Being a first-time homebuyer can feel stressful because you’ve got so much to consider surrounding that big “M” word. After all, buying a home is one of the biggest purchases you’ll ever make. (No pressure.)
However, 72% of Canadians aren’t working to improve their credit score before applying for a mortgage and 61% aren’t taking steps to reduce their debt, according to a 2018 survey conducted by TD Bank.
This is why it’s important to better understand your full financial commitment upfront. Instead of turning to Google, you can make it your goal to learn about Canada’s new mortgage rules, the ongoing commitment of home ownership, and the monetary commitment you will have to make.
Educating yourself about home ownership will help you make an informed decision about the mortgage that you would choose for your home purchase. With that in mind, here are four things you should consider before getting your first mortgage.
Examine your lifestyle (and be honest)
Regardless of whether you’re dedicated to saving or someone who couldn’t live without brunch every weekend, it’s vital to consider your priorities and get honest about what you just can’t live without, and how your mortgage payments and ongoing home expenses could impact your quality of life.
Smart prioritizing and budgeting will reduce the number of financial sacrifices you’ll need to make.
You can always test drive what it would be like to have a mortgage by putting aside what you anticipate your mortgage payments could be each month. This will help you see whether your budget is sustainable.
Consider the overall cost of home ownership
It’s easy to focus on your down payment and feel like you’re in control once you have that together. But from closing costs and land transfer fees to ongoing property taxes and everyday maintenance costs, the price of home ownership is a lot more than your down payment and monthly mortgage payments.
Calculating the amount, you’re spending each month on utilities, any insurance, loans, groceries, entertainment and your phone bill, will help you discover what you can comfortably afford when other costs are taken into consideration.
You can use the TD Mortgage Affordability Calculator to help determine how much you can afford to buy a house for based on variables such as your income and existing debts as well as other monthly expenses.
Always plan for the unexpected
Nobody knows what the future will bring, that’s why it’s key to plan for and consider the unexpected as much as possible. Maintaining a financial buffer of at least three to six months will help you to do this.
Also, take the time to understand the types of mortgages available so you can make an informed decision about the one that best suits your needs.
There are two main types of mortgage rates: fixed rate and variable rate. With fixed rate mortgages, your interest rate stays the same until you’re ready to renew; with variable rate mortgages, the rate can change at any time throughout the term of your mortgage. And remember; if you choose a variable rate mortgage and rates start to go up, you may have the option to convert into a fixed rate.
Having a mortgage pre-approval is key
When you’re starting to shop for your home, having a mortgage pre-approval in-hand is helpful.
If you’re pre-approved for a mortgage, you have a clearer picture of the home you can afford and what you’ll pay each month.
At TD, you don’t have to go into the bank or make an appointment to apply for mortgage pre-approval because you can apply anywhere, anytime with the TD Online Pre-Approval Tool. It takes as little as five minutes to complete, so you can even apply during your break at work and get a response in as little as five minutes.
We know there are a lot of things to keep in mind when buying your first home, so you can always contact a TD mortgage specialist to discuss the costs of home ownership and mortgage options available to you.