Saving for a home in Canada doesn’t have to be tricky. While buying your first home can be a daunting task, preparing yourself by doing research is essential to making your home buying journey easier. From building your credit score to saving for a down payment, there are multiple steps you can take to prepare yourself to buy your first home!
Know your Credit Score
Knowing your credit score is the best way to improve it. You’ll need a different credit score, depending on where you’re looking to buy a home. For example, homeowners in Toronto or Vancouver will need a higher credit score than homeowners in Halifax. So it’s important to look at the average credit scores needed to buy a home in the city or town you’d like to live in.
It’s important to know that having a credit score below the average is not the end of the world. There are a few easy ways to improve your credit score, to ensure you can secure the home of your dreams.
Step One
Sign up for a secured credit card. Getting a secured credit card is the easiest way to build your credit. Not only does getting a secured credit card help to build your credit mix, but will help you understand your financial situation better.
Step Two
Pay your bills off on time. Paying your bills back on time is the best way to improve your credit score and show your bank that you are trustworthy.
Step Three
Never buy more than you can afford. Using a credit card, it can be easy to overspend. However, this is one of the worst things you can do for your credit score. Creating a budget for yourself is the best way to manage your spending and ensure you are able to save up for a down payment.
Start Saving
When looking to buy your first home, it is important to start saving as early as possible. You can start calculating how much money you need to save by first figuring out how much you’d like to spend on your home. You should try to save approximately 15% of the total amount you’d like to spend.
Last week, we wrote a blog about easy ways you can save without changing your lifestyle. You can follow those steps to help you save money quickly, to help pay for your down payment. Another technique you can use, is cutting back on the 'wants,' portion of your budget, to help save for your home even quicker!
For example:
If your maximum budget is $500,000, you should be looking to save approximately $75,000.
This money will go towards your down payment. While saving 15% is a great benchmark price, it’s important to remember that the amount of money you put down, will affect your mortgage payment and duration.
So if you purchase your home for $500,000 with a down payment of $75,000 and a 3 year fixed rate of 2.14%, you’ll be paying $1,828.51 a month for three years. If your interest rate stays the same, you’ll be paying off your mortgage for 25 years.
If you put more money into your home upfront, your mortgage payments will likely be less expensive and be paid off quicker.
However, buying your first home is not as easy as putting numbers into a calculator and hoping for the best. Once you decided that you want to purchase a home, you’ll need to schedule a meeting with your bank. Here they will help you find a mortgage payment plan that works best for you, your lifestyle and your budget.
Getting preapproved for a mortgage is the best way to ensure you get approved for the home of your dreams, especially if you are looking to buy in a competitive market like Toronto, Vancouver or Calgary.
Real Estate Research
Now that you know your budget, credit score and have been preapproved for a mortgage, you’ll need to start looking for potential homes. Looking at real estate websites like Condos.ca, Realtor.ca or Remax, can help you get an idea of the features you can get with your budget. It will also help you see the neighbourhoods in your city or town, so you can see how the home you’d like to buy fits into your lifestyle.
Once you have all this information, you can begin preparing a home-buyer package and attending open houses. A home-buyer package can contain information about your soft credit score, mortgage pre-approval information, employment history or any other relevant information. Having this package ready for real estate agents is another way to ensure you secure the home of your dreams, in a competitive market.
Although buying your first home can be daunting, we are here to help. From checking your credit score to helping improve your relationship with your finances, our team is always ready to help you reach your financial goals!
Disclaimer: The content provided on the Plastk Financial Inc. Blog is information to help Canadians become financially literate and learn about credit. Plastk is not responsible for building or ruining an individual's credit score or credit rating. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment, credit inquiries, and all other decisions should be made, as appropriate, only with guidance from a qualified professional.
