by Daren Givoque, O’Farrell Financial Services
1. Understand Income Qualifiers
Gross Debt Service (GDS) ratio and Total Debt Service (TDS) ratio are two numbers that lenders will use to qualify you for a mortgage.
Your GDS ratio is the percentage of your income needed to pay your monthly housing costs. Typically, your GDS ratio needs to be below 39% to secure a mortgage for a new home.
Your TDS ratio is the percentage of your income needed to cover all your debts. Most lenders will consider you for a mortgage if your TDS ratio is 44% or lower.
Assess your financial situation before you go to a bank or private lender. Paying down debts and having good credit will improve your chances of qualifying for the mortgage you need.
2. Mortgage Default Insurance
The down payment needed to buy a house in Ontario is 20%. This can be a challenge for even the most fiscally responsible. You have the option of decreasing the down payment to 5% if you insure the other 15%.
The Canada Mortgage Housing Corporation sell products that allows you To acquire insurance for the portion of the down payment that you don’t have. Premiums are around 3.%. Some believe in waiting until you can afford the entire down payment before buying to eliminate added interest payments. By waiting you may end paying more in the long run, as housing prices tend to rise. Becoming a homeowner sooner helps grow your net worth and improves your financial security into the future.
Budgeting for all the costs associated with buying and maintaining a home, plus other living expenses like food and entertainment, is extremely important. The more accurately you can project your expenses in your new home the better. Plan to have $5,000 to $10,000 set aside for extras, to avoid unforeseen costs.
4. Accept Help
Ontario housing costs are at an all time high with the average home costing $600,000. Housing costs have skyrocketed while average incomes have increased at a slower rate. This makes it particularly hard for young people to buy their first home and some turn to their parents for help. Buying a house is an investment in your future, so do not shy away from help if it is available to you.
5. Think Long-Term
Plan ahead when purchasing your first home. Ensuring that the house you buy will fit your needs down the road prevents you from repeating the homebuying process too soon. Buy a home that you can grow into.
Buying a house is a great investment and one that contributes to your financial security. Research shows that people that get into the housing market early typically retire more comfortably. Surround yourself with the proper experts – real estate agent, financial advisor, mortgage broker, – to ensure you are well-equipped for the journey into home ownership.
Attend our free First Time Home Buyers Webinar happening March 30th! Visit the O’Farrell Financial Facebook page for more information.