Buying a home for the very first time can be both very daunting and stressful. The investment and expense can be significant and for many people it is the biggest financial single investment most of you will make in your lifetime.
Careful financial planning and preparation is the best way to make the process a lot more painless and ensure your success in securing a Vancouver home mortgage.
Advantages of Home Ownership
The first advantage of owning a home is that you won’t be flushing all that rent money away. Although housing prices do fluctuate they do not do so anywhere near as drastically as the whacky world of the stock market.
With stock market investments, you can expect the Feds to grab up to half the money you make. With a home purchase however, as you make money through a combination of appreciating house prices and by building equity, the profit you make is all yours to keep.
You can also increase the potential profit on your home by completing some quality home renovations. Some renovations such as updating your kitchen and modernizing your bathrooms actually give you a very decent ROI (Return on your Investment).
Another advantage is that is you can also borrow against the equity that you have built in your home such as through a second mortgage or through a reverse mortgage such as CHIP (Canada Home Income Plan).
The money you borrow can be used in a variety of ways such as paying for your kids’ college tuition or taking that dream trip you always wanted.
The bottom line is that investing in a home is a good investment as it provides you with a number of advantages that wouldn’t be available to your otherwise.
Preparation Tips for a First Time Home Buyer
The most pressing consideration about buying a new home is how comfortable you are in taking on the financial responsibility. You want to feel comfortable having long term employment prospects and whether you would be able to cope if you or your partner lost your job.
You can use a mortgage calculator to help you look at a variety of scenarios. A calculator will give you an idea of the how long a term or amortization you will need as it compares to your down payment. It will also help you with budgeting.
Most creditors look at what is known as your “debts service ratio” which is how much of your income would be used to towards all your household debts such as a mortgage payment, property taxes, utilities and other personal debts. The maximum amount accepted by most lenders comes in around 32%.
Your next big consideration is the amount of your down payment. If you have less than 20% of your available savings to use for a down payment then you will also have to obtain mortgage insurance such as through CMHC (Canada Housing and Mortgage Corporation). This is an additional cost on top of you mortgage payment.
You also have to keep in mind the amount of closing costs involved in going through the mortgage process. Closing costs entail legal fees, appraisals, a home inspector and other costs which can work out to about 1% to as high as 2 1/2 & of the purchase price on your new home.
Ready for Your First Home?
Although you might be tempted to simply go through your bank, this can may not as advantageous as you think. You may not be approved or you may not be getting the best rates. A mortgage broker such as myself has access to dozens of lenders and we can walk you through the process and make it a lot less stressful. We may even find you better mortgage rates which can save you a ton of money over the life of your mortgage.