Homebuyer's Guide (Part 1)

Welcome to a 7 part series on everything you need to know about buying a home.

Whether you are purchasing your first home or your third, this series will help you to navigate the complexities and financial implications of your purchase. It will cover topics from assessing how financially ready your are, to closing costs and other fees related to your purchase.

Part 1: Are you Financially Ready

The first step in the home buying process is to determine if you are in fact financially ready to purchase a new home. My wife and I looked a purchasing a home last year, and although we were approved for close to a $1M mortgage, we decided that the timing was just not right.

What do lenders look for?

You should look at your annual income to determine if you are eligible for a mortgage and how much you can comfortably afford.

A mortgage lender uses to factors to determine if you are able to borrow money.

1) Gross Debt Service (GDS) ratio

This is the percentage of your gross monthly income used for mortgage payments, taxes and heating costs. It should not be more than 32% of your gross monthly income.

2) Total Debt Service (TDS) ratio

TDS ratio is the percentage of gross monthly income required to pay for monthly housing costs plus any other debt payments that you are already making. It should not be more than 40% of your gross monthly income.

Have you been pre-approved for a loan?

This is an important first step in your home search. Imagine finding the perfect home, only to find out that you are not able to afford it. By getting pre-approved for a mortgage before you start your home search you will have a realistic expectation of what you can afford. Although it does not guarantee that you will be able to borrow the approved amount, it is a good starting point.

What is your Credit Rating?

The final step to determine whether you are financially prepared to purchase a home is to order a copy of your credit report to make sure that it does not contain any errors. Lenders will check this report before approving you for a mortgage. A credit report is a summary of your financial history and shows whether you have had any problems paying back debt in the past.

Visit the website for the Financial Consumer Agency of Canada (FCAC), to order your credit report and find out more about how to improve your credit Rating.

For parts 2 and 3 of this series click here

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