A house will be one of the biggest investments you'll make. So why not plan ahead and decide what you want in a home and how much you can afford.
Mortgage pre-approval may be a super way to budget for a home and send a signal that you're a serious buyer. A lender decides on the approval based on your income and projected expenses. However, the pre-aproval amount is just the maximum amount a lender thinks you can afford. What about other expenses you may face, such as, renovations (expected or unexpected emergency repairs).? Then there are other normal household related costs (maintenance, insurance, property taxes, etc.).
Before making the purchase, you must prepare an all-inclusive budget to ensure you are able to carry all the expenses.
The following are some of the other things you need to be aware of:
1) Know your credit score. If your score is low, you may want to work at improving it before aplying for a mortgage;
2) Make a list of all the expenses of home ownership: Property taxes, insurance, maintenance, emergency fund for emergency repairs and renovations;
3) A larger downpayment will save you thousands in interest over the life of the mortgage. If you are making a low (lower than 20%) downpayment, your lender will normally require CMHC Mortgage Loan Insurance. That amount is added to your mortgage principal. It can be as igh as 3.25% of the value of the loan;
4) Did you know that under the Home Buyers Plan, first time buyers can use upto $25,000 ($50,000 for couples) from their RRSP savings for a down payment;
5) Don't just focus on interest rates. There are other things to consider as well: Price of the house, type of mortgage, amortization period shorter is better), frequency of payments (more frequest is better) and other options (e.g.ability to make a lump sum payment every year, etc.);
6) Please don't forget closing costs - you'll need anywhere from between 1.5 to 3% of the purchase price to pay for other costs (home inspection, legal fees, land transfer tax, taxes, insurance, title insurance, utility activation, moving costs, etc.).
Plan ahead and enjoy the home buying experience!