Have you ever wondered a how first time homebuyer can get into real estate market and their first home?
With all of the talk of rule changes, stress tests, down payments, and rates, how does a first time home buyer know where to start?
We spoke to Mortgage Broker, Jenn Slater with One St Mortgage out of Saskatoon, to help us understand what a first time homebuyer needs to know.
Q: Jenn, where should someone start if they’re considering buying a home?
A great place to start is to sit down with a mortgage broker. Your broker will help you determine what you can currently qualify for, or how to get there. They will also help a buyer understand the process around buying, where rates are at, how much down payment is required, and what mortgage payment would be required.
Q: How much does a first time homebuyer need for a down payment?
A first time homebuyer can put down as little as 5% of the purchase price for a down payment. A down payment can come from a number of places.
Firstly, there is the First Time Homebuyer’s Plan which will allow a buyer to take up to $35,000 out of their RRSPs for the purchase of their first home. This money is tax free and considered to be “borrowed” from the buyer’s RRSP and the buyer has up to 15 years to pay it back to their retirement plan. If two borrowers, like spouses, were to be buying a home together they could each take up to $35,000 from their own RRSPs. It’s a great program to help first time homebuyers when they have money available, but they just can’t get to it.
“The First Time Home-buyer’s Plan is a great program to help first time homebuyers when they have money available, but they just can’t get to it.”
Another option is to have a portion, or all, of your down payment gifted from an immediate family member. If a buyer needs a hand from mom or dad, the parents can sign a letter to indicate they are giving the buyer the money for the down payment and don’t require to be paid back. This also goes for grandparents or even siblings.
I also work with some lenders that will allow a buyer to borrow the money for their down payment. If a buyer doesn’t have enough for the minimum down payment; or maybe no funds at all, they can get a loan or line of credit to help out with the minimum 5% required. Of course, the payment on the newly borrowed funds would take away from the client’s buying power, but it is a means to get into the market.
And of course, there is always a client’s savings or TFSA account. This is where a broker will let a buyer know exactly how much they need or if they need to keep saving up for that purchase.”
Q: How much does it cost to buy a house or use a mortgage broker?
A good ballpark to purchase a home is around 1.5% of the purchase price. These closing costs will include the cost of the lawyer, land title fees, PST on mortgage default insurance, title insurance, home inspections and fire insurance.
But the cost of a mortgage broker is completely free for a buyer. Mortgage brokers get paid a commission from the lender and we are regulated by provincial rules to ensure we are doing the best job, getting approved seamlessly, and with the best rate for our clients!
Q: How does a buyer know how much they qualify for or if they will qualify?
Qualifying is based on several parameters that the buyer must meet. It is based on the buyers’ credit history, their down payment, their ability to pay their mortgage payment, and it is even based on the property. The buyer’s credit history is based on their credit score and is an indication of their past and current payments for loans, lines of credit, credit cards, and even some utility and cell phone companies will report to the credit bureau.
Of course, we have to provide the proof of the client’s down payment. If a client has a larger down payment, it often appears to be less risk for the lender.
As a broker, I also must prove that the client has the ability to make their mortgage payment. This is based on a ratio of the client’s income against their payments. A broker must indicate the buyer’s job stability and time in their position or industry, and how much of that income would be feasible to pay toward the mortgage each month, in addition to all their other payments.
And finally, the property is an important piece of qualifying as well. There are rules around minimum square footage, the type of build, the type of land it is on (agriculture, rural, urban,) and the condition of a home.”
These are just a few of the things a First Time Homebuyer needs to know when buying a home. But if anyone needs more information, I’m available for any questions!
One St. Mortgage
Broker License #316444
Brokerage License #316566