PLAN YOUR FINANCES- Before you start looking for your dream home.
Planning your financesHome buying can be a daunting and complex process. But with The Kitzman Team by your side, it doesn't have to be. Remember, we work for you and are here to look after your best interests. So take a few minutes and learn how we can help you find what you're looking for.
Figure out how much you can afford. Before you start looking for your dream home, let's find out how big you can dream. Knowing your true budget is the first and most important step in buying a home.
A home is a big purchase. It's probably the most expensive thing you'll ever buy. The total cost of buying a home consists of two aspects: the one time costs associated with the initial purchase, and the monthly costs of maintaining and owning the home. Some of them include:
Everybody's total costs are different, but it's almost guaranteed you won't have that much money saved up. Hopefully you have enough for a nice down payment, but for the rest...
Yes, you need a mortgage. So determine how much a bank will lend you
Head over to the next step where you'll find helpful tips on arranging your mortgage. But the first step in determining how much a bank will lend you is to understand how much you can afford each month. This is determined using two lending principals.
1. Gross Debt Service Ratio (GDSR) calculation:
This lending principle simply states that your monthly housing cost should not exceed 32% of your gross monthly family income.
2. Total Debt Service Ratio (TDSR) calculation:
This lending principle summarizes that your monthly housing cost and payments on all of your other debts (including loans, credit card and lease payments) should not exceed 40% of your gross monthly income.
We can help you estimate your maximum affordable mortgage payment of principal and interest.
Arrange a mortgage
Money makes the world go round, and a mortgage gives you the power to buy a home. This isn't the most fun step in buying a home, but it's vital.
Who do you talk to?
Call a mortgage broker
Lucky for you, you don't need to go far. With Faye's access to a vast network of over 50 lending institutions - including major banks, credit unions, trusts and other national and regional lenders, she has the tools to build a customized mortgage plan, with the features and options that meet your needs.
Mortgage terminology
Mortgage term:
Refers to how long the bank has agreed to lend you the money – typically from six months to five years. At the end of the term, you usually renegotiate a new term.
Amortization:
The length of time it will take to pay off the whole mortgage, often as long as 25 years. The longer your amortization, the lower your monthly payments, but the more you pay in interest over time.
Interest rates:
Interest is the cost of borrowing money, and the interest rate tells you exactly how much. Using a mortgage calculator, check the difference between borrowing $100 000 at 6% and at 9% at the same amortization. Surprising, no? That interest rate not only affects how much you pay, it also affects how much you can borrow. So keep searching for the best rate!
How big a down payment?
You want as small a mortgage as possible, which means making the biggest down payment possible. Just remember to set money aside for all the fees associated with buying a home. Not to mention moving, repairs, renovations, new furniture... think ahead.
The Home Buyers' Plan – A little sweet relief
If you're a first-time homebuyer with money in an RRSP, you can withdraw up to $25,000 without paying any income tax. If your spouse is also eligible, that's $50,000. Ask us how to best take advantage of this plan.
Lock into an interest rate? For how long?
It's a tough question. What if you 'lock in' for five years and the rate goes into a period of decline? That could mean you're stuck paying more than you had to for a long time. But if rates were to steadily climb over the next five years, locking in for five years now would be a great move.
What you need to apply for a mortgage
Figure out how much you can afford. Before you start looking for your dream home, let's find out how big you can dream. Knowing your true budget is the first and most important step in buying a home.
A home is a big purchase. It's probably the most expensive thing you'll ever buy. The total cost of buying a home consists of two aspects: the one time costs associated with the initial purchase, and the monthly costs of maintaining and owning the home. Some of them include:
| Cost of buying a home | = | One time costs | + | Monthly costs |
| Down payment | Mortgage | |||
| Legal fees | Utilities | |||
| Title insurance | Maintenance | |||
| Inspection fees | Insurance | |||
| Property transfer | Property taxes | |||
| Taxes |
Everybody's total costs are different, but it's almost guaranteed you won't have that much money saved up. Hopefully you have enough for a nice down payment, but for the rest...
Yes, you need a mortgage. So determine how much a bank will lend you
Head over to the next step where you'll find helpful tips on arranging your mortgage. But the first step in determining how much a bank will lend you is to understand how much you can afford each month. This is determined using two lending principals.
