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Looking for a home for sale in Hamilton is equal parts exciting and scary. After all, it’s probably going to be the largest purchase of your life and since it’s where you plan on living, it needs to fit your lifestyle. There are plenty of steps to buying a house in Hamilton and it might feel hard to know where to start.
Here are a few first-time home buyer tips to keep in mind no matter where you are in the process.
Save your down payment strategically
When financing your house with a mortgage, you must make a down payment. What is the required down payment amount, then? In Canada, the minimum required down payment is determined by the cost of the property.
Saving the bare minimum required down payment is a wonderful place to start if you're a first-time home buyer. However, be aware that there are advantages and disadvantages to leaving nothing at all. For example, you would not have much home equity when you first start your house ownership adventure with a 5% down payment and would have to pay mortgage insurance. However, saving 5% could not require as much time, allowing you to buy a property sooner. And, a smaller down payment may mean you can reserve some cash for moving costs or unexpected repairs.
Ultimately, deciding how much of a down payment you want to make will help you determine how much house you can afford.
Determine what you can afford to borrow
If you're a first-time home buyer, you might be shocked to hear that there's sometimes a difference between what you can afford and what a lender would allow. The amount of money that banks and other mortgage lenders are ready to offer you for the purchase of a property is determined by several criteria. Your entire financial picture consists of more than just these factors, which also include your income, debt service ratios, loan-to-value ratio, credit score, credit history, and the mortgage stress test.
The cost of any prospective home repairs and improvements, closing costs, expenses not shown in your debt service ratios, and other factors should all be taken into account when determining the amount of mortgage you can afford. This can assist you in determining a monthly mortgage payment and, consequently, a total loan amount that will remain manageable if your financial circumstances alter.
Work on your credit score
To get approved for the mortgage amount and interest rate you want, you’ll need a good credit score. Depending on your financial history, this might take a bit of work, so start paying attention to your score as early as you can.
A few tips and tricks to build your credit score include:
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Finding and eliminating any errors on your credit report.
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Reducing or paying off any existing debt.
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Lowering your credit utilization ratio.
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Paying your bills in full and on time.
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Having different types of credit and keeping your oldest accounts in good standing.
Calculate your GDS/TDS
When determining whether your income is sufficient to cover your mortgage payments in addition to any outstanding debt, lenders look at your gross debt service ratio (GDS) and total debt service ratio (TDS). To be eligible for a mortgage, you normally need to have a GDS of 32% or less and a TDS of 40% or less. Before applying for a mortgage, you should be aware of your GDS and TDS since this will help you predict how well you'll do on the mortgage stress test, which is an additional need for mortgage approval in Canada.
Practice for the mortgage stress test
The mortgage stress test is a tool used by Canadian lenders to assess loan eligibility and amounts. However, there isn't any studying required. Lenders are required to utilize the minimum qualifying interest rate, which is typically higher than the rate on your mortgage contract when determining your eligibility for a mortgage. You will probably be able to keep up with your mortgage payments even if interest rates rise if you "pass" the mortgage stress test. Before applying for a mortgage, you can test your situation by simulating the mortgage stress test.
Get pre-approved before house-hunting
Finding out your maximum allowable loan amount by getting pre-approved for a mortgage will assist you prevent going over your spending limit. You might be able to lock in the pre-approved interest rates for 60 to 130 days, depending on the lender. Keep in mind that receiving pre-approval does not ensure you will be approved for a mortgage at that rate. You may still be denied a mortgage by a lender despite having received pre-approval.
Investigate assistance programs
The Canadian government offers first-time homebuyers several assistance programs to help lower the cost of purchasing a property. Examining them might help you determine whether you are eligible for tax credits and other financial aid that can increase your chances of becoming a homeowner. Typical programs include a few of these:
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First Home Savings Account
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Home Buyers’ Plan
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Home Buyers’ tax credit
In conclusion, buying a home for sale in Hamilton, whether you're a first-time buyer or not, requires careful consideration and planning. From strategically saving for your down payment to understanding what you can afford to borrow, there are several important steps to take. Working on improving your credit score, calculating your GDS/TDS ratios, and practising for the mortgage stress test are all essential aspects of the process.
Getting pre-approved for a mortgage before house-hunting can help you stay within your budget and potentially lock in favourable interest rates. Additionally, exploring assistance programs offered by the Canadian government, such as the First-Time Home Buyer Incentive or the Home Buyers' Plan, can provide valuable financial support.
Ultimately, by following these tips and seeking guidance from professionals in the field, you can navigate the home-buying journey with confidence and ensure that your new home in Hamilton is not only a place to live but also a sound investment in your future.