If you’re a student, you’ve probably caught yourself saying “I’ll never be able to afford a house”.
The market seems untouchable as a young person, not to mention most don’t know the first thing about it.
Buying your first home may feel like light years away, but it’s closer than you think. Before you know it, you’ll be looking to take that leap of faith into the daunting real estate market.
With the help of industry experts, here’s everything you need to know as a first-time home buyer.
Credit, credit, credit!
Most people over the age of 18 have a credit card. These beautiful, plastic rectangles can make dreams come true. However, they can also get in the way of them.
Bernie Klacer is a mortgage broker who’s been in the game for over 10 years. He says that although you’re never really taught it, credit management is one of the most important steps towards getting a home.
Credit is more than just making payments on time, it’s about building a good credit score. Klacer warns students make the right purchases and to think about their future in real estate first.
“Car payments are the number 1 mortgage killer. You can be 21 years old student and they’ll give you and $80,000 car. You’ll only have a lease payment of $690 per month but that person is now excluded from the mortgage market, if they didn’t have that car payment they could have bought that 250 starter home in London”
While you’re working on building good credit, there’s another factor to keep in mind.
Down payment
Saving money is no easy task. Just ask Michael Mullis, President of the Mortgage Teacher.
He admits that this wasn’t his strong suit growing up. But fear not, he is now a money expert and yes, he owns his own home. Mullis says, “you need at least 5% down and we usually teach people to have 2% for closing costs”.
He gives the example of buying a house for $300,000 and putting 7% down. Mullis says you would need $21,000 to “get your keys and in the door”.
Once you’re ready to make the big purchase, it’s time to think about your mortgage!
Mortgage (A.K.A death contract)
As dramatic as it sounds, it’s not made up. If you go back to the Latin word, mortgage literally means: death contract.
This may have been true in the past with mortgages that are amortized over 40 years, but Klacer says 25 is the standard now.
What is it?
A mortgage is a legal lean on a property for a set amount of dollars over a set amount of time.
Klacer explains that “amortization is how long it takes you to pay the mortgage off” and your term is “the current rate you’re going to get for the specific time”.
How much is right for me?
It’s difficult to know what mortgage is right for you, which is why both experts stress the importance of contacting a professional and building a relationship. Treat your mortgage as something more than just a transaction.
From there, Mullis says they’ll figure out your debt servicing ratio. In English, this means is your income versus your debt.
“For example, you want to buy the million dollar house. Well, no I don’t. Why? Because I can’t afford it. So what I mean is this ties your income whether you’re making $40,000, $50,000… that will help determine how much of a house you can get.”
Many things are taken into consideration when making this calculation.
Klacer bases it on your gross income, then “factors in how much your principal and interest payments will be”. On the mortgage, they subtract taxes, heat, hydro, and then subtract all of your monthly obligations like credit card payments, car payments, etc.
Your house is the biggest investment of your life.
There are many things to consider when looking to jump into the market. This is why both Klacer and Mullis urge people to contact a professional to help guide you towards owning your dream home.
