Buying a home is near everyone’s dream.
Townhouses
You have been renting for several years, you have saved enough for a down payment and now is the time for home ownership. The question is, “What type of home?” The answer depends upon your lifestyle, family make-up, and expectations. Size, location and value depends upon your income.
Are You Pre-Approved?
The first step in deciding what home you should buy is at the bank or financial institution. Pre-approval is paramount before house hunting. I said the answer to the question, “What type of home?” depends upon your income. It is not your down payment, although your down payment plays a large role, but what your monthly payment will be is the greater factor. You can basically take 33% of your income and that will be your mortgage payment. Very seldom will a financial institution allow more than 38% of your monthly income to pay for mortgage + taxes + insurance.
Why is a pre-approved mortgage so important? First of all that you know that you do qualify for a mortgage. Without a mortgage, you can’t buy a house, unless you’re paying cash. Secondly, you will know your price range. Why waste your time and the realtors time looking for a home you can’t afford the purchase price? If you just want to window shop, go to open house listings. I will guarantee you that the first question your realtor will ask is, “Are you pre-approved?”
Another benefit of pre-approval is an interest rate guarantee to protect you against increases in mortgage rates for up to 120 days. That gives you 4 months to decide which home is best for you and time to close.
Time to go shopping – For a Mortgage.
“Selecting a mortgage may be the most important financial decision you will make. Most likely, you will be paying off this debt for years, and after all, a small difference in the mortgage rate can make a big difference in monthly payments.” More….
Choosing the right type of mortgage depends on your financial objectives and your financial abilities:
- How long do you plan on living in the home?
- What monthly payments can you comfortably afford?
- What will be your total monthly payments?
- What is the best payment schedule, Monthly, Bi-Weekly, Rapid?
- Do you intend to pay off the mortgage early?
- Are you able to make extra principal payments?
- How stable is your income, will it fluctuate or increase?
- What portion of the purchase price will be your down payment?
One of the best ways to save money on mortgage rates is to comparison shop.
In Canada, one site to check: Mortgage Rate Comparison
In The US try: Shop Rate
Before applying for a mortgage it is best to familiarize yourself with the types of mortgages available. A good explanation of mortgages can be found at: mortgage-made-easy.com
Check your Credit Score.
Credit reporting agencies receive information from credit grantors about how people have paid back bills and other credit obligations and then provide that information to those who extend credit. Make sure you know what’s in your credit report before applying for a mortgage loan. That way, if there are any errors you can take steps to correct them before you make your application. It is estimated that 50% of all credit reports contain errors significant enough for an individual to be denied a loan. See: Credit Report
You are entitled to a free credit report once every twelve months, with some restrictions.
In the US there are three major credit reporting agencies: Experian, TransUnion and Equifax.
In Canada: TransUnion, Equifax.
What is Your Price Range?
Now that you are pre-approved, you know what your mortgage amount is. Add in your down payment and subtract closing costs. Yes, the cost of purchasing a home doesn’t end at the mortgage. You will need to have on hand the following amounts:
- Land Transfer Tax: varies state to state, province to province, as a guide:
0.5% on the first $55,000 of the purchase price,
plus 1.0% on the amount exceeding $ 55,000 up to $250,000,
plus 1.5% on the amount exceeding $250,000 up to $400,000,
plus 2.0% on the amount over $400,000 - Home Inspection: $275-$350 absolutely mandatory (Some may say not, but why take a chance)
- Bank Appraisal Fee: $250, some banks may waive it
- Mortgage Application Fee: $250, some banks may waive it
- Mortgage Insurance Premium: ranges from 0.5% to 3.75% of the mortgage amount
- Lawyer’s fees and expenses: normally $900 to $1100 (in some transactions a notary will do)
- Survey: $600 – $800 if required
- Service and Utility connections: depending upon the provider
- Estoppel Certificate: usually $50, (only applies to condominiums)
An Estoppel Certificate is a signed statement by a party certifying for another ‘s benefit that certain facts are correct. A party’s delivery of this statement estops that party from later claiming a different state of facts.
Disclaimer: This summary of closing costs are meant as an information guide only. For a closer examination of costs in closing contact your real estate agent or lawyer.
Now we can find a Realtor. Choosing a Realtor