Twelve-month timeline for first-time home buyers

by Jennifer Nelson

Making the switch from renting to owning is exhilarating, but many rookie home buyers find the process trickier to navigate than they expected. A 12-month timeline will help you sidestep common mistakes, like paying too much interest or getting stuck with the wrong house. (Yep, it happens!)

12 months out

Check your credit score. Get a copy of your credit report. Avoid last-minute bombshells by checking your score long before you’re ready to make an offer. And work diligently to correct any mistakes.

Figure out how much house you can afford and want to afford. Always keep in mind how much you can afford to spend. As a general rule, according to Canada Mortgage and Housing Corporation (CMHC) your total monthly housing costs (including mortgage payments, property taxes and heating expenses) should be no more than 32 per cent of your gross household monthly income.

In addition, your total monthly debt load (meaning your housing costs plus any car loans, credit card payments, personal loans, line of credit payments or other debts) shouldn’t exceed 40 per cent of your monthly income.

There are plenty of calculators on the web to help you determine what you can afford. If you’re pushing the limits, start reducing your debt-to-income ratio now. To get a reality check on what you may actually be spending every month, set up a worksheet where you itemize all of your expenditures.

Make a down payment plan. Most conventional mortgages require a 20 per cent down payment. If you can swing it, do it.  If, however, you’re not quite able to save the full amount, there are many programs that can help. Mortgage default insurers like CMHC, Genworth & Canada Guaranty offers lenders insurance to allow you to purchase with as little as five per cent down. The mortgage default insurance premium is added to your mortgage, which will drive up your monthly payments.

You also may want to take advantage of the Home Buyers’ Plan which allows you to withdraw up to $25,000 from your RRSPs to put towards a down payment on a home.

As you’re planning your savings strategy, keep in mind that banks like you to “season” your money. That is, they like to see that you’ve had stable funds in your account for at least 90 days before applying for a mortgage or be prepared to provide the source of any larger deposits.

Don’t worry: You can still use a financial gift from a family member or bonus received near the time you buy.

Nine months out

Prioritize what you most want in your new home. What’s most important in your new home? Proximity to work? A big back yard? An open floor plan? Being on a quiet street? You’ll make a much better decision on what home to buy if you focus on your priorities. If it’s a joint decision, now is the time to work out any differences to avoid frustration and wasted time. Perhaps most important: Know what trade-offs you’re willing to make.

Start visiting open houses to get an idea of what kind of homes are in your price range and what neighbourhoods appeal the most. Seeing potential homes will also keep you motivated to continue reducing your debts and saving for your down payment.

Budget for miscellaneous home buying expenses. Buying a home has some miscellaneous upfront costs. A home inspection, title search, property survey, land transfer tax and home insurance are examples. Costs vary by locale, but expect to pay at least a few thousand dollars. If you don’t have the cash, start saving now.

Start a home maintenance account. Speaking of saving, start the good habit now of putting a little aside each month to fund maintenance, repairs, and home emergencies. It’s bad enough to have to call a plumber. It’s worse if you’re paying credit card interest on that plumbing bill.

Six months out

Collect your loan paperwork. Banks are very particular when it comes to mortgage loans. They demand a lot of paperwork. What they’ll want from you includes:

•          T1 Generals and Notice of Assessments  — if you’re self-employed — for the last two to three years.

•          Your most recent pay stubs.

•          Credit card and all loan statements.

•          Your bank statements.

•          Addresses for the past three years.

•          Investment account statements for the most recent two to four months.

•          Most recent retirement account statements, such as RRSPs.

If you start collecting these documents now, it’ll lessen the stress when it’s time to get your loan.

Bonus: Looking closely at your loan documents each month will also help you stay focused on saving for your down payment and keeping your debt-to-income ratio low.

Start interviewing Realtors, specifically buyers’ agents. A buyer’s agent will work in your best interest to find you the right property, negotiate with the seller’s agent, and shepherd you through the closing process. Your agent also can be instrumental in finding a lender who’s familiar with first-time home buyer programs.

Even better, look for a mortgage broker, who will shop for a competitive loan rate for you among multiple lenders, unlike a bank, which can only offer its own products.

Three months out

Get pre-approved for your loan. At this point, if you’ve been following this timeline, your credit score, paperwork, and down payment should be on track. You’ve done your research on lenders and buyers’ agents. Now it’s time to start working with them. First you’ll need to get pre-approved for a mortgage.

Make an appointment with your lender or mortgage broker and bring all your paperwork. They will run a credit check on you and tell you how much of a loan you’re approved for. It often makes sense to borrow less than the maximum the lender allows so you can live comfortably. Draft a budget that accounts for mortgage payments, insurance, maintenance, and everything else you have going on in your life.

Start shopping for your new home. One you’re pre-approved, the buyer’s agent you’ve chosen will be able to target homes that meet your priorities in your price range. This way you won’t be wasting time looking at homes you can’t afford.

Two months out

Make an offer on a home. It usually takes at least four to six weeks to close on a home. So if you have a firm move-out date, allow enough time to deal with any hiccups that can delay closing.

One of the first things you’ll want to do is have a home inspector look at the property. If the home inspector finds something that needs repair, that’s a common example of something that can delay closing.

In the last month

Triple-check that all your financial documents are in order and review all lending documents before closing.

You’re in the home stretch!

If you’ve been keeping your documents up to date, and your down payment is in reserve, these final steps are the easiest. Reviewing the mortgage documents is probably the most difficult. Your agent can help guide you through them.

Don’t forget to secure insurance before closing. You’ll need to bring proof of insurance to closing.

Do a final walk-through of your new home, usually a day or two before closing, to make sure the home is in the shape you and the seller have agreed upon.

Get a certified cheque or bank draft for cash needed at closing. Make sure you get an exact amount of cash needed for closing. You’ll get that number a few days before closing so you can secure a certified cheque or bank draft. Personal cheques aren’t accepted.

That’s it. Congratulations!