So you put in years of hard work, you got your degree, you found a great and stable job and now you’re ready to take the next big step in your life: you want to purchase a new home. How do you start? What do you need to do? How much can you afford? What’s the maximum mortgage amount that you qualify for? Can the government help? These are some of the questions we hope to answer for you.
What you need to know
First thing’s first: you need to know what a mortgage is all about. A mortgage is a loan given to you by a bank or another financial institution that’s amortized over a specific period (i.e. 15 years or 25 years). This loan is secured by the equity of the home that you purchase (click here to learn more about mortgages).
Your qualification will depend on your income to expense ratio, your down payment, and your credit score and credit history.
What happens if you do not have a credit history? We believe that in this situation you should start establishing a good credit history before applying for your mortgage, however a cosigner can help you obtain the loan you want if your credit history is lacking.
Usually you will need at least 5% to make your first purchase. There are many sources from which you can get this amount. Usually it comes from one’s savings, but programs such as the Home Buyer’s Plan exist to help Canadians make their first home purchases.
The Canadian Home Buyer’s Plan (HBP)
The Canadian government established the Home Buyer’s Plan to encourage first time home buyers to purchase their dream homes. One can withdraw up to $60,000 from their RRSPs, tax free, with a repayment of 1/15th of the total withdrawal amount after a 5-year grace period. This money can be used for your down payment or to purchase furniture. This is a great tool for recently graduated students.
Your budget
The next thing you will want to consider is how mortgage payments will influence your monthly budget. You can use the mortgage calculator below to make an estimate.
Note: It is considered healthy by our specialists to have your total debt payments, including housing costs (such as taxes and heating) to be less than 42% of your yearly gross income.
A mortgage broker
Your mortgage rate and your mortgage amount will determine how much you pay every month. We recommend that you see a mortgage broker so you can benefit from lower interest rates and access to more products and unpublished banking promotions.
As a recent graduate you will find that speaking with a knowledgeable mortgage specialist will open the door to more options for you. They can leverage their experience and volume in your favor and negotiate a better loan with a better rate for you.
Of course, for the lazy busy college senior turned college grad, having a mortgage broker do all of your work definitely sounds attractive 😉
