What Loan Is Best For First Time Home Buyers

Gst/hst New Housing Rebate

As a Canadian citizen, you can claim a refund on the GST or HST that you have paid to the federal government when buying a new home. You can also claim a rebate for making renovations to an existing property or reconstructing property that was destroyed by fire on condition that the property was your primary residence. The home can be a modular home, floating or mobile home. As a resident of Ontario, you can claim a rebate on the provincial portion of the HST you paid when buying or renovating your home.

The federal government has initiated the First-time Home Buyers Tax Credit to help Canadians buying their first homes. Included in the Canadas Economic Action Plan, the program was intended to assist new homeowners with closing costs. These costs may cover land transfer taxes, home inspections, and legal expenses.

Native American Direct Loan: Best For Native American Veterans

The Native American Direct Loan provides financing to eligible Native American veterans and their spouses to buy, improve or build a home on federal trust land. This loan differs from traditional VA loans in that the VA is the mortgage lender.

• Strengths: No down payment requirement no mortgage insurance minimal closing costs
• Weaknesses: Eligibility requirements funding fee

Read more about the Native American Direct loan.

Use Real Estate Apps To Look For Your Dream Home

Have you found where youd like to live and understand how much homes cost there? Search on real estate apps such as Redfin, Realtor.com, and Zillow to narrow down the types of homes and areas you like, prices that fit your budget, and the neighborhood amenities you want. As well as looking at homes for sale, look at recent sold prices to find out what people really paid. This will give you a great start on understanding your top priorities in a home before you start working with an agent.

FYI: Some apps will show properties in your city or town, and some wont. This varies by locale.

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How Much Can I Afford On A Mortgage

Once you have a sizeable down payment in hand, the next step is figuring out how much you can afford on a mortgagethe amount you will pay back, with interest, to the lender. The mortgage is calculated as the total cost of your home, minus the down payment.

When you apply for a mortgage, your lender will look at your gross debt service ratio and total debt service ratio in order to determine how much mortgage a person with your debt and income level can reasonably carry.

Watch: What is mortgage affordability?

These numbers are essentially a test of your income in relation to your debt and anticipated housing expenses, and they will influence the mortgage amount youre offered. TDS is equal to the expenses of your new home , divided by your gross household income. GDS is the combination of these same housing expenses, plus your existing debt payments , divided by your gross household income.

The Canada Mortgage and Housing Corporation , Canadas national housing agency, considers a home to be affordable if your GDS and TDS fall within the limits of 39% and 44%, respectively. The Financial Consumer Agency of Canada says your GDS and TDS cannot exceed 32% and 40%, respectively.

Fannie Mae Homepath Ready Buyer

Fannie Mae also offers a program specifically for first-timers called the HomePath Ready Buyer Program. This first-time home buyer program is part education and part financial assistance. Buyers who complete the homeownership education by Framework and purchase a HomePath home may receive up to three percent in closing cost assistance, according to Fannie Mae. This program can be combined with the HomeReady Mortgage mentioned above.

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Bonus Opportunities: The Disruptors

Best for: First-time buyers open to nontraditional ways to become homeowners.

As Amazon upended retail, Uber changed transportation, Netflix revolutionized home entertainment, and Spotify rewrote music delivery, so, too, have newcomers used digital tools to change the mortgage industry.

The disruption may be as straightforward as Quicken Loans and Rocket Mortgage, online liaisons that help homebuyers shop for conventional lenders.

Or it might as revolutionary as better.com and divvy.com, which, to say the least, bring unconventional thinking to mortgage-making.

New York-based Better, launched in 2016, digitizes the home loan process from beginning to end, promising faster, cheaper home buying.

Divvy Homes presents a fresh take on the rent-to-own space in assorted metropolitan areas: Atlanta, Cleveland, Dallas, and Memphis, St. Louis, and Tampa.

You find the home, Divvy buys it, and a portion of each of your lease payments for three years goes toward buying down the balance. At the end of the term, you apply for a mortgage and buy the home from Divvy.

7 Minute Read

Can I Have A More In

Yes, you can and this makes total sense. A home buyers survey is a more in-depth survey carried out by a property surveyor. This survey will not only make sure you are not overpaying for the property but it will make sure if structurally sound. You will get a report with approximately 20-pages on the condition of the property and many concerns the surveyor has.

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Start Working On Your Credit Score As Soon As Possible

Your credit score plays a role in getting a mortgage. Almost everyone has room for improvement. Start by paying off or paying down credit cards: the higher your available credit and the lower your utilization, the higher your score. Three to six months before you reach out to a lender, review your credit reports from all three major agencies: Equifax, Experian and TransUnion. Each will show different credit history items. Youre entitled to an annual free report from each agency, available from AnnualCreditReport.com. Look for errors such as old debts youve paid off or items that arent yours. Take steps to dispute errors, and follow up to make sure theyve been corrected. Challenges to reports take time to resolve.

