Buying your first home is such an exciting experience, but it can also be very stressful and confusing. There is a ton of legal paperwork, mortgage documents, and requirements from your lender that you will need to provide prior to having your mortgage funded.
We understand how complicated this process can be and want to help, so we've put together a list of questions that first-time homebuyers should be asking before they submit an offer to purchase a home.
How to does a mortgage work?
A mortgage is a secured loan that uses your new home as collateral. If you do not pay your mortgage, your lender can seize your home. After owning your home for a few years or increasing its value, you can also use your mortgage to borrow funds against the value of your property.
How long does it take to get a mortgage?
From pre-approval to funding, it usually takes about 3-6 weeks. Keep in mind, this is dependant upon how quickly you can submit the required documents for the lenders' approval.
Fixed-rate vs. adjustable rate
A fixed-rate loan is just that, fixed at the amount that you lock in for for the duration of the loan. An adjustable-rate will fluctuate with the market rates, meaning your mortgage payments can increase or decrease depending on the current rate.
What do you need to get a mortgage:
- Social Insurance Number
- Tax returns from the previous 2 years
- Payslips from your employer for the past 1-2 years
- Evidence of any assets, stocks, bonds, etc.
- Credit card statements from the previous years
- Bank statements for the previous 1-2 years
- Any other documents required by your lender.
What credit score do you need to get a mortgage?
This will depend on your bank, however, a score over 600 should make it fairly easy to obtain a mortgage. The higher the credit score, the easier it will be and the lower the interest rate you'll be offered. To calculate your debt-to
What is debt-to-income ratio?
Your debt to income ratio calculates how much of your gross income is spent on paying your monthly debts. Lenders use this amount to judge your ability to repay the loan and the amount you'll be able to pay, essentially deciding your approved mortgage amount.
To calculate your debt-to-income ratio, divide your monthly debt payments by your gross income amount, example:
Debt amount (mortgage, car & credit card payments) - $1,800
Gross income amount - $5,000
1,800/5,000 = 36%
Each lender will have different amounts, however, 43% is typically the highest debt-to-income ration on which they will lend.
How to choose a mortgage lender?
Shop around! We highly recommend chatting with a mortgage broker who will shop around for you and find you the best rates. Ask your broker to bring you 3-4 pre-approved lenders, review carefully, and choose the best one for you. The best part is that a mortgage broker is free to you, the lenders pay their fees, so it's no extra cost to you!
What are closing costs and how expensive are they?
See our blog post "The costs of buying and selling a home" regarding closing costs to calculate how much you may need to purchase your first home.
Should you get pre-approved for a mortgage?
Yes, by all means, get pre-approved. This will give you an idea of how much you can spend buying a new home. You don't want to be shopping for $600,000 homes when you've only been approved for $400,000. This will also show the sellers that you are motivated and serious about purchasing.
Can a seller refuse to make repairs?
Yes, a seller can refuse to make repairs but don't let this scare you away. If a problem has been found during the home inspection and the seller refuses to make repairs, you can negotiate a discount upon closing with the seller to receive a credit for the amount that it will cost you to make the repairs.
What happens at closing?
This is always an exciting day! This is the day the title to the property has been transferred into your name, funds have been transferred to the seller's lawyer, and you become legally responsible for the property.
When can you move in?
It may sound as though 'closing day' is your move-in date, however, that is not always the case. When you first submitted the offer to purchase, you will have agreed to a closing date and a possession date. The possession date is when you will have access to the home and can begin to move in.
What should you do before move-in?
Prior to move-in, you'll want to ensure all the utilities have been transferred to your name and are hooked up. You may also want to spend a day doing a thorough clean of the home before you start bringing your stuff over. If you plan to do any painting or repairs, doing this prior to moving in will make things much easier, however, it's not necessary.
What should you do after move-in?
First and foremost, you'll want to secure your home, this means changing the locks and updating the security system code passwords. You'll also want to check the smoke and carbon monoxide detectors to ensure they are correctly functioning and replace the batteries. Additionally, you should locate your circuit box and any emergency shut-offs in case of an emergency.
Start unpacking, order a pizza, crack a well deserved cold one, and enjoy your new home!
If you're thinking about taking the leap and purchasing your first home, we would be thrilled to chat with you and provide you with some insight on what you can expect through the process and tell you a little more about how we can help!
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