Buying your first home can be exciting and intimidating all at once. There’s so much to know, so much to decide. At Best Mortgages Vancouver, we take the worry out of home financing and give you the information you need to make the best move.
Get started on making your dream of home ownership come true by taking the first step. Get pre-approved today! Obtaining a pre-approved mortgage is one of the first steps towards home ownership and costs you nothing. With a pre-approved mortgage you will:
- Know how much you can afford and what your payments will be
- Lock in your interest rate at today’s rate (or lower if rates drop), guaranteed for up to 120 days
- Demonstrate that you are a serious buyer, which can help in your negotiations with sellers and their agents
Incentives for the First-Time Buyer
There are many incentives to help out the first-time buyer; from helping you come up with your down payment to saving you money on your closing costs.
Getting your down payment
A down payment is the money you put forward toward the price of a home – and is often the most challenging part of buying a home.
How Much Do You Need to Save
You could become a homeowner without any down payment at all. Of course the larger the down payment you have the better it is. Depending on the amount of your down payment, your mortgage will be classified as either conventional or high ratio.
If your down payment is less than 2o%, you may get a high ratio mortgage that must be insured against default. That means you’ll pay a one-time insurance premium to protect the lender in the event that you become unable to make payments.
While your down payment can be as low as 0%, keep in mind that the larger the down payment you make, the less your home will cost over the long term. It makes sense, then, to put down as much as you can afford to.
If you do not have enough money saved for a down payment, you may be able to to take advantage of one of the following options:
Borrowing your down payment
If you don’t have enough savings for a 5% down payment, you’re not necessarily stuck. You may use a personal loan or a line of credit for the down payment. Whatever you do, though, the money you borrow can’t be registered against the property.
If you decide to borrow your down payment, you will pay a higher insurance premium. In addition, lenders will include the borrowed down payment in calculating a mortgage that you can afford.
No Down Payment Mortgages
CMHC and the other mortgage insurers now have option that allow you to purchase a home with no money down. These programs require the borrower to have a minimum credit score and to have at least 1.5% of the purchase price available for closing costs.
In addition some Lenders also offer a No Down Payment Mortgage that requires just 1.5% of the purchase price to cover closing costs. A No Down Payment Mortgage works by the lender providing you with cash back equal to 5% of the purchase price at the time your purchase completes. This money is then used to cover your required down payment.
With these programs the lenders require you to commit to keeping your mortgage with them for at least five years and you are required to pay the banks posted rates which are generally 1 to 1.5% higher than the discounted rates we can generally negotiate for you using the other options.
The Home Buyers’ Plan—using RRSPs
Your RRSP is usually reserved for retirement, but you may be able to tap these funds to buy your first home by using the Home Buyers’ Plan. If you qualify, the plan lets you withdraw up to $20,000 tax free from your RRSP to use as a down payment. Some conditions apply:
- You must purchase your home by October 1 in the year following your RRSP withdrawal.
- You must have entered into a written agreement to buy or build a qualifying home.
- All RRSP withdrawals must be made within the same calendar year.
- To remain tax free, these funds must be repaid within 15 years. Repayments start in the second calendar year following the withdrawal.
Property Purchase Tax Exemption
The Property Transfer Tax is a provincial tax that is payable upon the purchase of real estate in British Columbia. The tax is equal to one percent on the first $200,000 in value and two percent on the balance. There currently is an exemption for first time buyers but there are a number of requirements to qualify, including:
Must be the purchase of a principal residence;
The purchaser must be a Canadian citizen or permanent resident of Canada;
The purchaser must have resided in the province of British Columbia for at least one year immediately prior to the application to register the purchase of the principal residence;
The purchaser must not have previously owned an interest in a principal residence anywhere in the world;
The fair market value of the land and improvements must not exceed $425,000 within the Capital Regional District, Greater Vancouver, Central Fraser Valley and the Fraser Valley Regional District. For other areas of the province the maximum purchase price is $425,000.
The amount borrowed must have a term of at least one year.These are major requirements, which should be reviewed with your realtor or lawyer to ensure that you qualify.
Assessing what you can afford
Taking on too much debt can really weigh you down. You need to look at the big picture when financing your home. That means tallying up your total debt load, not just the mortgage payments. In processing your mortgage application, the lenders will consider two affordability factors:
- Gross debt service ratio: Your monthly housing costs shouldn’t exceed 32% of your gross monthly income. Over and above your mortgage payments we take into account property taxes, a heating factor, ½ the condominium or strata fees and the annual site lease for leasehold property.
- Total debt service ratio: We prefer to see less than 40% of your gross monthly income going to service your debts. Those expenses include housing costs and debt, such as car loans, credit card payments, personal loans and line-of-credit payments.
- If the borrower has a credit score that exceeds a certain minimum amount the lenders will only use the Total Debt Service Ratio and will allow this ratio to go up to 44%.
What can you afford? Our mortgage qualifier calculator will help you figure out how much you should spend on your home.
Finding the Right Home
Start the Search
Once you figure out what you can afford to pay for a house and obtain a pre-qualified mortgage; you are ready to start your search. There are a variety of sources you can use to find the home that is right for you:
- Word of mouth. By telling everyone you know that you are looking for a house, you might hear about homes that are just becoming available on the market.
- Newspapers and real estate magazines. Check the new homes section in daily newspapers or look for real estate magazines available at news-stands, convenience stores and other outlets. These free publications feature pictures and brief descriptions on a variety of homes.
- The Internet. Check out real estate websites, such as www.mls.ca, for information and pictures of a wide range of properties. This site allows you to narrow your search by location, price, number of bedrooms and other features.