If you need to build credit, look into getting a secured credit card.

Save Physical Copies Of Your Home Buyer Paperwork

If you think that was a lot paperwork you gathered to get a mortgage, wait until you see the enormous pile of documents to review and sign at closing! Youll want to keep a physical file of all fully executed documents for reference, with signatures of all parties. For instance, legal questions could come up about your loan, or you may have to file a claim against the seller. When you eventually sell that home, the information will come in handy for tax purposes.

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What Is Mortgage Amortization

Amortization is the total length of time you have to pay off your mortgage. The most common amortization in Canada tends to be 25 years.

As your amortization period goes on, youll find that more and more of your money will go toward principal payments, and less will go toward interest. In Canada, the longest amortization period available is for uninsured mortgages and can be as long as 35 years.

Ontario Land Transfer Tax

If youre buying a home in Ontario for the first time, you can request for a rebate or refund equivalent to the full amount that you pay as land transfer tax that may be a maximum of $4,000. However, the Ontario Land Transfer Tax Refund for First-Time Homebuyers facility is subject to certain conditions:

• You need to be at least 18 years of age.
• You need to move into the home within a period of 9 months after buying it.
• You need to be buying a home for the first time.
• If youre married, your spouse must also be a first-time homeowner during the time of your marriage.

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Get Familiar With First

Like the FHA loan mentioned above, there are first-time home buyer programs that can save you money. Here are a few to ask your lender about:

• USDA loan: The U.S. Department of Agriculture guarantees mortgages to home buyers in some rural areas.
• Fannie Mae and Freddie Mac: These real estate entities fund the HomeReady® and Home Possible®mortgage programs, respectively.
• Fannie Maes HomePath and Freddie Macs HomeSteps have programs for buying foreclosed homes that favor first-time homebuyers.

Get Your Loan Paperwork Together

A stress-free home purchase is all about being prepared. You can get ahead of the game by gathering your financial paperwork: all bank account statements, 30 days of pay stubs, two years of W-2s and of tax returns, 12 months of rent payments and lease, documentation of any outstanding loans, and more, are required.

Dont be freaked out if you get asked for some of these twice! Different companies may need to get the information directly from you rather than sharing documentation .

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Make Sure You Get A Good Mortgage Broker

Once you have a list of mortgage brokers spend ten minutes making sure you get one that shines above the rest. Look at their website and Facebook page. Look at their Facebook and Goggle reviews. Make sure they have lots of recent 5 star reviews and that they excel in looking after their clients.

Looking for a mortgage broker near me that really cares? Look no further! Speak to YesCanDo.

The Cost Of Low Payments And Free Money

Getting a good loan is always important, and its an especially big deal for first-time homebuyers, who are often just getting on their feet financially. They benefit from borrower-friendly loan features like easier approval and down payment assistance.

While loans specifically designed for your first home purchase may sound appealing, they are not always a perfect fit. They often come with strings attached, and those might or might not be dealbreakers.

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What Are The Benefits Of First

First-time homebuyer programs, grants and loans are a form of financial assistance for buyers, usually those who meet certain income restrictions and have strong credit scores. They can apply to those who have never owned a home, or those who owned a home in the past, but havent owned one in the previous three years.

Here are a few different ways you could benefit from these programs:

• Grants: Some areas offer cash to put towards home-related costs, such as your down payment or closing costs.
• Assistance with closing fees: Some loans place a cap on how much is charged for closing costs.
• Deferred payments: Some loans wont charge interest and wont need to be repaid until the homeowner sells the home, or refinances or pays off the mortgage.
• Savings on interest: Some organizations offer to pay for or subsidize the interest on the mortgage, or help borrowers qualify for loans with lower interest rates.
• Loan forgiveness: Homeowners who stay in the home for a certain period of time will have a portion of their debt cancelled .
• Down payment assistance: Some programs allow homebuyers to put down a small down payment, or none at all.

Not all of these programs will be available in your area or for your situation. There are also certain restrictions, such as financial need, so do some research or speak with a mortgage professional to see if you qualify.

Try Not To Finance Anything New Before Buying A Home

How much you owe will affect how much you can borrow. Financing a large new purchase before you get a mortgage reduces your loanable amount. You also may negatively impact your credit score with a large purchase, since youre increasing utilization and lowering your available credit. That could have a bearing on home loan terms, such as interest rate. Its best to stay away from other major purchases when youre about to make the biggest purchase of your life.

