- Prepare a budget. Get a clear picture of your family’s finances before you hire an agent or apply for a mortgage. List all your monthly fixed expenses, such as car payments, current rent or mortgage, utilities, school tuition, and loan payments. Add categories for other expenses such as food and entertainment.
- List your debts. Make a list of all credit card debts, student loans or other debts that require regular monthly payments. Use your statements or call to get your most recent balance so you know exactly how much you owe.
Figure out your debt ratio. Canada Mortgage & Housing Corporation (CMHC) has a great online Debt Service Calculator that will do this for you.
You need to know two ratios.
- Gross Debt Service Ratio (GDSR) – This is your housing costs as a percentage of your gross monthly income. Your GDSR must not exceed 35%.
- Total Debt Service Ratio (TDSR) – This is your housing costs + other debts as a percentage of your gross monthly income. Your TDSR must be below 42%.
- Get pre-approved. Your mortgage specialist will help you with #1 and 2 above. They are required for you to get pre-approved for a mortgage before you start shopping. A pre-approval ensures you’re shopping in a price range that you can afford. You don’t want to fall in love with a home only to find out you can’t afford it! Pre-qualified means that you give a lender your overall financial picture, including your debt, income and assets. The lender evaluates this information and gives you a ballpark figure of the mortgage amount for which you could qualify. Pre-qualification can be done over the phone or on the Internet, usually at no cost. Pre-approved means that a lender evaluates your debt ratios, your credit report, and your overall ability to repay a loan. They usually ask for written confirmation of your income and down payment. You should receive a written pre-approval that says, “XYZ Bank will lend this buyer X number of dollars to buy a home.” Want to learn more? Check out this great post: Mortgage Pre-Approval – Don’t Overlook The Importance.
- Make a list. A home buyer checklist is about more than finances! Before you begin working with a Realtor, make a two-column list of needs vs. wants. Be sure you know the difference! You need three bedrooms; you want a swimming pool. Be very upfront with your Realtor about exactly what constitutes a deal-breaker in your purchasing process. Try to make sure everyone involved in the decision is on the same page. If not, a good real estate agent can help!
- Find a Realtor. Once you’ve done your homework, it’s time to start looking. You want to find a Realtor who represents you and puts your interests first. The best way to find a Realtor is to ask friends and family for recommendations. If you are new to the area and don’t know anyone, interview several Realtors. Chemistry is important. Look for someone who knows the area and price range you’re looking in.
- Ask the right questions. When you are talking to prospective Realtors, don’t be afraid to ask probing questions. And expect to get frank, straightforward answers. Here are a few to get you started:
- How long have you been in real estate?
- Do you represent both buyers and sellers? How many of each are you currently working with?
- How many homes did you sell last year?
- Are you familiar with the neighborhoods we are considering?
Whether you’re a first timer or an experienced homeowner, a home buyer checklist can help you get organized. Get ready so that when you find “the one”, you’re ready to make an offer!