First-Time Home Buyers: Prepare Your Finances, Always!
- November 20, 2017
- By Cody Battershill
Calgary First-Time Buyers Guide for Finances
The most common questions I get from first-time home buyers are about finances.
If you’re in the market for your very first property, here’s how you should begin preparing your finances to accomplish your real estate goals.
#1 – Decide if it’s the right time to buy
Is now a good time to buy? You may want to get your foot into the door of home ownership as soon as possible – which is great – but there are some financial factors to consider:
What do price trends look like for the product you’re interested in?
For example, dropping benchmark prices for a given type of property over an extended period of time could give you forewarning to the possibility of a continued trend going forward. This might not always be the case, but it’s something to consider.
Calgary’s residential sectors are dynamic and have benchmark price increases / decreases that may vary considerably. For example, an overall benchmark decline of 1.4 percent year-over-year may be dominated by the apartment-style product and not properly reflect a benchmark price gain of 2.0 percent over the same time frame seen in the single-family detached sector.
What kind of product are you looking at buying?
If you want a deeper understanding of past, current and forecasted price trends, ask your local real estate agent and they should be happy to assist you.
What are the current interest rates offered by lenders?
For example, last July (2017) the Bank of Canada (BoC) raised its interest rate from 0.5 to 0.75 percent. Now, it’s been raised again in September by another quarter to 1 percent.
Rising interest rates by the BoC puts upward pressure on fixed-rate mortgages, especially after successive increases.
If you’re considering a variable-rate mortgage, this moves up or down in step with the Bank of Canada and typically follows along with the general direction of the economy and monetary policy.
A slight change in interest rate may not be a deal breaker, but it’s something to consider to make sure you are comfortable with the costs over the long-term.
Is it a buyers or sellers market?
A buyers market is a wonderful time to buy real estate as there is typically less competition between prospective buyers and more inventory in the market which helps with pricing negotiations between the parties involved.
A sellers market is typically more competitive between potential buyers and is a common preceding condition for multiple offer scenarios. If there’s less inventory to choose from, buyers often have to make faster decisions.
Be prepared for all conditions and know what kind of market you’re getting into.
#2 – Prepare your credit
You will or will not be granted a loan based on your credit, job, down-payment and other financial details, therefore, it’s important to prepare your credit so that it’s in the best shape possible when seeking mortgage pre-approval.
Review your credit report & dispute any inaccuracies
Contact a company that provides credit report / scores / rating services many months before you’re thinking about buying your first home.
If you’re thinking of buying in the next year or two it’s always better to have more time and to be the most prepared - so check early. The disputing process can take a while to complete if there’s something erroneous. Better get started sooner than later if there’s anything on your credit accounts that need to be changed.
Credit reporting errors aren’t as uncommon as you’d hope for in Canada. It’s a good habit to check your credit score for inaccurate or fraudulent activities regularly.
Avoid new credit & minimize credit purchases
There’s a certain risk factor associated with opening a new credit line. Doing so up to 6 months before applying for a mortgage may negatively affect your chances of getting the amount and interest rate you hoped for from a lender.
Also, the excitement of potentially buying your first home may have you thinking about buying some things for the house well before hand. It’s best you try to keep your debt utilization ratio low before applying for a mortgage.
Debt utilization ratio is basically your total annual income before taxes divided by your total debt.
#3 – Determine what you can afford
Chances are if you’re serious about buying your first home in Calgary that you’ve been saving money for quite some while.
Down payment: CMHC Insurance?
Buying a home in Calgary without at a 20 percent down payment on the purchase price requires that you obtain insurance from the Canadian Mortgage and Housing Corporation (CMHC) or another mortgage insurer. This is required by the government.
This premium is the highest for the 5 percent down minimum, and decreases depending on the amount of your down payment. The premium fully disappears when a down payment of 20 percent or more of the purchase price is made.
Additional costs
CMHC insurance is just one of many additional costs you’ll have to consider on top of your mortgage. Other fees include:
- Legal fees
- Utilities
- Moving fees
- Home insurance
- Condo document review (condo buyers)
Other potential fees include:
- Mortgage application fees
- Mortgage life insurance
- Appraisal fees
- Land survey feeds
- GST on new homes
- Utility contract buyouts
With careful consideration and a little bit of research, you can get a reasonable estimate of how much these additional costs will total.
- Also see these 7 Tips for First Time Home Buyers in Calgary
#4 - Shop around for a mortgage
Its incredibly exciting to be buying your first home in Calgary – that’s for sure! The first mortgage specialist you talk to may be offering you a great deal without a doubt and you’ll probably be enthused about it. But just with any major purchase in life, you’ll want to shop around before making any solid decisions.
Different lenders may have different rates and fees. For example, two lenders may offer the same interest rate but one may offer better mortgage terms or additional pre-payment privileges.
Your real estate agent should have someone in mind if you need to talk to a mortgage specialist or seek pre-approval for a mortgage.
#5 - Ask questions!
Last, but not least, if you have any questions about arranging your finances before making your first home purchase in Calgary, make sure to contact an experienced real estate agent who can give you some guidance.
That’s why they are there and do what they do – to help first time buyers like yourself! Also see these 10 Questions to Ask Your REALTOR®.
For more helpful first-time home buyer guides and tips, see below:
Calgary First-Time Buyer Guides
Questions about Buying Your First Home in Calgary?
As a top-producing REMAX real estate agent in Canada (2013, 2014, 2015h) with over a decade of experience, I can guide you step-by-step through your first home buying experience while providing you with only the best in service, advice and expertise the industry has to offer.
Call me anytime at 403-370-4180 or message me below for a quick response. I am looking forward to helping you accomplish your real estate goals!
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