Getting ready to search for a house? This is bound to be an exciting time for you. However, as more Canadians are preparing to enter the market, there are some reminders you should follow before you jump right in. The logical first step might seem like looking at homes and finding one that is perfect for you. Well, you need to do some slightly more tedious tasks before you reach that fun step of the journey. While these jobs aren’t as exciting, they’re just as important. Here are five big things to do before you go on the house hunt.
Get pre-qualified for a mortgage
If you’ve been following our blog for a while, you likely already know the benefits of being pre-qualified. In short, a pre-qualification is a tentative estimate from a lender of how much you could qualify for in mortgage funding, based on your financial situation at the time. A lender looks at some of your information, including your income and debts, and provides you with this estimate. This isn’t a promise of mortgage funding, as it’s simply based on your present situation. If your situation changes, your funding may change too. However, this step means a lender already has much of your information before you search for a house. As long as your situation remains unchanged, getting mortgage financing shouldn’t be too complicated. Pre-qualifications allow you to know what funding you may receive, and how that will impact your budget, so you’re not left in the dark during your search.
Decide on your budget
Of course, buying a home requires you to know how much you can afford to spend on it. There’s no point looking for homes if you don’t know your budget, since homes can vary hugely in prices. Wouldn’t you rather have a specific range so you don’t waste time looking at homes you can’t have? Your budget will include the housing price itself, but you should also consider things like closing costs, property taxes, and utility payments. Plus, all mortgages come with interest. This means you’ll have to pay extra on top of your home’s purchase price, so you need to prepare yourself for those costs.
Know your credit score
You don’t need the best credit score in history to secure a mortgage. However, it helps to have a credit score in the “Good” category, which is often 650 and above. A good credit score can help you secure the best interest rates, because it shows you are responsible with payments and will be considered a lower risk to a lender. It’s important to know your credit score before you search for a house, so you can anticipate if you will need to make any changes. You can also read up on improving your credit score for homeownership here.
Choose your down payment
Your down payment will be your biggest upfront cost of buying a home. It must be at least five per cent of your home’s purchase price, and at least 20 per cent to avoid mortgage default insurance. This means even the lowest down payment option will still be a big expense. Before you go house hunting, you should know what your down payment will be. Think about where this funding comes from – have you been saving yourself, or do you plan on accepting a gifted down payment? Will you be taking advantage of the First-Time Home Buyer Incentive? These are important questions to ask yourself.
Different down payment sizes, and partaking in government programs, may come with extra fees or higher interest rates, which you should be aware of ahead of time. Your down payment will also influence your budget. For example, say you have $40,000 you plan to use for a down payment. This places your budget between $200,000 and $800,000 depending on how much of your home’s price the down payment will cover.
Get in touch with a broker
Of course, no mortgage journey is complete without a mortgage broker. Brokers guide you through the home buying process from start to finish. They advise you on budgets, get you in touch with lenders, and help you with paperwork. Brokers are unbiased in the lenders they recommend and the products they suggest, so they can help you secure what’s best for you.
Buying a home is a thrilling experience, but you need to walk before you can run on this journey. Following these steps before you search for a house is a great way to ensure you’ll be in good shape when the time comes to go house hunting and start putting in offers. If you have questions about securing a mortgage or buying a home, get in touch with me!