Scotia advisor and new homeowner Stanley Chan on how to manage your finances after making one of life’s biggest purchases.
Buying a house
Buying a home is likely the biggest investment you’ll make in your life. And like with any big decision, there are a lot of things to consider before taking the plunge. This step-by-step guide is here to help you understand the mortgage process and shed light on every step of the home-buying journey.
Your Guide to Home-Buying
Common mortgage questions
Meet Meera Gandhi, a Scotia advisor
Many people have experienced what you’re going through right now, including Meera. She’s here to give you professional advice based on her personal experience with buying a home in Canada.
I usually tell my customers that the most important thing is to work with your numbers six months to a year in advance of when you want to buy a property. How long it takes to get your finances in order will depend on your situation, but it helps to start as early as possible.
Work with the right professionals
The best lesson I learned through purchasing two homes in Canada is that when it comes to a mortgage, I'm going to work with professionals. I want the best real estate agent by my side to help negotiate my house pricing. I also want to work with a mortgage professional who will make sure that this is the loan amount I am going to be approved for.
Lower your debt to service ratio
When someone wants to buy a home, one of the first things we look at is their debt to service ratio. This ratio is defined as the amount of debt a person can have as compared to their amount of income. Our customers are required to have a 40-44% debt to service ratio.
When I run this application for a potential home buyer, I let them know what they will get approved for. If they are looking to spend more on their mortgage, then they will have to come up with a larger down payment or reduce their debt load, if applicable. Let’s say there is a shortfall of $15,000, then we have to go back and work on an alternate plan. We might have to move out the home buying goal for another six months and figure out how and where they can save more money.
Don’t skip the pre-approval
I remember with our first house, we didn't even have a pre-approval, and we struggled with the mortgage. Honestly, there were three places we applied, and we didn't get the amount we were looking for. We couldn't get the approval and we had to let that house go.
Don’t overspend on your dream home
If you can't get the house of your dreams with your current budget, you should consider a different option because you likely don’t want to move into a house the will stretch you too far financially. You should enjoy the home you worked hard to earn instead of overextending yourself. If you're paying your mortgage payment alone and can't afford anything else, then you don't have the flexibility to relax and do things that you enjoy with your family.
Understand the fees
When we bought our first house, we had saved the down payment in a cashable GIC. We had done our math, but we hadn't included the extra fees that come with buying a home, such as, closing costs.
I had to wait for an extra six to eight months to buy a home because I didn't have enough funds. But that doesn't mean that I wasn’t able to later buy a place, and in five years’ time, was able to buy a second home too. It doesn't matter how soon you will buy your first place, it all depends on how much you will save and how well you’re able to plan to make your dream of a home come true!
Pay off your mortgage faster and own a home sooner.
Building more flexibility into your financial toolbox with a home equity loan or line of credit can help give you peace of mind.