1. Get Pre-Approved for a mortgage
A pre-approved mortgage gives you an edge. Before you even go house hunting, you will know your maximum mortgage amount, the interest rate and the amount of your monthly mortgage payments. A pre-approved mortgage may also put you in a stronger bargaining position when you make an offer to purchase, because the seller will know that you are a serious buyer.
2. Determine your home price range
With your financing already figured out, you can concentrate on finding the right home within your price range. There are two things to consider when determining how much you can afford to spend on a home:
3. Determine your down payment amount
You can buy a home with as little as five percent (5%) of the purchase price. However, if you have a down payment of less than twenty-five percent (25%), it will mean your mortgage must be insured by an insurer like Canada Mortgage and Housing Corporation (CMHC). The amount of your down payment will determine whether you need mortgage insurance or not. Your insurance premium will depend on the borrowing amount and the down payment amount. Premiums usually vary between 1.00 and 3.25 percent of the mortgage amount.
4. Tap into your RRSP’s
If you qualify as a first-time home buyer, you and your spouse can each use up to $20,000 from your RRSP savings towards your down payment. This money will not be included in your taxable income, as long as you repay the amount withdrawn from your RRSP’s within 15 years.
5. Be aware of additional costs
Your mortgage will cover the greater part of the purchase price of your home. However, there are other costs associated with buying a home. These are called closing costs, and they usually range between 1.5 to 3.5 percent of the total cost of your home. Here are a few examples you may incur when buying a home. These are estimates only:
Bank Appraisal Fee: $150 to $350
Home Inspection Fee: $300 to $450
Property Survey: $800 to $1,200 (if needed)
Land Transfer Tax: (1.5% of the first $250K with a graduated % thereafter) $2,000 to $4,000
Legal Fees: $1,000 to $1,500
Title Insurance: $250 to $500 (in the event no survey exists)
Home Owners Insurance (required by the bank before a mortgage is granted): $500 to $800/yr
Moving Costs (truck rentals, fuel, etc.), budget at least $1,500