First time home buyers questions

[sean1240]

We are first time home buyers. Our interest is to stay in the Peel region,Ontario and we would need a family home with 3 bedrooms, 2.5 washrooms with a small yard. I’m looking at atleast a minimum price of 800-900k.

I am looking for some education around mortgage and downpayment. It was my understanding that given our finances and current downpayment we have, at this point in time,we aren’t able to purchase a home and should continue to save for the 20% downpayment.

What we have right now:
1. 35k cash for downpayment
2. 5k in FHSA
3. Able to afford $4200 plus utilities/monthly towards mortgage (currently paying $3600 in rent!)
4. Yes-I understand there will be property taxes and I think we can manage that.

Not sure if relevant:
Our after taxes monthly family income is approx $11500.

Given all of the above, and the house price I shared, can we qualify for a mortgage at all in our budget? What is a first time home buyers plan (I’m not asking about the FHSA). It was always my understanding we needed 20% so my goal was to save towards that but as you can tell- it is a long road towards that. Add to it, multiple kids, some family and health needs, it takes time to save that much. Home ownership is a distant dream.

 

[rockwell21hr]

@sean1240 As others pointed out, if the question is « Do I have enough saved for a down payment on a 800k house? », the answer is yes, but barely.

With CMHC, you will need at least 5% cash down, which set you to 40k, on a 800k house. If you plan on maybe having to go up to 900k as you originally said you would need 45k saved up.

Without CMHC you would need 20% cash down (so 4x the down payment).

As for the bank vs mortgage broker, it really depends. The direct advantages of going with your bank is that it’s all integrated with your banking web portal, so it’s easy to manage and if you ever need to borrow from the mortgage down the line for renovations / repair / car purchase, it’s two clicks always. But with the current interest rates, you might not want to do that. The second advantage is that banks do value having all your business with them, so if down the line you need a credit line or anything, you’ll probably get approved no questions asked.

However, a broker might offer you lower interests than the bank. In terms of asset / collateral when it’s time to borrow in the future (ex : credit line) it’s supposed to be more of the same since the mortgage can also be seen as a collateral. Banks don’t mind much but they do mind a bit since in case of bankruptcy they might have to fight to get paid. Another thing to consider is that the broker will somehow need to be paid, and asking them how would help the decision.

I would advise saving more, to account for the potential of buying a 900k house, maybe you will also need to do some renovations from the get go, or repairs, plus as you pointed out there is welcome taxes, school taxes, etc.

When it’s time to pick where you will have your mortgage you can definitely both consult with your bank and a broker and see what’s best for you. If both options are mostly equal, I would prioritize the bank for all the reasons listed above.

Good luck !

 

[vlo]

@sean1240 Hey, i just bought our first home this year. Our broker has been super easy to deal with. These questions are very easy for them to answer. If you need a 900k home, your down payment should be 5% of 500k, 10% of the remaining 400k. You’d need a total of 65k downpayment. Apart from this, you’ll need about 1-2% of the home value for closing costs such as inspection, lawyer, land transfer fee, etc.,

If you need a broker referral, DM me. Bank rates were ridiculously high for us, we finally signed with a mono line lender and got the best available rate due to our broker. Although our mortgage is with first national, we have no issues integrating the mortgage with our daily banking bank.

 

[davidtree]

@sean1240 Edit: income is there.

Just go talk to a broker at your bank and get all your questions answered. Don't worry about wasting their time.

 

[sean1240]

@davidtree Ohh I did. I put monthly post-taxes income.

The trouble with mortgage broker is honestly it was confusing to me- numbers aren’t my strong suit & it sounded like I was being pushed into something that I wasn’t fully understanding.

 

[hollywoodx]

@sean1240 Don't talk to the bank, talk to an independent mortgage broker. Their services are free, they deal with all kinds of mortgage companies that individuals can't access on their own, they'll find the one that works for you, and they will explain to you how they get paid. They'll also be pretty honest if you're not going to qualify or if you'll struggle.

 

[sean1240]

@hollywoodx I was under the impression that banks were the ideal choice. But with a measly downpayment, I’m hesitant to reach out to anyone to talk to rn.

 

[any]

@sean1240 It never hurts to start fostering relationships. I talked to a mortgage broker before I even saved my down payment. Helped me get a clear goal and an understanding of the process.

