It’s very difficult to buy a home in Canada right now. With the cost of homes soaring and the economic future of the country in question, many people are worried about job security. This, combined with high debt ratios, has caused many people to put the dream of owning a home on hold. However, now is exactly the time to be preparing for the big day, even if it is a year or more away. Even if you’re not in a position to purchase a house or contact a home designer just yet, you can get a head start on it with these four planning strategies.
1. Start Saving for the Down Payment
Having a solid down payment is essential to obtaining a mortgage for the balance. With that said, the more you put down, the better. A sizable down payment may give you more room to negotiate, can lower the interest rate of your loan, and will lower the monthly premium. The obvious way to save is to set a budget and start contributing to a savings account designated for your new home. However, you may also benefit from the Home Buyers’ Plan (HBP). It allows you to pull funds from your RRSP savings tax-free. A first-time homebuyer can use as much as $25,000, so a married couple may be able to have as much as $50,000 right away. The only caveat to this is that you should wait until you’re ready to buy, as you have to start paying it back within two years in order to keep the money tax-free, though you have 15 years to pay it back in full.
2. Pay Off Your Debts
Debt ratios are a huge part of getting approved for a mortgage. In some cases, anything more than 32% will disqualify you from receiving a mortgage loan. While it’s important to get the debts paid down, don’t close all your credit card accounts, because this can adversely affect your credit score. It’s also worth noting that even if your debt ratio is below 32%, you’ll need to consider your other daily expenses when you determine how much house you can afford. Though the debt ratio is an important factor in a lender’s decision to offer you a mortgage, you’ll need to crunch the numbers beyond this to make sure you can afford the homeowner lifestyle as a whole.
3. Find Out Your Credit Score
Transunion and Equifax are the two main credit reporting agencies in Canada, and they will both give you a copy of your report every year. The reports may be different, as different companies may report to one and not the other, so get a copy of each now and find out where you stand. This will allow you ample time to correct any mistakes in the reports and make good on any debts that could become a problem when you apply for a mortgage. It can take months for your actions to result in a better credit report, so check it early in the game, and keep checking it on an annual basis.
4. Build Better Credit
Revolving credit accounts need to be paid off on or before the due date. While it’s important to have a low debt ratio, avoid the temptation to pay off old debts at the expense of becoming delinquent on another account. If your credit needs serious repair, consider signing up for a secure credit card. In these cases, you prepay the card issuer with a certain amount of money, and you borrow against it, but you must still pay the funds back at the end of the month. It’s much easier to get a secured credit card than and traditional unsecured one, and the boost it gives your credit score can be invaluable.
As you prepare to purchase your new home, it’s also a good idea to become familiar with banking and mortgage terminology, like the fixed-rate mortgages and variable-rate mortgages. You’ll likely qualify for several different packages, and it’s important to know the difference between them so that you can make the best decision for your financial future. At the same time, it’s wise to learn about different types of insurance that are available to homeowners. There’s a lot involved in buying a new home, but with a little planning and education, the process is much simpler.
This content is sponsored by Ben Obirek.