First-time home buyers’ checklist

What you’ll learn:

• How to prepare your finances for a mortgage application
• How to create a budget
• Preparing your documents to submit a mortgage application

Buying your first home opens up a new chapter in your life. Your first property is a lot more than just an investment – it’s a physical place to call home and make memories in. But, you may be wondering about how to turn your dream into a reality, and where to start. This checklist will guide you through all the important to-do’s for getting your first home.

• Review your credit report and credit score

Lenders review your credit score to get a sense of your likelihood to pay back a loan, such as a mortgage. Scores are 3-digit rankings between 300-900 and are determined based on various factors. This includes credit history, including the amount of credit inquiries, timeliness of payments, number of credit accounts in your name, amount of money owed, and how often and how recently payments are missed. A good credit score increases your chances of getting a mortgage and lowering your interest.

Your credit score is calculated by credit bureaus like Equifax and TransUnion, and based on information found in your credit report. Because each credit bureau conducts their own investigation, the scores each provides might differ slightly.

Checking your credit score through a bank or lender counts as a hard credit inquiry, which can negatively affect your credit score. To learn about your credit history without the negative impact of a hard credit check, you can order a credit report from a credit bureau and review its contents.

It’s best practice to check your credit report for errors or issues, such as fraudulent charges, which may impact your credit score and give lenders the wrong impression. You can improve your credit score by making your payments on time and in full (if you are able to do so). Checking your credit score can also help mitigate the impact of identity theft, and you can further protect yourself by enabling two factor authentication for your online bank account.

• Get your finances in order

Check out the first-time home buyer programs in Canada

There are a few government programs that can help you with your down payment.

Down payments for mortgages vary based on property prices. You may have heard the conventional wisdom that suggests down payments be 20% of the full price of the home. While that is not a hard rule, in Canada you are required to purchase mortgage default insurance if your down payment is less than 20%.

In Canada there is also a required minimum down payment, starting at 5% of the home purchase price, and increases incrementally based on the price of the home.

Fortunately, there’s the First Home Savings Account (FHSA) which is a great investment tool to help you get started in saving for a down payment. The FHSA is a registered account that combines the power of both an RRSP and a TFSA, which allows you to have annual contributions that are tax deductible and any qualifying withdrawals from the account for a qualifying home purchase are tax free. The annual tax-deductible contribution is up to $8,000 with a lifetime contribution of $40,000 per person. Just like any registered account, you can use an FHSA to purchase and hold different investment types. This can be beneficial if you’re looking to grow your money through the power of compounding interest and help you save for a future down payment.

First-time home buyers also qualify for The Home Buyers’ Plan (HBP), offered by the Government of Canada. If you have savings in an RRSP account, you can take out up to $60,000 for the down payment of your first home, tax free ( as long as you pay the funds back into your RRSP over a scheduled period of time).

Wondering if you can use both the FHSA and HBP for a down payment? You can make both an FHSA withdrawal and an HBP withdrawal for the same qualifying home purchase. For more information, please visit this article from the government website.

Other available initiatives for first-time home buyers include the GST/HST New Housing Rebate for newly built homes and the Land Transfer Tax Rebate, which exists in some provinces under The Home Buyers’ Amount, an initiative in place to help Canadians buy their first home. Read more about government programs.

• Figure out your budget

When determining a mortgage budget that will be feasible and manageable for you, lenders often consider a debt service ratio. This formula compares income to debt. It lets lenders know what you can afford, and ensures that the bulk of your income will not end up being funnelled to paying off debts. Typically, lenders require a maximum debt service ratio for loan applications to be approved. However, there are other options available if you fall outside the threshold, such as including a co-borrower to sign with you.

There are 2 calculations for debt service ratios: Gross Debt Service (GDS), which includes housing costs (such as utilities bills, property taxes and other homeowner fees), and Total Debt Service (TDS), which includes any other regular debt (such as credit cards, car loans, student loans and others).

Rather than calculating your debt service ratio yourself, an easy way to work out your budget is with our affordability calculator, which also compares your income to expenses to estimate a mortgage amount you can afford and your potential payments.

• Estimate how much you can afford

Rather than calculating your debt service ratio yourself, an easy way to work out your budget is with our affordability calculator, which also compares your income to expenses to estimate a mortgage amount you can afford and your potential payments. This is one of the initial steps you can do before actively looking for a property and a good way to get a sense of your “budget” for a property.

• Calculate Finances

Add up all your sources of income, such as employment income, retirement income, support payments and rental income. In Canada, you need to provide evidence of all the sources of money being put towards your down payment through proper documentation.

Employment income can include salaries, self-employment income, commission income, bonuses, and tips. The latter three may require a little more paperwork to prove evidence of steady, declared income history, as these income sources fluctuate and lenders want to be able to predict a repeatable consistent average income.

Next, add up all your savings, investment assets, and any gifted money you may be putting towards your home. If you plan on purchasing your home with a co-owner, be sure to include their finances in your calculation. These additional down payment sources also factor into your budget, and provide evidence to lenders that you are capable of paying back your mortgage.

• Get a pre-approval

Once your finances are in order and looking to actively purchase a property within 120 days, a great next step is getting a pre-approval. A pre-approval from QuestMortgage lets you estimate how large of a mortgage you can qualify for and allows you to lock in your interest rate for up to 120 days. With a great, low rate in hand and an estimate on what you can afford, you can house hunt with confidence.

• Prepare your documents

It’s time to collect all the documents you need. When applying for a mortgage, you will need to provide proof to confirm the information surrounding your property purchase and financial situation. This includes employment and income information, necessary down payment documents and property documents. Depending on your income, employment status, and payment sources, the information you need will vary. Check out the important documents for a mortgage application for the most common documents you need to prepare. Rest assured, our team of expert Mortgage Advisors are available to help you through this process and ensure that you have all the files you need.

• Do your research

Choose a mortgage type

Consider the different types of mortgages available and decide which one best suits your needs. For example, would you prefer a fixed-rate mortgage or a variable rate mortgage? A fixed-rate generally has a higher interest rate than an equivalent term variable rate at that time, but that interest and your payment rate won’t change over the course of your mortgage term. A variable rate may be initially lower with an initially lower interest, but this rate and payments may increase over time beyond the comparable fixed rate level if rates increase.

Also, consider the difference between QuestMortgage BetterRates ^® mortgages and other institutions’ posted rates. Posted rates are the rates a financial institution publicly states - they are often higher than the rate you can get once you jump through a few hoops. QuestMortgage BetterRates ^® mortgages will give you low rate options right from the start.

Tip: give us a call before you sign. If you have a mortgage offer from another financial institution, give us a call and see how your existing mortgage renewal, approval, or pre-approval compares to what you could get with QuestMortgage. Our team of expert Mortgage Advisors will help you find out if you could get a better deal. Call us: 1.888.909.5588 and press 4 to speak with a Mortgage Advisor.

• Submit an application

Once you found a home and have a signed offer, it’s time to submit a mortgage application. If you’re interested in Questmortgage, start an application and let one of our expert Mortgage Advisors help you along the way. Get my rate.

As you can see, there’s a lot to be done when it comes to buying your first home, but it doesn’t have to be overwhelming. No matter what stage you are in the process of purchasing your new home, we’re here to help, so you can check off everything on that list. Be sure to take advantage of our tools to help prepare you to buy your home like our affordability calculator and more informative articles for first-time home buyers.

Learn more about QuestMortgage.

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The information in this blog is for information purposes only and should not be used or construed as financial or investment advice. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied, is made by Questrade Group of Companies, its affiliates or any other person to its accuracy.