Thinking of buying while interest rates are still low? Follow these tips to ensure that your finances are ready for a long-term investment.
1) Give Your Down Payment Some Serious Thought
The first steps to finding your dream home begin at the bank. Home hunters are encouraged to save a minimum down payment of 20 percent in order to avoid costly mortgage loan insurance. If you’re having trouble squirrelling the cash away, consider deferring your purchase. First time home buyers are also encouraged to look at alternative financing options, like withdrawing from an RRSP account under the “home buyers plan.”
2) Get a Mortgage Pre-Approval
The next step involves a call to your mortgage broker. A mortgage pre-approval will provide you with a clear understanding of how much financing you can actually qualify for. This process will involve pulling your credit rating and verifying your income. Once approved, you’ll have the confidence to put in an offer without fear that your financing could fall through.
3) Know Your Numbers
Every financial institution has different rule and ratios when it comes to granting credit. And remember – just because they’re willing to lend you an astronomical amount, doesn’t necessarily mean it’s a good idea to take the bank up on the offer. Work with your mortgage broker to ensure you lock in a rate and amount that you can actually afford – without compromising your lifestyle.
4) Consider the Worst Possible Scenario
Ultra low interest rates have made it easy to secure a best rate mortgage in Canada. But what happens when the rates go up? Before you sign on the dotted line, ask your mortgage broker to crunch numbers corresponding to a 2 or 3 percent hike, If you can’t afford your payments under these scenarios, you may want to reconsider how much risk you’re willing to take on.
5) Consider a Fixer-Upper
Can’t afford your dream home in the perfect neighbourhood? Well, what about the slightly dated property next door? A little sweat equity could turn that fixer-upper into a fantastic investment.
6) Don’t Let a Bidding War Baffle You
Bidding wars are a common side effect of a hot market, so beware. With homes going for thousands of dollars over the asking price, you could be setting yourself up for a foolish investment. If you find yourself in a bidding war, be sure to consult with your mortgage broker. You don’t want to make a firm offer until you’re sure your financing can handle it.
7) Who’s Name is on the Deed?
If you’re buying a property with another person, including a spouse, take the time to consult with a legal professional as to ownership rights. It might make sense to put the home in only one of your names.
8) Get Insured
Would your family be able to manage mortgage payments if something were to happen to you? If your family relies on your income, now’s the time to lock in life insurance. This is usually an option when you sign up for a best rate mortgage, but it doesn’t hurt to consider talking directly with your insurance agent first. The right plan will provide you flexibility for your future needs.
9) Stick to a Payment Plan
How long do you want to be locked into your mortgage? Five, ten, twenty years? Remember: the longer you amortize your payments for, the more interest you’ll end up paying. Pay of your mortgage sooner by increasing the frequency of your payments from monthly to bi-weekly or weekly.
10) Don’t Stop Saving
Just because you’ve managed to save enough money for a down payment doesn’t mean you’re days of saving are done. Work within your budget to ensure that you can still manage to put a few bucks aside every week for emergency purposes. It’s always a good idea to stash away some of extra cash for the unexpected upkeep that comes with owning a home.