- “For Sale” signs. Drive around a neighbourhood that interests you and look for “For Sale” signs. This is a good way to find homes that are being sold by the owner.
- Visit new development sites. If you are looking for a newly built home, this will allow you to see the different models available and to get information from builders.
- Work with a real estate agent. For most buyers, a real estate agent is key to finding the right home. You’ll want to find someone whose attitude and availability inspire your trust. In addition you’ll want to work with a realtor who’s active in the neighbourhood that you want to live in, as they may be aware of some properties that aren’t available through the Multiple Listing Services. If you are not presently working with a realtor we would be happy to provide you with a referral to a realtor familiar with the area in which you want to buy. To speak to a Best Mortgage Vancouver Specialists click here.
Useful Tips for Your Search
- Keep records. Whether you work with a real estate agent or search by yourself, it’s a good idea to visit several different homes before choosing one. Most realtors will provide you with feature sheets on the properties you view to help you remember which properties have which features. Don’t forget to consider the home’s utility costs, property taxes and major repairs, as these will affect your monthly housing expenses. Ask to see copies of bills. You should also be ready to compromise. Chances are you won’t find a home that has everything you want.
- Think twice. Even if a home seems perfect, go back and take a closer, more critical look at it. Visit on different days and times, chat with prospective neighbours and look beyond cosmetics.
Making an Offer to Purchase
Once you have found the home you would like to purchase, you need to present the vendor with an offer to purchase the property, which is known as a Contract of Purchase and Sale. As your home is probably your biggest investment, it would be wise to work with your real estate agent and/or a lawyer/notary in preparing your offer. Remember that the Contract of Purchase and Sale is a legal document and should be carefully prepared.
Any offer or agreement will typically include:
- Your legal name, the name of the vendor and the legal civic address of the property.
- The purchase price offered.
- The chattels that will be included in the purchase price (e.g.: window coverings, appliances or a satellite dish). Whatever items in or around the home that you think are included in the sale should be specifically stated in your offer.
- The amount of deposit.
- The closing day (date you take possession of the home) — usually 30 to 60 days from the date of agreement. It can also be 90 days or longer.
- Request for a current land survey of the property.
- Date when the offer becomes null and void.
- Any other conditions that go with the offer, including property inspection and approval of mortgage financing.
The process of making an offer, receiving a counter-offer and then revising it again is not uncommon. The whole process can seem like a roller coaster ride — exciting, but stressful. It’s all part of making the deal work best for you and the seller.
When you make an Offer to Purchase, your real estate agent or your lawyer/notary will most likely add certain conditions to it, making it a conditional offer. This means that the contract will only become final when the conditions are met. The following conditions are generally standard in a Contract of Purchase and Sale, especially for first-time buyers:
- A satisfactory home inspection report
- A property appraisal
- Lender approval of mortgage financing to finance the purchase
- For strata titled properties you will ask the seller to provide you with minutes of the strata council meetings, financial statements for the strata corporation, and other documents related to the strata corporation.
Once these requirements are met, the conditions are removed and the Offer to Purchase becomes final.
As part of the Contract of Purchase and Sale the seller will generally require that you provide a deposit of between 5 and 10% of the purchase price. This deposit will generally be paid to the real estate office that your realtor works for. These monies are held in trust and will form part of the purchase price.
Finalizing your mortgage
Once your offer is accepted, contact us so that we can work with you realtor to ensure that the final approval for your mortgage is obtained in time for you to remove the financing condition from your offer.
In order to finalize your mortgage we will need to ensure that all of the following documentation has been provided to the lender:
- confirmation of your income
- confirmation of your down payment
- a copy of your contract of Purchase and Sale , a copy of the real estate listing, the Property Condition Disclosure Statement (PCDS) that was provided to you by the seller. We will generally obtain this paperwork directly from your realtor to save you the time and effort of getting it to us yourself.
As soon as the lender has received all of the required documents they will provide you with a written commitment letter that confirms that both you and the property have met all of their lending requirements. You can now remove the financing condition from your Contract of Purchase and Sale.
After all your conditions have been removed your realtor will pass onto your lawyer or notary all of the details of your purchase including providing your lawyer or notary with copies of the Contract of Purchase and Sale.
At the same time we will ensure that your lawyer or notary receives the proper mortgage instructions from the lender.
As soon as your lawyer has received the documents from your realtor and the lender they will be able to get to work on making sure that the purchase closes on the agreed to date.
The Final Steps
Taking Care Of The Moving Details
As you get closer to the moving date, you need to take care of a number of important “little things”. Getting started early means a smoother transition for your household.
- Change your address at the post office
- Notify utilities, the telephone company, employers, credit card companies, etc.
- Arrange for movers
- Make daycare arrangements in your new neighbourhood
- Take care of school registration
Before the house can formally change hands, there are still a few things to do. Here’s what to expect on or before closing day:
Your lawyer or notary will contact you about a week before the scheduled closing date to arrange a time for you to come into their office to sign all the final paperwork. Usually you would meet with the lawyer one to two days prior to the Closing Date.
You will also be asked to bring in a bank draft or money order to cover the difference between the purchase price plus your closing costs and any amount that you were required to provide as a deposit in your Contract of Purchase and Sale.
On the Closing Date
- your lawyer and the seller’s lawyer will arrange to transfer title of the property from the seller to you;
- the mortgage money will be transferred to your lawyer’s trust account, and then to the seller; and,
- your lawyer will bill you all additional expenses — land transfer taxes and any outstanding legal fees.
- Your realtor will make arrangements to get to you the keys for your new home
Congratulations you have now achieved your goal of owing your own home!