6 commandments for future homeowners
At last! You’re ready to buy your own home! That’s great news. What’s the next step? Getting a mortgage. Here are 6 rules that you need to keep in mind before you look at properties or discuss mortgage amounts, rates or terms.
1. What you can afford: Thou shalt be realistic
Setting a realistic amount is easier said than done. Many people find using a simulator helpful.
Our simulator looks at:
- Your household’s gross income and financial commitments1
- Your down payment
- Approximate fixed costs of your future home, including:
- Property and school taxes
- Condo fees
Of course, there are other aspects to take into consideration, such as:
- Do you plan on having children?
- Do you expect to have any new debts to pay off soon?
- Is a raise on the horizon for you?
We recommend choosing a home that costs less than the maximum you can afford. That way you’ll have a little financial flexibility if something unexpected comes up.
2. Down payment: The bigger it is, the less interest thou shalt pay
No matter what you may have heard, you always need to make a down payment. In general, it should be 20% of the price of the property. Remember: a bigger down payment results in a smaller loan, which means you’ll pay less interest.
If your down payment is between 5% and 20% of the property price, you’ll have to take out mortgage insurance from Canada Mortgage and Housing Corporation (CMHC) or Sagen. The premium ranges from 0.6% to 4.5% of the mortgage amount, depending on your down payment. This amount must be paid in full when the purchase is made, but it can be added to your mortgage loan.
3. Home start-up costs: Thou shalt make a list
All future homeowners should expect to spend at least 3% of the value of their home on basic start-up costs (not to mention all kinds of other unexpected expenses that can pop up in the first year), such as:
- Legal fees
- Home inspection fees
- Land transfer tax (called the “welcome tax” in Quebec). In Quebec, the land transfer tax on a $300,000 house comes to $2,916
- Moving, renovation and decorating costs
- Hook-up costs (electricity, cable, telephone)
- Home and yard maintenance equipment and products
- Home insurance
4. RRSPs: Thou shalt make good use of them
Do you have RRSPs? Great! The Home Buyers’ Plan (HBP) lets you withdraw up to $35,000 ($70,000 per couple) to finance the purchase of your first home.
RRSP withdrawals are usually taxable, but not under the HBP. Just like the name of the plan says, it’s a government program designed specifically to encourage home ownership.
You have 15 years to pay back the money you take out of your RRSPs. You can even take out an RRSP loan so that you can make the most of the HBP.
Talk to your mortgage advisor to find out if this strategy makes sense for you.
5. Mortgage pre-approval: Thou shalt seek it
Mortgage pre-approval, which confirms how much you can afford to borrow and your credit worthiness, is valid for 6 months. Getting pre-approved can help you determine what properties are in your price range, shows you’re serious about buying, and goes a long way toward reducing the stress that comes with making an offer. Did you know that you can get pre-approved online in just a few clicks? Log in to AccèsD, go to the Home section and select My First Home.
6. Advance preparation: Thou shalt reap its rewards
- Creating a budget
- Figuring out what you can afford
- Finding ways to save
- Choosing the property type that’s right for you
- Preparing to take out a mortgage
For more on this topic, see our guides, simulators and calculators.
Desjardins members can also check out My First Home: Log in to AccèsD and look under the Home section.
Summary: 6 strategies for buying your first home
- Include all your debts when calculating your budget.
- Save up a down payment.
- Set aside 3% of the value of your house for start-up costs.
- Talk to experts and ask them questions.
- Apply for mortgage pre-approval.
- Get started early and make sure you’re well-informed.