Tip # 1 – Shop around for your mortgage and consider using a broker
You spent all this time shopping around for the perfect home — you should do the same for your mortgage rate! Do yourself a favour and visit multiple banks, websites, and compare mortgage rates. Even a half percent could save you thousands in interest charges over the life of your mortgage and has an impact on your mortgage payments.
Consider using a mortgage broker who can negotiate rates on your behalf. They are becoming increasingly popular in Canada due to their ability to access different lenders. They can even negotiate discounts with the big banks.
A broker is even more appealing when you consider that they are compensated by the lender. You don’t end up paying anything for their services in most cases.
Tip #2 – Create two lists: ‘must-haves’ and ‘would-be-nice’
Having a ‘must-haves’ and ‘would-be-nice’ list will help you narrow down your dream home search, and stay focused during the buying experience.
For each home you view, bring a copy of your lists (or keep it in your phone) and check off the criteria it meets as you walk through.
As you’re considering your options, refer back to these lists — you’ll be happy you took notes. It’s easy to be swooned over a beautiful home that may not check off all your must-have boxes.
Focusing on those ‘must-haves’ will help ensure you end up in a home that meets your most important needs.
Tip #3 – Consider the minimum amount you’ll need for a down payment based on the purchase price
Did you know the minimum amount you’re required to pay on a down payment is dependent on the purchase price of the home?
If the home is less than $500,000, you’re required to put down 5% of the purchase price
If the home is between $500,000 and $999,999, you’re required to pay 5% of the first 500k, then 10% for any portion above 500k.
If the home is worth over 1 million, you must put down 20% of the purchase price.
If you’re self-employed or have a poor credit history, you may be required to provide a larger down payment.
In most instances, the down payment must come from your own funds, and if you’re self-employed or have poor financial standing, you may be required to provide a larger down payment.
Tip #4 – Factor in the cost of Mortgage Default Insurance if your down payment is between 5%-19.99%
Mortgage default insurance, also referred to as CMHC insurance is mandatory across Canada for down payments that are less than 20%.
It is in place to protect lenders in the event that you default on your loan.
It costs anywhere between 2-4%. It allows those who would not under other circumstances be able to save for a 20% down payment enter the market. Without it, we could see higher interest rates as the banks assume more risk.
On a $500,000 house with a 5% down payment of $25,000, you will end up paying $19,000 in mortgage insurance across a 25 year amortization period.
Tip #5 – Research all of the buyer’s programs available to you as a first-time home buyer
As a first-time home buyer, it’s important to familiarize yourself with programs available to you that will help you save money in the long run.
Here are a few programs/rebates to look into:
1. Land Transfer Tax Rebate offers a maximum rebate of $4000 on the purchase of a home in Ontario for all first-time home buyers. If your spouse has previously purchased a home, but you haven’t you still qualify for 50% of the rebate.
2. RRSP Home Buyer’s Plan allows you to borrow up to $25,000 tax from your RRSP to fund a down payment. Note the money must be in your RRSP account for at least 90 days prior to purchase to quality
3. The Home Buyer’s Tax Credit can offer a rebate of up to $750 for all first-time buyers. It must be filed on your personal tax return within a year of the purchase.
Talk to your mortgage broker about other programs and rebates that may be available to you.