Tips to Ease First-Time Homebuyer Jitters
Traditionally, spring marks a busy period of time for housing
market activity. With the heat of summer seemingly only weeks away, first-time
homebuyers should learn strategies for finding their ideal home while keeping
financial priorities in check. Buying a home can be the largest and most
important financial decision one can make, so it is important to be aware of all
the factors that go into making a responsible purchasing decision.
first step is figuring out how much you can afford to spend on homeownership,
which means an honest assessment of the household balance sheet. Once you have a
clear idea of where you stand financially, you can then make a responsible
decision of what you can afford, including your down payment, monthly mortgage
costs and other expenses like utility costs, property insurance and
Here are a few tips:
Making an affordability
Housing costs, including mortgage payments, property
insurance and taxes, should not take up more than one-third of your income. In
addition to this, servicing your overall debt, including loans, utilities,
credit card payments and lines of credit, should not account for more than 40
percent. If you can land safely within these parameters, then homeownership is
an affordable and realistic option.
Coming up with the down
In general, the bigger the down payment you come up with,
the less interest you'll pay over the life of your mortgage. Financial
institutions may offer special accounts designed to help you save for that first
home. Consider opening a savings account specifically to fund your down payment.
One easy way to save is to set up an automatic monthly deposit from your
checking account to your savings account, allowing you to build the balance over
Choosing the right mortgage for you
mortgage needs to fit in with the rest of your financial priorities -- which
could mean increased flexibility or security. Consider the following when
choosing your mortgage:
• Choose a shorter amortization period - In
general, the shorter the life of the mortgage, the lower the overall interest
cost. Consider choosing a 20-year amortization rather than a 30-year
amortization to save you money on interest costs and help you become debt-free
• Fixed vs. variable - Variable-rate mortgages have been a
winning strategy over the long term, but fixed rate mortgages (currently at
historic lows) provide cost certainty and peace of mind.
your mortgage payments - Use a mortgage payment based on a higher rate to
stress-test your budget; total housing costs (mortgage payments, property taxes
and insurance, etc.) should not consume more than one-third of household income.
Applying for pre-approval
A pre-approval establishes
the amount you can reasonably afford to borrow towards the purchase of your
first home. Consider the following benefits to getting pre-approved:
Have a good idea of your finances - You will receive a better idea of how much
you are qualified to borrow, saving time looking at homes that meet your
affordability range. Your term and amortization, as well as estimated monthly
payments, are provided at approval so you can use these figures when planning
your overall budget.
• Moving quickly - If you are pre-approved for a
mortgage, you'll be able to move quickly to make an offer when you finally find
the perfect home for you.
Source: BMO Harris
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