Become a savvy home-buying duo.
Are you and your partner gearing up to be first-time homebuyers? According to a 2015 First Time Homeownership Study from Genworth Canada, you aren’t alone. In fact, 62 per cent of those surveyed bought their homes with a spouse or partner. And depending on where they live, they paid a median average of $425,000 to become homeowners.
That number is likely to increase, too ― the Canada Mortgage and Housing Corporation expects the national average resale home price to range from $402,139 to $439,589 in 2015, a 3.4 per cent increase from the previous year.
With real estate prices on the rise, taking on a mortgage payment as a couple may be more realistic than attempting to buy independently.
You may also find the process intimidating ― but fear not. Take note of these six tips that will ensure that you and your partner are properly equipped to make the biggest purchase of your life:
- Determine what you both want: Sit down with your partner to make a list of your home priorities ― and then have an open discussion about them. Start with these Home Location and Home Features worksheets, and rate the importance of attributes like outdoor space, a finished basement, the number of bedrooms and more. It will be easier to compromise once you sit down and compare.
Related: 6 questions to ask yourself before buying a home
- Check your credit scores: Do you know your credit score? The higher your scores, the more likely that a lender will approve your home loan at a favourable interest rate. Good scores come from having a good record of on-time payments and keeping your credit debts below 50 per cent of your limit, reports CBC.ca.
If you both have good credit, you can apply for a joint loan, which may result in more money at your disposal. However, if one of you has a less-than-favourable credit score or a hefty debt-to-income ratio, the partner with the better score can apply alone. Just keep in mind that the loan amount may be less.
You can obtain your report for free within two to three weeks from Equifax Canada or TransUnion Canada, but if you’re in a hurry, you can get your report immediately from those sites, for a fee. TransUnion®* charges $14.95 while Equifax®† has a rate of $15.50.
- Build up your joint reserves: As you both budget for homeownership, you’ll have to save for a down payment, but also put aside some money to cover closing costs, legal fees and other hidden costs. If you have less than 20 per cent for a down payment, the Canadian government requires Mortgage Default Insurance. This cost is determined by multiplying the amount of funds being borrowed, by the mortgage default insurance premium (typically varying between 0.6 per cent and 6.5 per cent). Premiums vary depending on your mortgage amount and the size of your down payment.
Try to find ways to trim some of your expenses from your current budget to add to your savings. About Money suggests that you should also set aside about 1 per cent of your home’s purchase price for ongoing maintenance costs. Make sure you are pooling some funds together to be prepared for condo and maintenance fees if applicable, roof replacement or leaky basement.
- Budget together: To figure out what you and your partner can spend each month, determine what your current expenses are compared to your combined income. If you have a BMO bank account, look to Manage My Finances in BMO Online Banking and the BMO Banking & InvestorLine App®1 for iPad†. They’re both easy-to-use tools that help you keep track of your accounts, income and expenses.
Your monthly mortgage payment may be more than you’re paying now for your rent, plus, you’ll need to plan for property taxes and possibly higher utility costs. A mortgage calculator can help give you an idea of what your mortgage will look like, factoring in your down payment, amortization period, interest rates and more.
- Get pre-approved: The real estate market can be quite competitive, and you may have to act fast once you and your partner find the home that you want. And, as a first-time homebuyer, you will likely have to borrow most of the price of the home.
Getting pre-approved gives you and your partner the ability to make a quick, confident offer on a home, and you’ll know exactly how much you’ll be paying per month if you’re locked in at an interest rate. An approval is good for 90 days, and you can start the pre-approval process online.
- Take advantage of federal perks: The Canada Revenue Association (CRA) has recognized the financial burden that comes with buying your first piece of real estate, so they’ve developed the Home Buyer’s Plan and Tax Credit to lighten your debt load.
The Home Buyer’s Plan allows you and your spouse or common law partner to each withdraw up to $25,000 from your RSPs to help buy your first home, for a combined total of $50,000.
Afterwards, you have up to 15 years to pay back the amount you withdrew, though you may choose to do so sooner. As long as you make the required annual repayment, this doesn’t have to be counted as income when you file your taxes, so you don’t pay taxes on the amount you withdraw.
Additionally, the CRA offers a first-time homebuyers tax credit which allows you and your partner to claim $5,000 on the purchase of a new home.
Although buying a home can be a big financial undertaking for you and your partner, if you both do your due diligence, you’ll be ready to take on the challenge.
1 BMO InvestorLine Inc.: Member of the Canadian Investor Protection Fund. Member of the Investment Industry Regulatory Organization of Canada. BMO InvestorLine Inc. is a wholly owned subsidiary of Bank of Montreal Holdings Inc.
®* Registered trademark of TRANSUNION, LLC
®† Registered trademark or EQUIFAX SERVICES, LTD.
† iPad is a trademark of Apple Inc., registered in the U.S. and other countries.