May 15, 2018 Know Your Purchasing Power and Home Buying ‘Sweet Spot’ In the latest NextHome Magazine, MLA Canada's Executive Director & Partner Cameron McNeill discusses the importance of knowing your purchasing power.
We were pleased to hear the announcement that the Bank of Canada held its key interest rate at 1.25% in April. Canadians, especially first-time home buyers, have been greatly impacted by the mortgage stress test and by rate changes which have increased the costs of mortgages within the last year.
What can consumers do to help them enter into the housing market? I talked to Richard Woodhead at TD Canada Trust about the current economic landscape and advice for first-time homebuyers. A new survey by the bank reveals that more than half (56 per cent) of Canadian first-time homebuyers are anxious and afraid that they'll forget to take a crucial step as they gain their foothold on the property ladder. To reduce anxiety and stress he recommends managing any existing debt, understanding all homebuying costs, making your mortgage work for you and, lastly, having the right home insurance.
A potential purchaser should arrange a meeting with a mortgage provider and get an idea of their financial situation. The mortgage advisor will require background information including income verification on your job position and annual salary, and if you’re self-employed you will need to show your personal income tax return for the last three years along with proof of ownership of the business.
Lenders are required to fully document the source of your down payment and will need to verify through your bank or investment statements. It’s also important to be prepared to share details on your assets such as vehicle(s), stocks and RRSP, and inform of any liabilities such as loans and outstanding credit.
“Take time to consider the many costs and steps associated with homebuying, and by anticipating expenses and adopting sound financial behaviours such as paying down your existing debts, you are setting yourself up for success,” explains Richard Woodhead, Regional Manager, Builder Marketing and Development of TD Canada Trust. “As soon as first-time homebuyers are able to get approved, they will have a better understanding of what they can afford. It’s wise to know what your capabilities are in terms of purchasing power,” adds Woodhead.
This is sound advice especially if you’re looking at buying pre-sale, whether a condo or townhome, get pre-approved for your mortgage as early as possible. For the past few years people haven’t been as worried about sudden increases, and they didn’t need to be. But now that rates are starting to move, it’s wise to be proactive. The Bank of Canada is expected to announce further hikes later this year.
Often people don’t really know what they can afford—but talking to a mortgage provider will help you identify that buying ‘sweet spot’. Richard’s final tip to home seekers is to make sure you thoroughly research the developer and understand their reputation.
Canada Mortgage and Housing Corporation offers some great resources, click here to download their Homebuying Step by Step guide and workbook.
PHOTO // The Fraser Valley is attracting more first-time homebuyers with projects like Langley’s Luxia at Yorkson offering modern townhomes with open concept living starting at 1,400 square feet and featuring easy access side-by-side garages.