The housing market in Calgary has been impacted by several unanticipated factors over the last few years. From a global pandemic and rapidly rising interest rates to unprecedented recession and inflation influences, the market has felt a bit chaotic at times. If you are a first time homebuyer, the chaos can feel overwhelming; there is so much information and social media can deliver a narrative about home buying that can set you up for disappointment. As a first time home buyer, we want you to make informed decisions when looking for and buying a home, decisions not informed by social media’s hit-or-miss credibility and reliability for accurate information. We want to empower you to find the best, first home for you. Here are our tips to guide you as you enter the sometimes turbulent Calgary housing market.
Top Tips For Home Buyers
Budget
First things first in the home buying process: how much should you spend on a house? While that beautiful modern farmhouse located in a desirable location, near all the trendy coffee shops and restaurants certainly is tempting, thinking about how much your income allows you to afford may, unfortunately, limit the size, style, and location of the house you choose. There are affordable housing options located in trendy neighbourhoods, but the competition for these houses can be high. You may need to adjust your “must haves” for your first home.
Mortgage calculators are a great way to figure out how much you can afford to spend on a house, but the best first step is to speak with a reputable mortgage broker so that you won’t waste your time looking at houses far out of our price range.
Improve Your Credit Score By Cutting Back
Now that you’ve figured out your budgetary restrictions, it’s time to rip off the bandaid and take a look at your credit score. According to Borrowell data from over 2 million users in 2022, the average Canadian credit score is 672. The minimum credit score required to purchase a home is 640. While 640 is the minimum, you want to ensure that your credit score is as high as you possibly can get it, because your credit score will determine if you get pre-approved for a mortgage and what kind of interest rates you qualify for. Improving your credit score can look like placing small, manageable payments on your credit card and paying them on time. Consistency is the key to increasing your credit score, as your bank needs to know that you are a reliable customer who will pay your payments on time. Cutting back on non-essential spending and refocusing your budget on essential needs is a great way to increase your credit score. This can also help you save up for a down payment, which we’ll discuss more in detail.
Get Pre-Approved (if you have a good credit score)
You can think of a mortgage pre-approval as a temperature check or a foreshadowing for your future house payments. A mortgage pre-approval accounts for your income, savings, and credit score, creating a report of your overall credit ecosystem. Your pre-approval application highlights your strengths and weaknesses so that your bank can assess the level of risk you pose as a future homeowner. If you can secure a strong pre-approval, your credibility as a potential homeowner rises exponentially when you’re working with sellers, Realtors®, and especially lenders.
Which Mortgage Rate Should I Choose?
Choosing a mortgage rate can be tricky, especially when it’s your first time getting one. There are 15-year, 20-year, and 30-year mortgages available, but interest rates, how much you want to pay monthly, and your long-term goals are all factors to consider together when deciding upon a mortgage. The advantage of 15-year and 20-year mortgages is that you could have your home paid off quicker. Your overall mortgage amount will also be lower because your interest rates won’t accumulate as much over that period of time. The downside is that monthly payments will be higher, which, as a first time homeowner, may be burdensome on your tight budget. With a 30-year mortgage rate, monthly payments are indeed lower, but the amount that you may have to pay in the long run, taking into account interest rates that add up over time, plus the fact that you will be making monthly payments for longer, requires you to think about your financial and personal goals in life. The dilemma between paying more now for a shorter period of time or paying small monthly payments for a longer period of time is a difficult decision to make.
How Much Is Too Much For a Down Payment?
Once you’ve worked out all the nitty gritty, and understandably overwhelming, details of credit scores, bank loaners, pre-approvals, and mortgage rates, turning your attention to a home down payment is the next hurdle to overcome in the process before you can become a homeowner. 20% of a house’s price is the standard down payment percentage, but you can actually put a lower down payment than that. In Canada, you can make a minimum downpayment of 5% on houses under $500,000. On houses above $500,000, you’ll have to do some math by calculating 5% of the first $500,000 and then 10% of the remaining house cost. The caveat is that, if you want to put a lower down payment, your bank lender needs to see that you have a strong credit history and robust savings. Again, bank lenders’ assessments are rooted in how big a risk you are as a future homeowner. If you don’t have a good credit score, your lenders may require you to put down a higher down payment than you may be comfortable with.
Home Inspections & Extra Costs
Before we reach the fun part of the home-buying process, we recommend that you accommodate for extra costs that will likely arise as you purchase your first home. Extra costs could look like home inspections, closing costs, taxes, moving costs, and other unforeseen costs that may arise purchasing a home.
Pouring All Your Savings Into A Home May Not Be The Best Choice
Now we arrive at the fun part of the home-buying process. Almost, at least. Maybe you’re still eyeing that dream modern farmhouse-style home, but in a more affordable neighbourhood. But before pouring all your money into that house, hear us out. While we want you to live and enjoy life in your dream home, evaluate how much of your income you want to dedicate to housing expenses. On one hand, you could dedicate most of your income to your house, allowing you to live in that costly beautiful modern farmhouse that’s been tempting you on the MLS®, but then that means you won’t have as much disposable income for other activities, entertainment or travel; or, on the other hand, you could find a happy medium in a house that may not be a modern farmhouse, though maybe something similar, but is priced at a cost that fits comfortably within your budget, permitting you to enjoy occasionally splurging at your favourite coffee shop and vacationing once a year. Again, these are decisions you have to think about and come up with a solution that is best for you.
Do I Really Need A Realtor®?
We hope all these tips and tricks haven’t completely overwhelmed you. In fact, we hope you’re more excited than ever to purchase and move into your first home! When you partner with the Tanya Eklund Group, you’re not just working with a real estate agent, you’re working with highly-experienced professionals who have over 20 years of experience working in the Calgary real estate market, and who know all the ins-and-outs of buying your first home. The Tanya Eklund Group will shoulder most of the heavy lifting during the process of buying your first home, while also complementing our services with our repertoire of network connections, negotiation expertise, problem-solving skills, and passion for delivering the best customer satisfaction possible.
If you are looking to buy your very first home, The Eklund Group has the market insight, in-depth knowledge of Calgary communities, and the negotiating confidence to ensure that your investment is a smart one. Contact our team of Realtors® skilled in helping first time buyers find the perfect place to call home. Call 1-403-863-7434.