Canada Mortgage and Housing Corporation Tips on How to Buy a New House
Over the last decade, the Canada Mortgage and Housing Corporation (CMHC) has helped new Manitobans to settle in their new communities. The CMHC is responsible for ensuring that all Canadians, regardless of the previous homes (or native countries) meet their housing needs. Incredible, isn't it? If you are planning on settling anywhere in Canada, and you're unsure about where to start, just relax – CMHC has your back when you are buying a home. Apart from finding you a good house, the housing corporation can also help you secure a mortgage or property loan if your financial obligations may get in the way of buying a home. Here, we cover the best tips on how to purchase a new house with the aid of CMHC.
For New Home Buyers.
Buying a home may to be a challenge especially for newbies. The choice of house you will live in depends more on your lifestyle than financial muscle. Here is a small checklist on how to go about getting a brand new home.
Step 1: Self-Assessment and “Soul Searching”
You first need to do some soul searching. Are you buying the house for all the right reasons? For many people, this is not a one-off transaction, but an ongoing process that will take months or years of hard work to pay off. Is it in your best interest to commit yourself to ownership?
Luckily, despite the challenges and obstacles that come in the way of home ownership, the benefits far outstrip the initial investment. For starters, you will have an asset to build upon, which is the first step to wealth creation.
Everyone has a right to own a place to call home. Unfortunately, not everyone realizes that they are in a position to do so.
The biggest problem is not having access to knowledge about how they could possibly afford to make this extremely important purchase.
Your responsibility as a new homeowner.
When is the best time to make the transition from renting a house to buying a new one? Everyone has their unique set of circumstances, and there is no standard, one-size-fits-all solution to this question. Fortunately, you could always sit down and crunch some serious numbers.
Personal Finance and Renting
The first thing to factor in is the amount of money that goes to renting or leasing. It is as clear as day that once this money is gone, it's gone. Sometimes, the rent is far less than a mortgage payment. If the difference between the two is not significant, and can be covered by creating a small “wiggle space” in the budget, perhaps it is the best time to go get yourself a home. If you are in a lease agreement, the best time is when it will be up.
It will be helpful to go through the pros and cons of buying a home, rather than renting one. One thing is for sure – there is nothing quite as exciting when you have your own door.
Step 2: Getting Financing for the New Home
Calculate your income versus your expenses. This is a simple task that doesn't really require a second party, say financial advisor, to do that for you (but you can totally invest in a CPA if you are unsure about anything).
Unless they have an unexpected windfall and are looking for a place to invest, most people prefer long term financing, rather than short term. Tying some loose ends with the tax returns and all other important areas of your account will certainly help.
Here is how you can actually go from renting to home ownership
From the breakdown of expenses and income, calculate the following –
- Calculate your monthly housing expenses and debt to know which kind of home you can afford for now. The Canada Mortgage and Housing Corporation has an amazing house budget calculator for comparing your income and expenses and even determine the amount of mortgage loans that suits perfectly your budget.
- Your Comfort Comes First
Before you start it's important to determine how much you can afford to spend on a new home and still live a considerably comfortable life. Plan ahead for various expenses taking into consideration your home ownership budget. There are other expenses which relate to owning a home which include repairing and maintenance, property tax and heating & ventilation.
The rule of thumb is to ensure that monthly household expenses is less than 32% of your total monthly income. Another area to keep an eye on is your whole monthly debt – if it is less than 40% of your total monthly income, you are doing just fine.
If you are financially stable and can meet these obligations without straining yourself, perhaps it is time to step up the game and plan for owning a home.
- Maximum price of your purposed house
The maximum cost of a house that you can comfortably afford depends on a couple of factors which include your monthly income, down payment and the amount of mortgage interest rate. If you plan yourself a head of time, you won't have to worry about raising the down-payment. You can use the Canada Mortgage and Housing Corporation mortgage calculator to get the estimates of the amount of mortgage you can afford to take.
A good thing is that there is a mortgage loan insurance which guarantees you purchasing of a home with a minimum possible down payment of 5 percent of the value of the home. Imagine that.
Do your financial calculations encourage you to go for a home? If they do, then proceed to the next step to get a home of your choice. The best practice is to save more, clear debts, find where you can reduce your household expenses – and within as short a time as a year, you may be able to make that down payment.
A Little about Credit Reports
Get a credit report from a credit bureau. Is there anything you can do to improve your score? If it is possible to pay off a bigger chuck of credit card debt (or any other loan), please consider getting that cleared out. Before your mortgage loan is approved, your lender would like to know if you are trustworthy and the chance of defaulting is minimal.
After receiving your copy of credit report check if it's accurate and complete. If you don't have one current you can create one by applying for a credit card with realistic interest rates and conditions, start purchasing responsibly, and ensure you pay your bills as they come in.
Having a good credit score entitles you to a mortgage with really reasonable, if not attractive interest rates!
Getting the Mortgage
Did you know that you need to have your mortgage pre-approved before your start looking out for a home? Your realtor will want to know if your mortgage has been approved, and if your financier will award you a loan after taking your financial status into consideration. You will therefore receive a certificate for a specific interest rate.