 

[deeann]

@sean1240 Download the dominion lending Center mortgage app, I think it’s called mortgage tool box or something. It’s hands down the best app I’ve used to run different scenarios etc,…. If it asks you to add a broker add Jody Ross she get things done! Good luck

 

[sean1240]

@deeann Ok thank you!!

 

[deeann]

@sean1240 Hope it works for you, the reason I love it is I can use it to daydream different scenarios. You can change things like income, mortgage amount, rate etc… and nobody bugs you while you find what works lol

 

[sean1240]

@deeann Sounds perfect for me. But will it also help me understand what this first time home buyers incentive is. I’m trying to understand do I NEED 20% or 5%? It is going to take me atleast 10 more or more years to get my 20% saved.

 

[deeann]

@sean1240 One of the biggest differences when talking about the 5% vs 20% is called “conventional” or “default insured” if you put down less than 20% you pay mortgage default insurance (CMHC) which could be 10s of thousands on top of you mortgage. HOWEVER it allows you to buy a home before having to save that much which is a good trade off. There are also different mortgage rates based on being above or below 20%. Having said this, the 20% threshold doesn't come into play for your eligibility for a first time home buyer incentive. that just basically means you can go as low as 5%. you're good to use the FHSA its very flexible, try to top that up before using the RRSP for home saving. Run your numbers in the app based on say 10% and see what you can make work, don’t get too hung up on the 20%. Does this address what you’re concerned about??

 

[sean1240]

@deeann We don’t have much to withdraw from our RRSP so that isn’t an option at all. What we have -I have listed. I guess I will use that app you shared to understand my options and yes-thank you, it helps somewhat understand the difference between 20% vs 5%. I was led to believed that we MUST have 20% -nothing less.

 

[peppermint_patty]

@sean1240 I think it would be doable for sure. I would contact a bank and run some numbers with them. Once you’re pre-approved for a certain amount it makes the whole searching and buying process easier.
Also don’t forget to factor in lawyer fees and inspection, if you plan to get one.
Good luck!

 

[sean1240]

@peppermint_patty This is confusing. Some say bank, some say private mortgage person. My concern first off is do I even have enough? I feel maybe the kind of house I want (honestly it’s “need”) is lofty/unattainable. And, in reading conflicting info about first time home buyers incentive where supposedly FTHB get support towards their downpayment…? I’m not sure how. And I’m nowhere close to the 20% downpayment needed and even if it’s just 5%, I don’t think I have enough for everything (lawyer, inspection etc).

 

[younglite]

@sean1240 With cash of 40k you don't have enough to buy something at $800,000. You need to save up more cash. You will have closing costs to consider as well as the downpayment and moving costs. You only need 5% down as long as you stay under a million purchase price and pay CMHC insurance. Go to their website, it actually is a great source of all the information you are looking for here. Also please understand no one is telling you to go to a "private" mortgage person. That is a whole different can of worms. You are looking for a Mortgage Broker. You can also contact the mortage agent at your bank. Both can provide you with information and prequalify you. It will cost you nothing. Let them know you are just starting the process and need guidance, they will be more than happy to answer all your questions as will a realtor. I know what you read here but a good realtor will help walk you through the process so you know what to expect when the time comes to get serious. Again, free information no obligation.

Lastly. I have to ask do you not have family or peers who have experience purchasing a home and can tell you what their experience was? This is such an underutilized resource - I can't understand how people are operating these days, not having these conversations with parents and siblings who may have already been through the process. Seriously, are random internet people really better than asking people you know?

 

[sean1240]

@younglite Don’t have family who can help. And friends- everyone seem to look out only for themselves. Truly appreciate the detailed reply!! Very helpful.

 

[younglite]

@sean1240 That's too bad that no one in your circles can guide you. If you have any other questions don't hesitate to ask, I am more than happy to help if I can.

 

[peppermint_patty]

@sean1240 I went with bank, but I think it’s a personal choice. I just contacted them to get information and then based my decision off of that.
I didn’t get any supposed either down payment, but I only had a 5% down.
Lawyers fees will be dependent on your lawyer and if they run into any problems. Inspection is based on square footage of the house I believe. It was around 500 for mine (house with in-law suite, in a small town outside Ottawa)