1. Gross Debt Service Ratio (GDSR) calculation:
This lending principle simply states that your monthly housing cost should not exceed 32% of your gross monthly family income.
2. Total Debt Service Ratio (TDSR) calculation:
This lending principle summarizes that your monthly housing cost and payments on all of your other debts (including loans, credit card and lease payments) should not exceed 40% of your gross monthly income.
We can help you estimate your maximum affordable mortgage payment of principal and interest.
Arrange a mortgage
Money makes the world go round, and a mortgage gives you the power to buy a home. This isn't the most fun step in buying a home, but it's vital.
Who do you talk to?
Call a mortgage broker
Lucky for you, you don't need to go far. With Faye's access to a vast network of over 50 lending institutions - including major banks, credit unions, trusts and other national and regional lenders, she has the tools to build a customized mortgage plan, with the features and options that meet your needs.
Mortgage terminology
Mortgage term:
Refers to how long the bank has agreed to lend you the money – typically from six months to five years. At the end of the term, you usually renegotiate a new term.
Amortization:
The length of time it will take to pay off the whole mortgage, often as long as 25 years. The longer your amortization, the lower your monthly payments, but the more you pay in interest over time.
Interest rates:
Interest is the cost of borrowing money, and the interest rate tells you exactly how much. Using a mortgage calculator, check the difference between borrowing $100 000 at 6% and at 9% at the same amortization. Surprising, no? That interest rate not only affects how much you pay, it also affects how much you can borrow. So keep searching for the best rate!
How big a down payment?
You want as small a mortgage as possible, which means making the biggest down payment possible. Just remember to set money aside for all the fees associated with buying a home. Not to mention moving, repairs, renovations, new furniture... think ahead.
The Home Buyers' Plan – A little sweet relief
If you're a first-time homebuyer with money in an RRSP, you can withdraw up to $25,000 without paying any income tax. If your spouse is also eligible, that's $50,000. Ask us how to best take advantage of this plan.
Lock into an interest rate? For how long?
It's a tough question. What if you 'lock in' for five years and the rate goes into a period of decline? That could mean you're stuck paying more than you had to for a long time. But if rates were to steadily climb over the next five years, locking in for five years now would be a great move.
What you need to apply for a mortgage
- Letter of employment confirmation (include your position, your pay and how many years you've been with the company)
- List your assets (your car, stocks, bonds, GICs, etc)
- List your liabilities (car payments, student loans, credit card debt, etc)
- Social Insurance Number
- Your chequing account number
- Your lawyer's contact information
- Information about the house you want to buy
- Application fee:
Some mortgage lenders charge a fee to process your application. But ask to see if you can get it waived. - Appraisal fee:
Your mortgage lender may need to have your new home appraised by a professional, and they often pass the bill on to you. Sometimes your lender will also waive this fee. - Mortgage broker's fee:
Your mortgage broker may charge a fee that's payable on your closing date. Ask your broker to avoid surprises. - Land survey fee:
Lenders may require a survey of your property, even if it's an existing survey. Get your lawyer on the case. - Home inspection fee:
A home inspection is so important, we devoted an entire step to it. Avoid surprises and protect yourself... this is money well spent. - Home Insurance:
Mortgage lenders require you to carry fire and extended-coverage insurance because your home is the security deposit on the mortgage. Often you can have these payments added to your monthly mortgage payments. Shop around. - Title insurance:
It's not mandatory, but protects you from all sorts of fraud and potential errors surrounding the title to your land. Ask your lawyer for details. - Legal fees:
You'll pay your lawyer for their invaluable time and "disbursements" which are the costs involved in title searches, drawing up the title deed, and preparing your mortgage. - Adjustments:
The previous owner may have paid property tax or utilities in advance, and they want to be credited for those payments. Ask your lawyer what might come up on the closing date. - Maintenance and utility costs:
Remember, you'll now have more regular monthly payments in the form of property tax and utilities. - Property Transfer Tax:
The amount of this tax varies from province to province. - The GST/HST and new homes:
Resale homes don't involve GST/HST, but new homes do. If you intend to live in your new home (instead of renting it out) there is some relief. Consult us and your lawyer for more information. - REALTOR® Commissions or fees?
REALTOR® commissions or fees are subject to GST/HST.
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