A millennial’s guide to buying a house

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When is a good time to buy a house? Yesterday! If you still thinking to get into the housing market, then what are you waiting for?

First of all, buying a house is a huge commitment. You need to be prepared and patient, but most of all, you need to make sure that you are financially ready and willing to take on a mortgage and the commitment of home ownership. Second you’ve got to be prepared for your house to come first, paying the mortgage is a priority which means that trip to the Caribbean to celebrate your 25th Bday might have to wait. You might have to wait on getting a new big screen TV when the dryer craps out on you. If you’re not prepared to drop everything when something like that comes up, then you shouldn’t buy a house. However, if you’re up for the challenge here are some tips for millennial home buyers or first time home buyers

1. Pay Off Small Debt.

Before you apply for pre-approval for a home loan, it’s important to pay down any small outstanding debt you might have. If you’re a millennial in your twenties and looking to buy, chances are you have some student loans, don’t worry about these as much as credit card debt, car payments, and any other monthly payments you might have.

2. Setting a Budget.

Once you’ve paid off some of your smaller debt, it’s time to look at what you can afford, not what you “think” you can afford. Your monthly mortgage payment should be less than 25% of your monthly income after taxes, and of course you can combine dual income if that’s your current situation.

3. Build a Savings.

You will need to start saving as soon as you begin entertaining the idea of buying a house if you don’t save regularly already. You’re going to need to have money set aside for a down payment, closing costs, home inspection, lawyer fees, movers, surprise expenses and you’re also going to want to build an Emergency Fund. Plan to put 20% down in order to avoid CMHC Insurance. The closing costs are typically between 2-3% of the purchase price

4. Pre Approval.

As we enter into the “Stress test” guidelines the government set out for us it is important, to apply for pre-approval for a home loan. Also most realtors and sellers won’t work with you if you can’t show proof of mortgage eligibility. Home loan pre approvals are generally drawn up with very little information and give you a vague sense of what you can afford. It’s the Mortgage broker or your lender institution that draw up these documents, but it’s the underwriters who will actually be approving you for the loan and they have much stricter guidelines.

My best advice here is to look for a house well within your pre approval rate or lower. You also don’t want to be let down when you get your heart set on a house and its 20K more than you actually get approved for. Banks have really started to crack down on home loans and loans in general this is why being prepared with steps 1-3 will help you secure the loan you need and ensure that you can afford it.

5. Get a Realtor.

Choosing a realtor may be a challenge, after all you want someone to be on your side, and the best way is ask your family or friends that had experience with their own realtor. I strongly suggest interviewing the realtor before you start working with him/her. It’s so important to be informed and take advantage of expert advice. All brokers and salespersons in Ontario are required to uphold professional standards that stress fairness, honesty and integrity. They must follow rules and regulations that are designed to protect consumers. There’s no out of pocket cost to the buyer for having their own realtor, the agent simply gets a cut of the agent commission from the purchase/sale of the property. If there’s only one agent involved they would get the full commission or otherwise agreed, if there’s two realtors involved then they would split it 50/50. Make sense?

6. Location.

Now that you’ve got a budget, a pre-approval letter, and a realtor, it’s time to sit down and decide on a location. Do you want to be near family, school, work, friends, or somewhere in the middle? As I’m your herd it before, it’s all about LOCATION, LOCATION, LOCATION! Location is extremely important especially when thinking about the future and potential resale, school districts for future kids, or amenities. You ultimately need to narrowed your home hunting zone down to a couple neighborhoods

7. Starter Home vs. Forever Home.

What’s it going to be? This is probably the last BIG decision that needs to be made before diving in for the house hunt. What do you want to get out of your house? Are you looking for something small to start and learn with while building up some equity for a few years? Maybe you’re looking to start a family early on a settle down in one place for a long period of time? There are benefits to both but either way you should make sure you can commit to the house for at least 5 years.

More than likely if you’re buying a house in your twenties, you’re not buying something brand new, though this isn’t the case for everyone. Most houses will need some cosmetic updates, figure out what’s a priority and go from there! If the 1970’s kitchen is a deal breaker and you want to remodel it that’s great. However, if you’re not equipped with the skills to do it yourself or the money to pay someone to do it for you, it might be easier to just go with a different house.  You don’t have to be afraid though, a starter home is a great way to learn and make 

8. Home Inspection.

When choosing a home inspector how do you know if they are insured. All practicing members of the Ontario Association of Home Inspectors (OAHI), which was established in 1994, must carry E & O and general liability insurance

A qualified and experienced home inspector will examine the major systems in the home such as:

·         Electrical

·         Roofing

·         Plumbing

·         Heating/Air Conditioning

·         Foundation

·         Septic Systems

 Many home inspection companies encourage you to attend the inspection and ask the inspector questions during the process and about the results of the inspection. The decision is yours to make, but you will be better informed and able to assess whether or not you want to invest in any upgrades or repairs that might be needed.

9. Avoid CMHC.

Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment starting at 5%* — with interest rates comparable to those with a 20% down payment.

To obtain mortgage loan insurance, lenders pay an insurance premium. Typically, your lender will pass this cost on to you. The premium payable is based on a percentage of the home’s purchase price that is financed by a mortgage. The premium can be paid in a single lump sum or it can be added to your mortgage and included in your monthly payments.

Mortgage loan insurance is not to be confused with mortgage life insurance which guarantees that your remaining mortgage at the time of your death will not be a burden to your estate.

* The minimum down payment requirement for mortgage loan insurance depends on the purchase price of the home. For a purchase price of $500,000 or less, the minimum down payment is 5%. When the purchase price is above $500,000, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion. Mortgage loan insurance is available only for properties with a purchase price or as-improved/renovated value below $1,000,000.

 PST on CMHC Insurance. ... There is, however, one cost associated with CMHC insurance that you may need to pay for with cash you will need to pay the provincial sales tax (PST) on your CMHC insurance – and that amount is due on closing day.