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Home Buyer Preparation: Are You Ready To Buy

The joy of owning your own home may not be as unattainable as you think! Here are some questions that will help you measure your preparedness to buy a home of your own. If you can answer “yes” to all of them, you are ready. If not, you will know the areas you need to work on.

So, answer the following questions to find out if you are ready to buy a home!

Mortgage Considerations

Do you have regular income?

This may be from a job or any other source of income that can be expected to continue for a long-term period. If your income is from employment, the mortgage lender will probably require that you have at least 18-24 months history in the same type of employment.  Going to school to prepare for the type of employment in which you are involved will also typically count towards that mandatory time frame. It is also okay, if you have recently changed jobs, as long as you remained within the same field. In this case, the lender would simply want confirmation that you have surpassed any applicable probationary period regarding your job.

Is your income verifiable? 

If you are an employee receiving a W-2, then you shouldn’t have any trouble documenting your income. If you are self-employed, it can be trickier. With recent changes in the mortgage industry, many of the loans that were available for self-employed borrowers were eliminated; especially those that provided for stated income or limited documentation.

You will likely be required to document your income using an average of the income shown on your tax returns for two or more years. Unfortunately, tax documents are normally completed in way that minimizes income as much as legally possible; they may not represent your true income, but the system rests on the approximation.

Is your credit history in good shape? 

The better your credit scores, the lower your interest rate. As long as you pay your bills on time and don’t have any accounts that are past due or in collections, you should be just fine. However, it is always a good idea to check your credit report to make sure there are no errors or items you don’t recognize. By law, the credit bureaus are required to provide you with a free copy of your credit report- once a year- if you request it.

Are your other debt payments low enough to allow for a mortgage loan? 

Typically, the lender will allow a certain maximum percentage of your overall income to go towards servicing debt payments (including your mortgage). When they calculate that percentage, deducting the amount that will go towards your other outstanding debt payments, the remainder is the payment amount that they will allow for your mortgage. Obviously, more money allocated to other debt- car loans, student loans, revolving credit, etc.- means less money available for mortgage payments. The lender will also adjust the approved payment amount, to take into account the added cost of homeowner’s insurance, property taxes, mortgage insurance, homeowner or condo fees and any other related costs.

Do you have enough money available for a down payment? 

The days of easy credit and nominal down payments are over. Typically, you are going to need to have at least three to five percent of the purchase price available for a down payment. In certain cases, this can be gift money or borrowed against a 401K. In some cases, condo or more established developers will offer payment installment plans to allow you time to build your down payment, usually to help encourage buyers to “buy into” pre-construction homes. This is a great option for first-time buyers especially, who want to build their own capital for a down payment rather than borrowing, and may benefit from staggered payments. It’s generally good practice for your mortgage experience as well!

Whichever way you choose to go, you’ll be hard-pressed to find a home that you don’t need at least a few thousand dollars to at least secure. It’s in your best interest to pay the highest down payment that you can reasonably afford; the higher your down payment, the lower your mortgage insurance premium and interest rate will be.

Other Considerations

Have you discussed the ideal home with your family? 

When it comes to buying a home, you want to make sure that you acquire a property that will suit your needs now and into the future. Discuss this with your family. Give each member of the household a chance to voice their opinion and make a list of the things that are mentioned. Divide the list into needs and wants, and prioritize each list so you know what is most important. Having a clear idea of what your family is looking for in a home will help make the search much easier.

Have you talked to friends and associates about service providers? 

When buying a home, you will probably need the help of a several professionals. This may include a real estate agent, a loan officer, a home inspector, a closing attorney and possibly others. The best way to find professionals that will do a good job for you is by asking around and getting personal referrals. You can also visit our Professional Directory to search for quality service providers in your area! There is nothing like first-hand and local experience to be able to judge the quality of a person’s service.

So, there you have it. If you have answered “yes” to most or all of the above questions, you are well on you way to owning the home of your dreams. If you answered no to any of these questions, those are the areas you need to focus on. For more on buying, check out the Canadian Home Find Buyer’s Guide … and save yourself thousands in costly mistakes!

Categories: Buyers,Knowledge Library