account or a separate bank account so that it is easy to track.

3. Limit Debt. The less debt you have the higher the mortgage amount you'll qualify for! The government sets maximum debt percentages allowed for mortgages so it's important to keep debt low and not take on any new debt if you're thinking of buying in the next year.

4. Get a pre-approval. This can be done 4 months-1 year before buying. In a pre-approval our team will go through your entire file looking at income, debt, and credit. We will analyze this information and let you know what purchase price you can buy at based on the government guidelines and anything that should be fixed before buying.

What are the maximum debt percentages when buying?

There are two important numbers when it comes to qualifying for a mortgage. Your TDS and your GDS. Your GDS is the total proposed monthly house expenses (mortgage payment, taxes, and heat) divided by your monthly income. The maximum percentage is 39%. Your TDS is your total monthly debt payments (line of credit, vehicle payments, credit card payments + GDS expenses) divided by monthly income. The maximum percentage is 44%.

How does a mortgage work?

A mortgage is when a lender loans you the money to purchase your house and you pay them back over a set period of time. For first time homebuyers they can choose a 25 year mortgage or a 30 year mortgage. This is the total amount of time to repay the mortgage to $0 and is called amortization. The mortgage also has a term where your rate is set for a smaller period of time. Mortgage terms are generally 3-5 years long. If the mortgage is broken (you sell your house or refinance prior to the term being up) there will be a mortgage penalty.

Different mortgage payment types

When getting a mortgage there are fixed rate mortgages and variable rate mortgages. A fixed rate locks in a rate for the entire term. Fixed rates mortgages are considered less risky as they allow for budgeting and no change to the mortgage for x amount of years. A variable rate mortgage is based on the Bank of Canada prime rate which can change up to 8 times per year. Due to a variable rate potentially changing over the years a variable rate mortgage is often seen as riskier.

Questions to ask when getting your first mortgage...

• If I sell my house what happens to my mortgage?

• How much are mortgage penalties?

• How do I put extra money on my mortgage?

• What happens at the end of my mortgage term?

Now that you know what a mortgage is and what questions to ask when getting your first mortgage the next step is to call our team! Gert Martens Mortgage Team has helped fund over $1 billion dollars worth of mortgages. We have extensive experience helping first time home buyers maneuver their first mortgage. To get the process started contact our team for a pre-approval today!