The Smart Life
5 ways to stress less about money when buying your first home

Thinking of buying your first home? How much can you afford? How easy is it to get a mortgage? What about if something happens to you or your spouse/partner?

If questions like these have been running through your head, you’re not alone. Here’s what you need to know so that you can take a less stressful approach to buying your first home.

1. Determine if you’re financially ready for a mortgage

First, you’ll need to determine how your monthly household expenses and debt payments compare to how much money you earn. Based on these numbers, lenders use two ratios to help determine if you can afford a mortgage. By doing some math, you can get an idea yourself:

  • Your Gross Debt Ratio (GDR) is less than 32% of your household’s gross monthly income. Your GDR is determined by adding up your housing costs — principal, interest, taxes and heating (or PITH).
  • Your Total Debt Service (TDS) ratio is no more than 40% of your household’s gross monthly income. TDS includes all of your repayments (loans, lines of credit, credit cards) plus your housing costs (PITH).

Expert tip: Rather than stress about the math, use this Canada Mortgage and Housing Corporation (CMHC) interactive form to help you figure out your GDR and TDS.

2. Get mortgage pre-approval

A mortgage pre-approval lets you know how much home you can afford realistically, so you can go shopping with confidence and work more effectively with real estate agents.

“Real estate agents will see you as a serious buyer rather than someone who is just looking around,” says Jonathan Boucher, Manager, Residential Product Management for TD Insurance. “That gets their attention and it helps them weed through options to those that best fit your budget.”

It’s also a big plus once you’ve found a home you like. With a pre-approved mortgage, you can put in an offer more quickly and more confidently than if you didn’t,” explains Mr. Boucher.

To get a mortgage pre-approval, make an appointment with a mortgage specialist.

3. Work with your bank

To get a mortgage, you’ll need a good credit rating. That may be complicated when you (or your partner if you’re buying as a couple) have a rocky credit history. And if you’re new to Canada, you may not have a Canadian credit history yet.

In either circumstance, you can work with your bank about establishing a good credit history and improve your eligibility for a mortgage. It may take a little time, but it is possible.

4. Stress less with insurance

“Insurance is part of buying a home,” says Mr. Boucher. “Some types of insurance make sense for everyone; other types make sense for couples.”

  • Mortgage default insurance. “If your down payment is less than 20% of the home’s price, you must get mortgage default insurance,” he explains.

Expert tip: Visit your bank or ask your mortgage specialist for advice on saving for a down payment.

  • Home or condo insurance. When you legally take possession of your home or condo, you must have enough insurance to cover the replacement value of your home and its contents.
  • Mortgage life and disability insurance. “Generally, mortgage life insurance will cover your mortgage should your die, have a terminal illness or have an accident,” he says.

5. Take advantage of money-saving programs

Two popular federal programs can help boost your down payment and help cover additional costs.

  • Home Buyers’ Plan (HBP). Qualified first-time homebuyers can withdraw up to $25,000 tax-free from their registered Retirement Savings Plan (RRSP). The withdrawn amount must be paid back in 15 annual installments starting the second year after the year of withdrawal.
  • First-time Home Buyers’ Tax Credit (HBTC). You can get up to $750 in tax relief if you’re a first-time buyer. The HBTC was established to help cover additional costs associated with buying a home (for example legal fees and land-transfer costs).

Finally, when it comes to buying your first home, the more you know the better. “Feeling prepared and ready is a good way to relieve some of the stress involved,” says Jonathan Boucher. Click here for a simple guide through the home-buying journey.

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Protect those who depend on you

As a homeowner, the last thing you want is to leave your family with a big financial burden should you die. The right life insurance is a good way to protect those who depend on you. It can help cover:

  • Mortgage payments or the outstanding amount on your mortgage
  • Utilities and taxes
  • Repair and maintenance costs
  • Probate fees
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