While many people are making New Year’s resolutions to get healthy or take up a new hobby, making a resolution to put yourself in a better financial position & purchase a home could be the most rewarding resolution of them all! Whether you’re hoping to buy your first home, downsize to a smaller home, or you’re just ready to relocate to a new city or neighbourhood, these resolutions can help you get there.
1. Improve Your Credit Score
The sooner you take charge of your finances, the sooner you can get into an affordable new home. Your credit score affects your chances of getting a mortgage. Good credit is necessary to purchase a home, but a good credit rating doesn’t just happen overnight. Make sure to stay on top of your credit situation by checking your credit reports, fixing any mistakes you find, and most importantly paying all your bills on time.
2. Get A Clear Picture Of What You Want
Finding a home that meets both your needs and your budget can be overwhelming, especially when you have no idea where to start. You can make your home search easier and less stressful by taking the time to narrow down your options and decide what’s most important to you.
Where do you want to live? Research popular neighbourhoods and amenities to find your ideal setting. What kind of home do you want? Consider whether a single-family home is the best choice or a low-maintenance, budget-friendly townhome.
To ensure a successful home search, try to write down the information you gather in your search, including important factors that may affect your needs now and in the next five years. Do you plan on remaining at your job for the next 5-10 years? Do you think your family will grow? What do you like and dislike about your current home? You probably have many features that you consider a ‘must-have’ but, when it comes to budgeting, it’s important to break out ‘needs’ from ‘wants’. Some buyers, for example, are willing to trade a large kitchen in exchange for more bedrooms. You may also prefer a shorter commute in exchange for a smaller home.
3. Do a Mortgage Pre Approval
It’s best to start your home search by doing a pre approval with your bank or a mortgage specialist. This way, you can find out how much you can afford and what you’d be comfortable spending. This is key in making sure you can afford your home while still being able to afford things like enjoying hobbies or taking a vacation.
The majority of home buyers need to get a loan to buy a home. Take some time to learn about mortgage options, how the size of your down payment will affect your mortgage payment, and how to get the best rate and terms.
4. Save Up Your Down Payment
Your down payment will depend on the purchase price of the home, but most homeowners need a minimum down payment of 5%. If your down payment is less than 20%, however, you will need to pay for mortgage default insurance (or CMHC insurance).
The size of your down payment not only determines the amount of CMHC insurance you’ll need to pay but also affects the size of your loan and monthly mortgage payments. So in short, the more money you put down, the lower your monthly mortgage payments will be. Make it a goal to save up as much as you can to reduce your monthly payments and overall loan cost.
5. Gather Documents Necessary For A Mortgage
A mortgage pre-approval is important, but it’s different than the actual mortgage approval process. Knowing what documents you’ll need ahead of time can save you a great deal of time, plus it can reduce delays in closing.
Your bank or lender will likely request a great deal of documentation from you to speed up the approval. Be prepared with:
- Personal information such as your marital status.
- Employment information, including proof of income. Cover your bases by gathering: T4 slips, personal income tax returns, copies of your two most recent pay stubs, Notice of Assessments from the CRA for the two previous years, and a letter from your employer’s HR department with your position, length of employment, and salary.
- Self-employed individuals will need incorporation documents (when applicable), financial statements for the company for the last 2-3 years, personal income tax returns, CRA Notice of Assessments for the individual and company, General Ledger statement, Profit & Loss statement.
- Documentation of other sources of income such as rental income, part-time income, and pension income.
- A copy of the mortgage statement for your current home and the previous year’s property tax statement if you currently own a home.
- Bank account information.
- Down payment information to show where the down payment is deposited.
- List of liabilities. This includes student loans, car loans, credit card balances, monthly leases, and personal loans.
You may also need additional documentation to buy a home, depending on your unique situation.
By adopting these New Year’s resolutions, you will put yourself on the sure path to homeownership with a home you will love and comfortably afford! If you’re ready to take the next step and start your home search, reach out to us today!
Photo credits: to-do list, couple meeting lender
