How to prepare for buying your first home
Determine your down payment
If homeownership has been on your radar for a while, hopefully you’ve been putting money away for a down payment. If not, start immediately. The down payment is deducted from the purchase price of your home. So as a general rule, the more you can comfortably put down, the better. That said, there are also some rules. In Canada, the minimum amount you'll need for your down payment depends on the price of the home you'd like to buy:
- If the price is $500,000 or less, the minimum down payment you must put down is 5%.
- If it’s $500,000 to $100,000, the minimum down payment is 5% of the first $500,000 of the price and 10% of the portion of the price above $500,000.
- If it’s over $1 Million, the minimum down payment is 20% of the price.
In Canada, the amount of your down payment will also determine whether you'll have a conventional mortgage or a high-ratio mortgage, which must be insured.
For more information about mortgages, check out this glossary of mortgage terminologycheck out this glossary of mortgage terminology. Opens a new window in your browser.
Find out how much you can afford
Using a mortgage affordability calculator is a great way to get an idea of the mortgage payments you can afford to make each month. It’s also a great way to help you figure out the down payment amount you should make. If you see that the monthly mortgage payments are more than you can afford, it can be an indicator that you should keep saving a little longer to be able to put down a larger amount. There are many factors that go into this but a mortgage affordability calculator can be a great resource for a first-time home buyer.
Make a budget
Before you can really determine what you can afford, you need to have a monthly budget. Look at your cost of living and figure out what you can afford, and if necessary, where you can make cuts. Consider any debts and expenses like student loans, credit card payments, monthly transportation costs, groceries, entertainment and so on. One thing I always recommend is that you live with a practice mortgage for a year leading up to your purchase. That is to put aside the amount of a mortgage payment every month, so that you get used to it and assess what kind of impact it has on your life and finances. The bonus of this practice is that at the end of the year you’ll have extra money to put towards the down payment.
Speak to a Mortgage Advisor
CIBC has mobile mortgage advisors who will come to you at a time and place that’s convenient, to explain the different options and advise you on different strategies that could work for you. Once you’ve got an idea of where you stand financially, make an appointment to speak with a mortgage advisor.
Getting pre-approved before you start house hunting is one of the smartest things you can do. One reason is that it will ensure you only look at properties that you can afford. There’s nothing more dangerous than falling in love with something that’s too expensive and then getting in over your head. The other reason is that if you are already pre-approved and other people looking at the same property are not, you stand a much better chance of getting it. When other people have to make offers that are conditional on financing, it makes their offer a lot less appealing to the seller. Getting pre-approved is something your mortgage advisor can help you with.
Keep money for extra costs
The down payment and monthly mortgage payments are only a part of the cost of buying a new home. There are taxes, insurance costs, closing costs, utilities, and repair and maintenance costs. Make sure you’ve factored all of this into your budget, and keep an emergency fund available just in case.