Buying A Home In Spring 2023? How To Prepare Now And Save Money!
4 Steps To Prepare For Your Home Purchase
Following these steps can improve your credit score, reduce your interest rate and save you money and stress.
1) Get Credit Check
6 Months BEFORE you plan to buy your home, get a credit check.
Why so early? It gives you the time to clean up any issues.
Credit blemishes could include:
Liens or loans Over extended credit cards Unpaid utility bills Unpaid parking tickets (yes!)
Even if you run out and fix these items right away, it usually takes a couple of months to reflect the improvements on your credit check.
So fix them now, before you apply for a mortgage.
A clean credit often means better interest rates for you.
2) Buy RRSP's with your downpayment money
That's right. At least 90 days BEFORE buying your home, talk to your investment advisor and put as much of your downpayment into an RRSP as possible. Why? Read below!
If you still have room in your contribution limits, go ahead and make another deposit at least 90 days before you go home shopping.
You’ll be able to take that money out and use it as a down payment, and STILL receive the tax refund as well. This is actually a neat little trick for anyone looking to buy their first home. Check this out:
Let's say that you have $10,000 saved for a down payment. On Jan. 2nd, you deposit this into your RRSP (assuming you still have the contribution room for the previous year).
You file your income tax return, claiming a $10,000 RRSP contribution, which will get you a refund.
The size of the refund depends on your tax bracket. For this exercise, let’s assume that bracket is 30%.
On April 15th, you pull out the $10,000 to be used as a down payment on your first home. This is done WITHOUT penalty or loss of any kind. (Some lenders may charge an admin. fee, so check with them on this)
End of April, our federal govt sends you a tax refund which is now $3,000 larger than normal (30% of $10,000). This additional money is like a gift from the government. You can use it as part of your down payment or closing costs. For more info and to check this out, contact my friend and expert Thomas Johnson of Cascade Financial in Winnipeg.
Your real estate agent is the quarterbck of your home buying team. He/She should be able to recommend many other professionals, including a great mortgage lender.
4) Get Pre-Approved
Having a firm pre-approval letter will give you a leg up on your home-buying competition.
Pre-approval brings with it a number of benefits:
Knowing how much the home buyer can afford Streamline the mortgage application process Give the home seller a sense of confidence in your offer HOLD YOUR INTEREST RATE FOR 90-120 DAYS
This last benefit is worth expounding upon. (Be sure to check with your lender on the following information, as not all lenders follow this rule)
Let’s say its April 1st and you received your pre-approval with a rate of 6.2% for 5 yrs. You go out and look for a home, and find one on May 25th. Your offer is accepted (yeeeaaa) and you now apply for your mortgage.
To your disappointment you learn that interest rates have gone up to 6.9% (on a $300,000 mortgage over 5 yrs, this will cost you approx. $10,500 MORE in interest) But this is where pre-approval kicks in. Your 6.2% rate had been guaranteed since April 1st and is still valid.
But what happens if rates go down?
So let’s say that by May 20th, the mortgage rates have actually dropped to 5.9%. Too bad, right? Nope! You get the LOWER rate and win again.
So pre-approval is a Win-Win situation. Get it done!