Last week we posted a blog that helped make sense of the new mortgage rules that were introduced on January 17, 2011. Because of the high debt to income ratio in Canada, the government had to change the way people borrowed money. These changes include:

• The amortization period will be changing from 35 to 30 years.
• You can refinance up to 85% of the value of your home versus the old number of 90%.
• Government of Canada will no longer insure HELOC’s.

If you’ve been thinking about dipping your toes into the real estate market for the first time, I’m sure these new rule changes have made you speculate your decision to buying your first home. The good news is that only the amortization change will affect what you can afford.

Before you can shop for your first home you must know what you can afford. The easiest way to find out is to run some numbers using a mortgage calculator found on any of our Chartered Banks online. Next you’ll want to get pre-approved to have a more accurate number.

The new rule will affect how much you can afford to qualify for a mortgage. For example, under the old rule you could qualify for a $400,000 mortgage using a 35 year amortization, 5 year term at 3.8% paid monthly, and a 5% downpayment. Under the new rules, using a 30 year amortization, and the same 5 year term at 3.8% paid monthly with a 5% down payment you can will qualify for a $370,000 mortgage.

There is no question that the new mortgage rules will have an impact on first time home buyers. However, as mentioned last week, it wasn’t that long ago that the amortization period was 25 years. Last April, the Canadian government changed the mortgage lending standards whereas applicants could only be approved on a 5 year fixed rate vs a 3 year fixed rate from years previous. This change also affected first time buyers but as we have seen in the market, there are still those that want to make owning their own home a reality – it just may take a tad longer and a change in what your dream home looks like from the get-go. On a positive note, the new rules do a better job of protecting ourselves from taking on quite so much debt.

It is highly recommended that you get pre-approved prior to searching for homes that you may fall in love with. By setting financial parameters before your needs and wants to your first home will make the process less frustrating and result in a smoother road down to the ultimate goal of owning your first home.

There is also an opportunity to still get a 35 year amortization if you buy prior to March 18th, 2011. As long as you have a firm and binding contract prior to March 18th, 2011 then you may still qualify for a 35 year amortization. If you’re not looking to move quite yet but want to purchase a home with a 35 year amortization then buying presale may be the route to go as you can lock in your rates and your home now but not complete for 2-3 years depending on the community.

If you’d like some more tips and information for First Time Home Buyers, check out our Buyer Resources tab online.

Irshaad Ahmad