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House hunting: Tips for first-time buyers


Find out what you need to have organized financially — from a down payment to mortgage plans — before you start your search.

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First-time buyers are facing more challenges than ever — from rising borrowing costs to record-high home prices to increased competition for a limited supply of homes. If you’re thinking of hunting for your first home, consider these tips from mortgage professionals to prepare.

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Go talk to a mortgage professional

A first step is meeting with a mortgage broker or mortgage specialist at your financial institution — something first-time buyers often don’t do, says Marc Crossman, a mortgage broker with Mortgage Alliance Lending Advisors in Edmonton.

“Many first-time buyers start looking at homes first, and then try to fill in the gaps after finding a home, which can be problematic because they may not be able to afford it,” he says.

A mortgage professional can help determine what they can afford first, along with the down payment. Although online calculators can provide a basic idea of affordability, mortgage professionals fill in those gaps — like credit history problems — to get first-timers truly prepared, Crossman adds.

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Pre-qualification versus pre-approval

Start working with a mortgage professional “three to six months before starting house-hunting” understanding pre-approval isn’t the first step, Crossmans says. Pre-qualification is. This involves gathering key information: details on the down payment — at least five per cent of the target purchase price — along with a record of income, and a credit check. This information is eventually verified during pre-approval, but pre-qualification helps first-timers grasp what they can afford, ready the required down payment, and line up the documents needed to avoid potential problems, he adds.

Government assistance — and a gift from mom and dad

Two federal programs help get a down payment sooner than later. The Home Buyers’ Plan allows individuals to borrow up to $35,000 from their RRSPs for a down payment. In contrast, the First-Time Home Buyer Incentive involves the feds investing an additional five per cent of the purchase price on resale homes (maximum 10 per cent on new homes).

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Conditions apply for both, which mortgage professionals can help navigate. As well, a CIBC study from the fall revealed three in 10 first-timers receive gifts for down payments.

“So if your parents give you $25,000, they have to sign a letter confirming it, while you must show documentation the money is in your account,” Crossman adds.

Hold that rate

Calgary mortgage broker Matt Leggett with CanWise Financial says getting pre-approved with a hold on a mortgage interest rate is increasingly prudent.

“Before, you could get pre-approved and still get a better rate later,” he says.

But with interest rates rising, pre-approval with a hold likely helps lock in the best rate available. Again, preparation is important, which includes having the down payment in your account for at least 90 days. A minimum credit score of 680 is also ideal while lenders want to see consistent income — i.e. full-time employment. Gig workers and self-employed individuals often need a two-year history, best backed by a notice of assessment from the most recent tax return, Crossman adds.

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Be familiar — not worried — about the stress test and debt ratios

Qualifying for a mortgage at the 5.25 per cent interest rate set out by the federal stress test may no longer be enough, Leggett says.

“Because rates are increasing, we’re near the point where people must qualify at the other measure — their offered rate plus two per cent because it’s higher,” he says about the test requiring borrowers to afford the higher of the two criteria.

As well, two debt-to-income ratios are important to determine pre-approval mortgage amounts. Total debt service (TDS) ensures housing costs and debt don’t exceed 44 per cent of monthly income, while gross debt service (GDS) ensures housing costs don’t exceed 39 per cent of income. Yet no need to get too worried about tests and ratios, Crossman says. What’s important is getting professional advice.

“We get you focused on what you need to do, and those ratios and the test will take care of themselves,” he says.

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