Buyer Preparation Part 2: Financing Your Home

Buyer Prep Series

Introduction

Insufficient buyer preparation when searching for a property is a recipe for disaster. If you fail to prepare, the process will be long, frustrating, and filled with disappointment. Much of the work I do is with first-time buyers because it brings me great satisfaction to help people achieve their goal of home ownership. Unfortunately, many buyers make the same mistakes which prevent them from achieving their goals. I’ve created this educational series to help my clients improve their chances for success, and to better prepare them to navigate the highly competitive Vancouver real estate market. The real estate industry is evolving, and I will continue adding to and updating this series as necessary.

PART 1 – The Importance of Working with a Realtor is available HERE

PART 2 – Financing Your Home

Financing is easily the most important factor in purchasing a home. Many Realtors, including myself, will not commit serious time to working with a buyer until their finances are in order. I’m always happy to sit down with a prospective client to introduce myself and provide you with some education & guidance, but we need to be sure you can afford to purchase a home before we begin our search. We must establish an accurate budget so we’re not guessing about what you can afford. You can’t purchase a home unless you have the funds available so this should be a top priority!

How do you prepare your finances to purchase a home? You’ll first need to save for a down payment, and then you’ll need to contact a Mortgage Broker and apply for mortgage pre-approval. Ideally, you will be able to save 20% or more for the down payment, but the absolute bare minimum you’ll need is 5%. Your Mortgage Broker will advise you on your financing options. If you need assistance finding a qualified Mortgage Broker then let me know. I work with some amazing professionals and I would be happy to connect you with one.

The Purchase Process

Once you’ve saved enough for a down payment, there are 4 steps you need to climb to finance your home: mortgage pre-approval, deposit, completion, and mortgage payments.

  • Mortgage pre-approval: Pre-approval will establish a budget for your purchase. Once you establish a spending limit, we can work backwards and find a price range that fits your ideal budget. Remember, just because you can afford it does not mean you should spend it! Pre-approval will also allow you to lock in a preferred mortgage rate – rates fluctuate so this can be a big help to your pocket book
  • Deposit: Your deposit is payable when your offer is accepted by the seller. A deposit is usually 5% of the total purchase price, but it can vary in some situations. Be prepared to provide a bank draft for the deposit to your Realtor
  • Completion of sale: This is when the balance of the purchase price (minus your deposit) is paid to the seller and the title for the property transfers to the buyer. This process will be handled by your Lawyer or Notary
  • Mortgage payments: These are your ongoing payments that you will make until you’ve repaid the value of your mortgage plus interest

Closing Costs & Additional Fees

There are additional fees you need to be aware of when financing your home. These costs will not apply to every purchase, but you should still be aware of them.

  • Closing costs
    • A Lawyer or Notary will process the property & funds transfer
    • Your lender may charge mortgage and/or appraisal fees
    • Property Transfer Tax (PTT)
    • 5% GST is applicable on new construction and properties that have been substantially renovated
    • Moving costs
  • Monthly expenses
    • Home Insurance
    • Property taxes (paid semi-annually in Vancouver)
    • Strata property maintenance fees
    • Contingency fund for renovation, repairs, and upgrades

Government Grants & Assistance Programs

The Provincial, Federal, and Municipal Governments have developed several programs and incentives to help buyers purchase a home. Understanding these programs and figuring out which ones you can take advantage of will help ease the financial challenges you’ll need to overcome.

  • The B.C. Home Owner Mortgage and Equity Partnership was introduced in 2017. This program allows first-time buyers to receive an interest free loan of up to $37,500 or 5% of the purchase price to put towards their down payment
  • The Home Buyers Tax Credit (HBTC) can save first-time buyers $750 on their taxes
  • First-time buyers can be eligible for an exemption from the Property Transfer Tax (PTT) on properties with a fair market value of $500,000 or less
  • All purchasers (not required to be first-time home buyers) of new or substantially renovated properties under $750,000 may be exempt from paying the PTT
  • GST Rebates are available on new or substantially renovated properties. The amount of the rebate depends on the purchase price
  • The BC Home Owner Grant reduces the amount of annual property taxes you pay on your principal residence
  • The RRSP Home Buyers’ Plan allows first time buyers to borrow up to $25,000 ($50,000 for couples) from their Registered Retirement Savings Plans to put towards a down payment – check out my previous blog on this program
  • The Provincial Government and City of Vancouver have a long list of other programs available (too many to list!). Read more about them in this post by the Real Estate Board of Greater Vancouver

I’ve provided you with a lot of information to absorb. I understand that this can be a bit overwhelming, but like I said earlier, financing is easily the most important factor when purchasing a home so you need to take the time and do your research. Realtors, Mortgage Brokers, and the other professionals you work with throughout the home buying process will provide you with the information you need, but ultimately, it’s your responsibility as the buyer to finance the property and decide which of these programs will work for your specific needs. Do your homework and you could save yourself a substantial amount of money!

I would like to extend big thank you to Eitan Pinsky and his team at Pinsky Mortgages for his assistance with this section of the series. If you’d like to apply for mortgage pre-approval then give them a call, and tell them I sent you!

Next week: PART 3 – Needs Analysis

PART 1 – The Importance of Working with a Realtor is available HERE

Chris Lambert | 604.340.6457 | chris@chrislambert.ca | www.chrislambert.ca |

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