MATT SLOAN | 5 Money Tips to Help You Buy a Home in 2020
Tuesday Dec 03rd, 2019
Whether you're a first-time homebuyer or an experienced purchaser, here'show to buy a home in 2020.
For those who are ready to graduate from the lifelong rental cycle or the upgrade-buyers looking to leave their city pad for something with a bit more space, and maybe a backyard or a lakefront view — 2020 is the year to make it happen.
Naturally, before you make any large investments such as buying a house — you should probably do your research (and partner with a realtor who can help guide the way… ahem).
If you’re not sure where or how to get started when it comes to getting into a home in 2020, keep reading. Here are the financial basics to buying a home next year.
DETERMINE HOW MUCH HOME YOU CAN AFFORD
The first step to getting into a home in 2020 is to determine how much home you can actually afford.
I recommend that you do this before you start your home-shopping process.
Calculating how much home you can afford will help to give you a realistic expectation when coming up with the down payment for your house.
GET YOUR PROPERTY APPRAISED
An experienced realtor should be able to do an accurate home valuation; however, you should get a proper appraisal that’s determined by your mortgage lender or financial institution to evaluate your current property and its perceived market value.
You’ll want to know what they believe you’ll realistically get for your property and you can use this information to help you with your home buying and selling strategy overall.
FACTOR IN UNEXPECTED COSTS
Keep in mind, whenever you’re thinking about real estate costs, you’ll want to factor in additional expenses like commission to sell, an outstanding mortgage balance, land transfer, legal and moving fees, and that’s just to name a few. Add any other property-specific costs that might come up during this time. Preparation and awareness is key.
PAY OFF DEBTS AND INCREASE YOUR CREDIT SCORE
In 2019, the minimum credit score needed for mortgage approval from one of Canada's big banks is usually around 640, though some mortgage lenders might even go as low as 620. For some added context, Canadian credit scores range from 300 to 900 and the higher your number is, the better chances you’ll have at qualifying for a mortgage.
Where you can pay off any credit card debts, minimize your credit utilization ratio (the revolving amount you carry over/keep on your credit card each month) and set up automatic bill payments to make sure you always make your bill payments on time.
NAVIGATING CANADA’S MORTGAGE STRESS
Remember, Canada’s mortgage stress tests are a financial threshold that homeowners must qualify for in order to ensure homeowners and buyers could continue to afford their mortgage payments if interest rates were to increase.
The qualifying rate is determined by the Bank of Canada and does have a real impact on a home buyer’s purchasing power. The mortgage stress test rate is typically higher than the actual rate of your mortgage but would protect you against any rate hikes.
As a general rule of thumb, when it comes to getting approved for a mortgage, the Bank of Canada says your gross debt to service ratio cannot exceed 32.00% and your total debt to service ratio cannot exceed 40.00% of your annual pre-tax income.