Ready to Buy Your First Home in 2022? 7 Signs You Are Ready
There’s nothing quite like buying your first home. You may have lived with your folks up until this point or perhaps you have been renting, waiting, like a lion to pounce and enter the market. Buying a home is typically one of the largest purchases you will ever make and a great investment in your future. However, you must make sure you are truly ready to face the responsibility of homeownership.
Before taking the plunge and getting lost in the hunt, here are the signs that you’re ready to buy your first home with nothing to fear.
Sign 1: You Have a Stable Income
Taking on a mortgage requires income stability. It’s important because it impacts getting approved to purchase a home in the short term and paying for a home in the long-term. Lenders will look at employment history and salary to determine your eligibility for a mortgage, and how much of a loan you qualify for. Debt comes with homeownership and is a large responsibility of the process.
Sign 2: You Have Good Credit
A credit score measures your financial health. Having a good credit score usually means you will receive a better mortgage rate because you are a less risky client for the financial institution. 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 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 classic wisdom is 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 interest in the long term.
Sign 4: You Have Savings
In addition to a stable income, you want to have a decent amount of money in your savings account. Think of things like home repairs, insurance, property taxes, these are all responsibilities you must consider as a homeowner. Attempting to live paycheck to paycheck can be a recipe for disaster.
Try this: have three months of wages as a security fund. This reserve fund will allow you to find a new job and use employment insurance to keep your life afloat.
Sign 5: You Know About the First-Time Home Buyer Incentive
You can only buy your first house once! That’s why the Canadian Government rewards first-time home buyers through the Canadian Mortgage and Housing Corporation 1 with a shared equity mortgage. This incentive encourages first-time buyers to take the plunge into the market with a little bit of financial aid. 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 First-Time Home Buyer Incentive for more information.
Sign 6: You are Happy with Your Co-Owner
Sometimes, you purchase a home with a co-owner. It’s imperative that you are on the same page about the purchase. Depending on your arrangement, this can include location, price, mortgage details, repair budget, and so much more. Ask yourself, will this person be sticking around for 3-5 years? If you are buying the home under the assumption that you will have two incomes, you’ll need the person to in the financial equation long enough for you to become a primary owner. The hard truth is: 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
Consider the factors of home ownership and that you will likely stay put for a few years. You are making a commitment to a certain location. With that in mind, keep your work, family, friends, and hobbies close. Are you missing a few key factors to your ideal home ownership? It might be better to decide on a new location or postponing the purchase until you are more certain. Flexibility and lifestyle is the most important thing when selecting a location.
Are you ready to take the plunge into homeownership? FairSquare Group Realty can help.
FairSquare Group Realty supports Canadians by providing real estate experiences with incredible rewards: sellers save thousands in commission and buyers receive $2,000 cash back* when they purchase a home with one of our REALTORS®. Call 1-855-953-9533 to learn more.