First Time Buyers Guide
Buying Your First Home in Canmore, AB
If you are among the one-third of Americans who rent their space, you may be considering taking the next step toward homeownership.
Here are some first-time homebuyer tips to prepare you for your purchase.
Employment Duration
As a rule of thumb, lenders want to see a two-year work history to qualify you for a home loan. This doesn't have to be all at one employer but should be continuous. If you quit a job and have gaps between employment, many underwriters will want to know the circumstances of the gap. The longer your employment duration, the better. This shows your reliability.
Tip: Stick with your job and be ready to show your verifiable income to a lender! (Under the table payments will not be considered for job history.)
Credit History
A first-time homebuyer will need a good credit score. Your credit history and score reflect credit accounts, how long they have been open and whether they were paid on time. The higher the score, the better. The credit score looks at the percentage of debt incurred on credit accounts. Maxed-out credit accounts can indicate an inability to repay a debt. To lower your credit score, you can pay down the balance.
Sometimes, a creditor will increase your credit limit once you've established a good repayment history. To see if you qualify for a higher credit limit, you can call the creditor and ask for a credit increase. However, use caution, if you continue spending on this credit account, the increased credit limit will continue to work against you and take longer to repay.
Do not be shopping around for lenders or making big purchases in the time leading up to a home loan. Any time a creditor pulls your credit history, it will reduce your credit score.
Lastly, ensure your bills are paid on time. If you have a grace period on the account, sending a payment a day late might not matter but a week or more overdue will likely negatively impact your credit score.
To check your credit score for free, contact Free Credit Report and answer a few brief questions to get a score from one of these three agencies: Equifax, Experian or TransUnion. This will give you your current credit score and will allow you to see any errors that should be disputed.
Tip: Use credit sparingly, pay down debt, and be timely in your payments to boost your credit score!
Savings
An alarming number of potential buyers have no savings. According to a 2021 savings survey conducted by Bankrate, one in four Canadians have no savings at all and half have less than they need to pay their bills for the next three months.
Why is this important for a first-time homebuyer? Saving is a skill that will be required to purchase a home. Most first-time homebuyers will have a reduced down payment requirement, but the minimum is usually 3.5% of the home purchase price. For a quick breakdown, that's $3,500 on a $100,000 loan, $7,000 on a $200,000 loan, and $10,500 on a $300,000 loan. This down payment isn't the only thing home buyers need to save.
Closing costs are fees due at the time of closing on the real estate purchase. The closing costs are in addition to the home purchase price and include fees related to the loan such as the origination fee, underwriting of the mortgage, realtor commission, taxes, insurance and recording fee.
Sometimes closing costs can be negotiated into the purchase price. For example, making a full-price offer and then asking the seller to pay a specific amount of closing costs would be similar to making an offer of less than the selling price.
Keep in mind that there will be some costs related to the actual move, as well, such as a moving truck rental, starting utilities, and transferring water and garbage to the new homeowner.
Tip: Save as much as possible for a down payment and be prepared for other fees at the time of closing!
With low-interest rates and rising rental costs, now is a great time to move forward with a home purchase. If you are a first-time homebuyer, let us help you make your dream of homeownership a reality
