Ready to Take the Plunge? 7 Signs You’re Ready to Buy Your First Home
Buying your first home is an exciting time. Maybe you’ve lived with your parents up until this point, or perhaps you have been renting and patiently waiting to enter the real estate market. Whichever it is, you should ensure you are truly ready to take on the responsibility of homeownership before taking the plunge. Here are the signs that you’re ready to buy your first home, with confidence:
Sign 1: You Have a Stable Income
Income stability is important when you take on a mortgage. This stability impacts getting approved to purchase a home in the short-term, as well as paying for the home in the long-term. Your lender will look at your employment history and salary to determine if you are a good candidate for a mortgage and how much of a loan you qualify for. Taking on debt that is inherent with homeownership comes with great responsibility.
Sign 2: You Have Good Credit
A credit score is a measure of your financial health. Having a good credit score means you will receive a better mortgage rate because you are a less risky client for the financial institution lending you the money. A good credit score allows you to borrow from a prime lender, like major banks. A poor credit score could force you to go with a private lender or a financial institution that caters to those with poor credit. Both of these lenders charge 2-15% more than prime lenders, which will cost you a lot of money over your amortization period.
Sign 3: You Have a Healthy Down Payment
The more down payment you can put down on your home the better. A larger down payment means you can pay off your mortgage faster, or you can select to make your monthly payments lower to give you more flexibility with your cash flow.
Example 1 - $500,000 Home Purchase with 20% Down
You are buying a home for $500,000 with a 20% down payment of $100,000. You select a 5-year fixed closed mortgage term with an interest rate of 2.99%. You opt for a monthly payment over a 25-year amortization period. Based on these figures, your monthly payment would be $1,891 (without optional creditor insurance). Over the 25-year amortization period, you would pay $167,279 in interest.
Example 2 - $500,000 Home Purchase with 50% Down
You are buying a home for $500,000 with a 50% down payment of $250,000. You select a 5-year fixed closed mortgage term with an interest rate of 2.99%. You opt for a monthly payment over a 25-year amortization period. Based on these figures, your monthly payment would be $1,182 (without optional creditor insurance). We top up your monthly payment by $709 to bring it to $1,891 (same amount in Example 1). Over the 25-year amortization period, you would pay $53,220 in interest and in year 13 you would be mortgage free.
In these examples, by putting down a 50% down payment versus a 20% down payment, you can save 68% on interest by only putting down 30% more. You are also mortgage free in 13 years versus 25 years.
Of course, saving hundreds of thousands of dollars for a down payment is difficult to do. The point of the examples is to illustrate that a greater down payment saves you a lot of money in interest long term.
Sign 4: You Have Savings
Beyond having a stable income, you want to have a healthy amount in your savings account. This is important to have for home repairs, insurance, property taxes, and all the other things that come with being a homeowner. Living paycheck to paycheck is a recipe for disaster as a homeowner. The general rule of thumb is to have three months worth of wages as a security fund. Three months would allow you time to find a new job and apply for employment insurance while keeping your life afloat.
Sign 5: You Know About the First-Time Home Buyer Incentive
You only get to be a first-time home buyer once! The Canadian Government through the Canadian Mortgage and Housing Corporation offers a shared equity mortgage for first-time home buyers. The incentive allows first-time home buyers an opportunity to break into the real estate market with some financial help. These buyers can receive a loan of 5% or 10% toward their home value, which should ease some of their financial strain. Read The 5 W’s of the New First-Time Home Buyer Incentive for more information.
Sign 6: You are Happy with Your Co-Owner
If you are purchasing a home with a co-owner, it is important you are both on the same page about the home purchase. This can include location, price, mortgage details, repair budget, etc. You also need to be confident that this person will be sticking around for 3-5 years while you own the home, especially if you are purchasing this home under the assumption you will always have two incomes. If you can’t afford the mortgage on your own if you and the co-owner part ways, you will likely need to sell the home.
Sign 7: You Can Commit to One Location
Buying a home means you are making a commitment to live in a certain location for at least a few years. Most people feel confident enough to commit to a location when their place of employment, family and friends, and hobbies are in relative proximity to their home. If one of these key factors is missing from the location, you may want to consider a new location or postponing homeownership until you have all your ducks in row. Even if your hour-long commute both ways seems sustainable now, you may not feel as happy about it after doing it for a few years. Keep your current and future lifestyle in mind when selecting a location.
Are you ready to take the plunge into homeownership? Purplebricks can help.
With Purplebricks, find your dream home and get $2,000* in cash back! We pair you up with a Home Buying REALTOR® in your neighbourhood whose only job is to find the perfect home for you and your family. If you’re ready to take the next step and find a REALTOR® to help you look, visit Purplebricks.ca today or give us a call at 1-855-348-1820 and we’ll get you started.