I thought long and hard about what to write for this article and I thought I would share my tips and tricks for First-Time Home Buyers, especially in this market.
True these last few years have been challenging or some would say frustrating. Writing multiple offers, getting outbid over and over or paying a crazy amount of money for a modest home. It is a fact that the housing market and prices of homes in Nova Scotia are insane, however necessary to continue to boost this beautiful place we call home. The Maritimes has seen some drastic changes with the pandemic and how that impacted property values in the market. We were at one time the safest place in North America, how crazy is that to say! So naturally, we became a hot destination for people to move to, which should not be surprising considering we had low property values, pandemic safety (for a minute) and one of the most beautiful coasts and places to live in the world. All of this and many other factors played into creating a buying frenzy and sadly first-time home buyers were pushed out of the marketing in most cases. Now we are seeing a lot of buyer fatigue and disappointment plus this has caused havoc on the rental market as many that were looking to purchase homes are staying renters and with more and more people needing rental properties it is now driving those prices up also and causing another big issue which is affordable housing, especially in the HRM.
I am here to tell you that we are seeing a light at the end of the tunnel! Most real estate agents would agree that home prices are falling, and overbidding is reduced. Mind you there are still pockets where a home in the most desirable area is still seeing the bidding wars but for the most part, things have settled down also thanks to the Bank of Canada with the 2022 rate hikes to Prime the market is cooling off.
What is prime you ask? Well, prime is the benchmark that the Bank of Canada has set for interest, this controls most financial things in Canada, such as mortgages, Lines of credit etc. Why is this important you ask? Well to cool the housing market and reduce inflation among other things, I am sure.
So, with all of this happening I can see why first-time home buyers are getting discouraged and not knowing where to start, so I will lay out a plan that could get you back on your feet and into your dream of home ownership!
What the Banks want to see when they receive an application and understanding what they are looking for is super important in the approval process.
Banks well any lender for that matter, want to see you can pay your debt, simple. Do you have a steady job, making a consistent income and how do you manage your money for debt repayment? This is the main objective for any financial institution.
A credit score is not always the key, meaning if you have a great credit score but not a lot of activity the banks will question why. I like to call credit a necessary evil. You need to have it and you need to use it but mainly you need to respect it. Things not to do when it comes to your credit are always to pay your bill on time and only use your available credit to 75% if you have it at a limit or close will also impact your application.
When providing your income, I see a lot of people putting a rent payment to them in other income from a close relation living with them, or boyfriend or girlfriend that is helping pay the rent on their application. We cannot use any of this income because it’s not guaranteed or claimed on your taxes. Some exceptions to this rule are if you have a rental unit in your home and you have signed a lease and proof of deposits to your account for rent payment; this also must be a unit, not a room.
Child tax credit or support payments must be proven as well, for child tax we will need your CRA statement and for support, you need to have a court order and proof of the deposits as verbal agreements are not always accepted as this is not guaranteed. Tips and under-the-table income are also not accepted unless it is claimed on your income taxes. No one can escape the government when applying for a mortgage and you can also have no back taxes owed either.
Credit and income are the two most valuable things on a mortgage application. So, what happens when you finally have an accepted offer? This is where the fun starts in my opinion. You need to prove all the above meaning, we need your notice of assessment (NOA) for the past two years, your T4, bank statements, letter of employment, and pay stubs; and if you send in old stubs and bank statements you will get them back along with a request to send the your most recent and redacted bank statements or balance screenshots are not accepted as we need to see line by line history. I will be honest that most of my clients find this the most frustrating part, but a mortgage is a lot different from a car loan, or any loan for that matter. Consider this, if you were asked to lend hundreds of thousands of dollars wouldn’t you want to know everything about the person who is asking? Well, the banks feel the same way.
Down payments are another tough one, you need to prove that this is your money and you have got it legally, not borrowed, not laundered. We need to see how you got it. Chances are if you just randomly got 20K in your bank account and no proof how chances are it will not be accepted. You can, however, use a down payment in the form of a monetary gift from a loved one, Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA) or any other registered investment or just from your blood sweat and tears and diligent savings, but please make sure you have a 90-day history of you having this money. The reasoning for this is to show you can manage your money and you did not get it from some cartel aka money laundered, stolen or gained these funds from illegal activity. Therefore, we need proof via bank statements not redacted.
The government is also here to help if you need it with a few first-time home buyer incentives like the down payment match program, down payment loan and first-time home buyers tax credit. Also, some lenders will offer a no-down payment product or cash back to help with closing costs. I can help you with all of these if you need the help, just reach out to me.
On the topic of closing costs, in addition to your 5% down payment you also need to have money for closing costs, what are they you ask? Well, they are 1.5% of the cost of your home deed transfer tax, lawyer fees, municipal tax adjustments, and oil or propane adjustments. I also encourage my clients to save an additional 2.5% on top of their down payment for this. Yes, buying a home is expensive, but for many it is well worth it!
People always say if I can afford my rent why can I not I have a mortgage, simply put you can walk away from your rent and move. You cannot do that as easily with a mortgage unless you wanted to sell or foreclose. Your rent also includes things like property tax, water, maintenance and heat in some cases, which all can add up over time.
I know this seems like a lot but don’t worry! You will have a team of experts behind you every step of the way! They are as follows
A real estate agent (make sure you choose wisely) is a person you will spend a lot of time talking to so you will want one that understands your needs and wants, one that will be honest and one you can reach easily and also has the same vibe as you!
A mortgage professional like myself! Brokers have a different touch than mortgage specialists. We are reached easily and help you every step of the way from the frustrating parts I mentioned above to the day you get your keys! Don’t get me wrong you can get this at your local bank branch, but they have a lot less time for you in some cases due to staffing issues etc. Brokers also have more solutions as we have an array of products for every situation including private lenders and alternative lending whereas the major banks just have one or two.
Lawyer, pretty self-explanatory really, they have your legal interest and will make sure everything is as it should be. They explain your rights and what you are getting into. I would look for one who specialized in real estate law and first-time home buyers.
Home inspectors, these guys can be your best friend, figuratively not literally, well unless your friend is a Home Inspector. There guys and gals make sure you know what work you will need to consider when buying a property so that you know what to offer and what expenses you may to considered in the near future.
Home insurance (are you in good hands?). Making sure you have home insurance is a must and make sure you have the right one to meet all your needs.
In closing, this is stressful, and you will not always like your mortgage professional, but you will love them the day you get your keys to your dream home!
I am here every step of the way and after!
by Tamara Vallis
Broker Licence #2021-3000047 Brokerage Licence #2021-3000031