Buying a home for the first time can seem challenging but if you know your way around the process, there can also be special advantages to being a first-time homebuyer.
Here are some tips to help you make the most out of your first home-buying journey in the Niagara Region:
Assess your financial capability
Are you financially stable? Do you have the discipline and financial management skills to handle this huge investment? These are questions you need to ask yourself to see if you are ready to purchase a home.
To help you out, here are three ways to check your financial readiness:
- Calculate your monthly housing costs (gross debt service ratio). Monthly housing costs refer to costs such as mortgage payments and utilities. The Canada Mortgage and Housing Corporation (CMHC) recommends that these expenses should not be more than 32% of your average gross (pre-tax) monthly income. Those that reach 39% and above will have difficulty qualifying for an insured mortgage.
- Determine your monthly debt load (total debt service ratio). Your monthly debt load, on the other hand, includes all your outstanding debts, as well as your mortgage payments. The CMHC recommends that it should not exceed 40% of your gross monthly income, with 44% being the limit in qualifying for an insured mortgage.
- Apply for a mortgage pre-approval. During this process, your mortgage lender or broker will look at your finances to determine the maximum amount of mortgage you can qualify for. They will also provide you with an estimate of your monthly mortgage payments and potential interest rate so you can get an accurate picture of your financial capability in buying and maintaining a property.
Utilize first-time homebuyer programs
The Canadian government has several programs and incentives that cater to first-time homebuyers:
- First-Time Home Buyer Incentive. If you have the minimum down payment for an insured mortgage, you can apply to have a portion of their home purchase financed by the Government of Canada through a shared equity mortgage.
- First-time Home Buyers’ Tax Rebates. As a first-time homebuyer, you can claim a $5,000 non-refundable income tax credit amount on any qualifying home acquired during the year. This can provide you with up to $750 in federal tax relief. Land transfer tax rebates are also available in Ontario.
- Home Buyers’ Plan (HBP). This program allows you to borrow up to $35,000 from your Registered Retirement Savings Plans (RRSPs), which you can use to finance part of your down payment.
- Goods and Services Tax (GST) and Harmonized Sales Tax (HST) New Housing Rebate. You can qualify for a rebate of part of the GST or HST on your home purchase if it’s new construction or if you make major renovations on an existing home. Note that this only applies if the fair market value of your newly purchased or renovated home is less than $450,000.
Manage your property investment well
Your home purchase will be your biggest investment so far, so make sure that you would be able to maintain and protect it by:
- Putting aside 3-5% of your home’s purchase to cover home closing costs.
- Paying your mortgage on time to avoid extra charges.
- Living within your budget.
- Saving 5% of your monthly income for emergencies and unexpected home expenses.