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What Are Usda Rural Development Loans

USDA loans are offered by the U.S. Department of Agriculture to borrowers who live or want to live in an eligible rural or suburban location. Borrowers can secure USDA loans with lower interest rates, even without a down payment.

This program was created with the intention of enhancing the quality of life in rural and suburban areas and providing home loans to those with lower incomes. In fact, having a high income may make you ineligible for a USDA loan.

As such, a USDA loan can be an excellent option for a first-time homebuyer who may have a lower income and little savings to put toward a down payment.

Get Homeowners Insurance And Finalize Move

Homeowners insurance is usually required by the mortgage lender and helps to protect your investment. Just like with your mortgage, get quotes from several companies or work with an insurance broker who can shop rates for you. If your home is located in a federally-designated flood zone, youll need to buy flood insurance, too. Be sure to have the policy bound and in place the date of the closing. As you prepare for move-in day, contact your local utility, cable and internet providers to arrange new service for your move-in date. Dont forget the most important tasks: hiring a reputable mover and packing.

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State And Local Government Grants

Some state and local governments sponsor housing grants for qualified first-time buyers. Grant sizes start at $500. Monies can be applied toward closing costs, mortgage rate reduction, or a down payment.

Many local housing grants require buyers to meet minimum credit standards and earn a household income within a specific, lower-income range.

To qualify for a state or local housing grant, find your municipalitys public-facing website, search for housing assistance or housing grants, and review your local program requirements.

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Compare top mortgage lenders

Reach out to multiple lenders to see how much you can save. It pays to compare your options.

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Home Renovation Loan Programs

Here are a few programs that allow you to buy more home for your money.

• The Energy Efficient Mortgage program extends your borrowing power when you buy a home with energy-saving improvements or upgrade a homes green features. If you qualify for a home loan, you can add the EEM benefit to your regular mortgage. It doesnt require a new appraisal or affect the amount of your down payment. The program simply allows your lender the flexibility to extend loan limits for energy efficiency improvements.

• There are also FHA 203 loans, designed for buyers who want to tackle a fixer-upper. This special FHA-backed loan considers what the value of the property will be after improvements and allows you to borrow the funds to complete the project as part of your main mortgage.

These loan programs are designed for buyers who want to tackle a fixer-upper.

• The CHOICERenovation loan is a conventional loan program through Freddie Mac that allows you to finance the purchase of a home and the cost of improvements, too, with low down payments.

• HomeStyle from Fannie Mae is another conventional loan option for purchase-and-remodel projects. A 3% down payment is available to first-time home buyers.

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Should You Apply For A Usda Rural Development Loan

Consider applying for a USDA Rural Development loan if:

• Your home is located in an eligible area: To qualify for a USDA loan, your property must be located in an eligible rural or suburban area.
• Your home is your primary residence: USDA loans must be used to purchase a primary residence, not a second property or vacation home.
• You are a lower-income earner: Your income should be relatively low for your region. You can use the USDAs income eligibility calculator to determine whether you qualify.
• You have a credit score of at least 620: When applying for any mortgage, the higher the credit score, the better. Though lenders may be more lenient about credit scores for borrowers of USDA loans, your loan terms will be better with a good credit score.
• Your debt-to-income ratio is below 41 percent: Lenders want to see a reasonable debt-to-income ratio from their borrowers, so they know the borrowers will pay back their loan. If your credit score is higher than 680, you may still be able to qualify with a higher debt-to-income ratio.

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Government Programs And Tax Rebates For First

There are several government programs and tax rebates designed to help first-time buyers get into the housing market.

The Home Buyers Plan: Allows you to withdraw up to $35,000 from your RRSPs to make a down payment on your first home. This money can be withdrawn and used without penalty or taxation as long as its repaid to your RRSP within 15 years.

The First-Time Home Buyer Incentive: Eligible first-time buyers can receive an interest-free loan of 5% or 10% of the purchase price of their home, to be applied towards their down payment. The government retains a stake in the property, which must be repaid after 25 years or when the home is soldat the fair market value at the time of sale. While there are benefits to the program, Patton, the mortgage broker, cautions that it can limit the maximum purchase price available to first-time buyers. Thats one of the reasons the federal government announced, as part of its 2022 budget, that it will extend the program until March 31, 2025. The government has also said it is exploring options to make the program more flexible and responsive to the needs of first-time home buyers, including single-led households.

Land transfer tax rebate: The provinces of Ontario, British Columbia and Prince Edward Island offer land transfer tax rebates to eligible buyers, as does the City of Toronto . Eligibility requirements vary per jurisdiction, as does the amount you may be eligible to receive.