The Canada Mortgage and Housing Corporation requires new homeowners to carry out a home inspection before making a purchase. Home inspection is done by a professional home inspector to determine the condition of the house. The fee charged by the inspector depends on the size, age and the condition of the home.
The right home for you
So, now everything is set and you are ready to go get the house of your dreams. You may already have some ideas on what it should have. A home that will serve your needs now and in the future.
Some people need a house with a specific number of bedrooms, while others prefer more special features (air conditioning, storage space, and energy savings, catering for family members with special needs). Your lifestyle may need you to include some office space in the equation. Will it be sufficient to house the kids as they grow up? What about after retirement?
There is a delicate balance that has to be struck between long term and short term goals. The location of the home may be dictated by what suits you. If being close to a city is important to you, you will need to settle in a suburb or somewhere you will have access to a reliable and affordable mode of transport.
Other factors include being close to place of work, a secure area, closer to family and friends, or even close to recreational facility. The geographical location you chose goes hand in hand with the type of neighborhood you prefer. Sustainable neighborhoods can be near social institutions like schools, churches, and health facilities, just to name a few. If you are not sure of what exactly you need from your new home, check out CMHC worksheet home features and checklist.
Talk to Professionals
Buying a home can be quite challenging and painstaking. Here are some of the most important people to see:
- A realtor
- A lawyer
- A home inspector
- A land surveyor
- An Appraiser
Not sure where to start? CMHC has a detailed worksheet to guide you in carrying out interviews with the professionals you may need for your team.
The home – buying process
There are various ways for boosting your house search. Here are some of the best (and cheapest) ways to get started:
- The internet. This is the best place to look these days – forget about all the rest. There are reliable websites on the internet to look for available real estates. They even give complete information and pictures of the property in question. You can also search a home by number of rooms, location, price and other special features.
- Use of word of mouth. Tell your friends, workmates and family that you are looking for a house. Word travels fast and sooner or later you will hear of home which just becoming available.
- Real estate websites, magazines and newspapers. Look out for free daily publications of real estates on sale which are locally at stores. Some of the real estate adverts come in with pictures and short description of the estate.
- Talk to a professional realtor. You can also seek assistance of a realtor look for and select the best home for you.
- Watch out for ‘'for sale'' sign. Go out to a neighborhood you like and look for ‘'for sale'' signs. You can find an available house which has not yet been listed by the sales agents.
- What not to look for: Commission-based services, or agents who take commission for leads or sales. They may be keen on making a conversion, and not act out with your best interest in their hearts.
After you've found a suitable house give the vendor an offer to purchase the property. The offer or agreement of purchase and sale is a legal document which should be carefully prepared by you, by a realtor, notary or lawyer. The document states full names of parties, price, amount of deposit, closing date and the date the offer expires. After your lawyer or realtor presents your offer to the vendor the latter can either accept the offer and the deal is sealed, or makes a counter – offer.
The counter-offer might be different terms and should be carefully scrutinized. Its terms may be for higher pay or the flexibility of the payments. Therefore if you agree to the counter-offer, the deal is sealed and you get the property. If you don't agree with the new terms, the deal is not sealed, the sale is off and your previous deposit is returned.
Getting the Mortgage Agreements & Terms of Payment
You can get a mortgage after your offer to purchase document has been signed and accepted. Your lender will cross check your financial information and update you, if need be, and complete the form for your mortgage application.
You may be required to get land survey, property appraisal, or tittle insurance if necessary. Your lender will explain the types of mortgages, terms and conditions, payment schedules, interest rates, and answer all relevant questions you have about mortgages in general and your mortgage in particular.
After your loan has been “processed” and approved, you can plan on how to move. A friend or a moving company can help with this. It is important to ask about how they charge – is it hourly or flat rate? You want to ensure that your property is safe when moving, so ask your realtor or the insurance company whether your home insurance covers goods on transit.
Some moving companies offer additional charges to cover transit goods. It is usually advisable to transport your own valuables, to avoid breakage or loss. Discuss with your moving company a suitable day to move and be there for the packing, hauling and unpacking.
Welcome Home. Here are Some New Responsibilities that come with Home Ownership
Now that you are a new homeowner there are responsibilities that come with it.
First, repayment – repay your mortgage before the due time weekly, monthly, or biweekly depending on your agreement with lender. Late payment results in extra charges and has negative impact on your credit rating.
Failure of payment may result in serious consequences like risk of foreclosure. The best way to avoid late and failure of payment is to automatically deduct the amount from our account on a monthly basis.
Apart from payment of mortgage loans, insurance costs there are other operational costs that relate to ownership of a home. They include security alarm monitoring, snow removal, gardening and other miscellaneous costs which may be include in the monthly maintenance charges.
In as much as there a lot of things to pay for, it is still important to save for emergencies. Live within your budget and cut on less important items from your budget list in order to save for emergencies.
On a final note…
Finally, ensure your home is safe to reside in. Make sure there is a reliable evacuation plan in case of emergencies. Make room for an extra door, easy-to-open window and fire extinguishers. Subscribe for CMHC monthly e-newsletter to get top practical tips and useful information.
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