Depending on your financial situation, purchasing a home right after college may or may not be a good move. For many, it might not even be an option. On the other hand, preparing yourself to apply for a mortgage early on can help you obtain full ownership of a property earlier in your life. The advantages of paying towards a home, instead of paying rent, are very attractive as well. The following are some handy tips for first time homebuyers, or those looking to make a purchase in the near future.
At the end of the day, a lender wants to see that you can afford your home. In order to apply for a mortgage you will need to have a good credit score and money saved to put towards a down payment. Note that a minimum of 5% is required for a mortgage down payment in Canada. You will also need at least 3 years of employment history. This might not be so easy for students and recent graduates, but the sooner you get started on this, the sooner you can own your home.
Establishing your credit is key in getting yourself a good rate. An easy to way to get your credit history started is by obtaining a secured credit card. A secured credit card works like a regular credit card, except that a security deposit is used as collateral in case of payment default.
Saving and planning ahead are essential to your financial success. If you know that a home purchase is on the way, then economic responsibility and budgeting are both imperative. Establishing good habits early on will help render your monetary goals.
Renting vs Buying
A lot of people spend years paying rent. Suppose you spent five years paying rent for a home. At the end of these 5 years, you will have nothing to show for it. On the other hand, if you spent this time paying off a mortgage, you will be 5 years closer to home ownership.
A good way to figure out what the best options available to you are is to compare your monthly rent expense with a monthly mortgage payment amount you can afford. You can use a rent vs buy calculator to facilitate this analysis.
Familiarize yourself with the mortgage market and financial terms
One of the best things you can do to prepare yourself to buy a new home is to familiarize yourself with mortgage terms and concepts. Learning about fixed and variable rates, the trade-offs between open and closed mortgages, as well as the other expenses that come with a mortgage (mortgage insurance, mortgage closing costs) will help you make more informed decisions. While going to a mortgage broker can be attractive due to their expertise and knowledge of the market, ultimately nobody has your best interests in mind better than you. It is important to be informed.
Partners and Renters
There are many strategies you can undertake in order to meet your mortgage payment requirements. Partnering up with a good friend or significant other can help you meet your down payment necessities for your mortgage qualification, and your monthly mortgage payments into the future. If you have roommates with whom you split rent, purchasing a new home and having your roommates help in paying it off is a viable option as well.
Securing your financial future
Owning a home at a young age is a good way to position yourself for a bright future. A home serves as a great financial asset and an investment in and of itself. Not only would you be working towards increasing your personal wealth, you would also be providing a roof to put over your head! Real estate has historically been a fruitful investment, the sooner you get started, the sooner you can reap the rewards.
Author bio: Cristobal Ravazzano is a Concordia Univeristy student in Montreal. He is also a writer and web strategist for Mortgages Canada.