Metro reporter Robyn Young will be taking readers on a whirlwind tour of the trials and tribulations of buying her first home. Check back every week for her accounts.
Like the Littlest Hobo, I’ve been couch surfing between my parents’ place in Mississauga and friends’ places downtown for the last several months.
I moved back to Toronto after three years in Halifax last September and am getting myself settled with a job and reacquainting myself with the Big Smoke.
I’ve suffered the negative effects of the recession and recently decided it was time to take advantage of some of the positive and buy a home.
As a first time home buyer, I have the advantage of not having to sell a home before buying a new one; and as long as my friends and relatives continue to be as generous with their extra bedrooms as they have been, I have no real deadlines like a lease to worry about.
All of these factors, I’ve been told, will be advantageous to me when making an offer since I’ll have no conditions. And now is exactly the right time to get into the market: House and condo prices are low because of the sagging economy and mortgage rates have been at an all-time low. However, there’s news across the board that those low rates are on the rise — it’s time to make a move.
My first step is to make an appointment with my bank account’s financial advisor. Armed with all my financial information, I meet with my bank guy and we go over my credit, assets (I have none), credit rating and basic financial standing.
In this meeting I discover three important pieces of information: because I don’t have a 20 per cent down payment I will have to pay out an insurance premium to insure my mortgage; my living expenses shouldn’t be any more than 32 per cent of my gross household income; and my total debt servicing should be no more than 40 per cent.
Including my RRSPs, which I can use for a first-time homebuyer’s program, I have about a 10 per cent down payment for a condo or home between $250, 000 and $300,000. My banker guy tells me it’s common for first time home buyers not to have a 20 per cent down payment.
So in addition to closing costs, moving costs, land transfer taxes, legal costs etc., I have a mortgage insurance premium to pay that will be around two per cent of the total cost of the purchase. On $300,000 this works out to be an extra $6,000. The CMHC (Canada Mortgage and Housing Corporation) website tells me this can be rolled into my mortgage.
With my banker I discover that a mortgage of between $250,000 and $300,000 combined with my gross household income will give me a GDS (Gross Debt Service) ratio of around 32 per cent, which means my housing costs are no more than a third of my gross monthly income — exactly where I want to be.
We calculate that this price range for homes also puts me in the right spot — around 40 per cent — for my TDS (Total Debt Service) ratio, which means my total debt servicing including student loans, mortgage and any other debts, is no more than 40 per cent of my gross monthly income.
I’ve been advised to get a pre-approved mortgage before I start looking so I know the price range of homes I can afford and can nail down one of the low mortgage interest rates.
A couple of days go by and my financial advisor mails me a crisp, white piece of paper proving that my bank is prepared to loan me about $320,000 over 25 years at a rate of 3.85 per cent.
My next step is to find an agent and start looking. Check back next week for more.