4 Things First Time Home Buyers Should Know About Getting a Mortgage
- Black Label Property Group
- March 1, 2023
1. Lenders look at your credit score.
As a general rule, it’s a great habit to be aware of your credit score and much like many other large financial or on-going payment transactions, a credit check will come up to see if you qualify for a mortgage.
Rather than waiting for that first meeting at the bank or with a mortgage broker, it is recommended by financial professionals that you look at your credit beforehand. In Alberta, you can qualify for a mortgage with a minimum credit score of 600, however your credit history will also have some impact on your qualification. They will look at your debt-to-income ratio and payment history as well.
Continue Making Payments On-Time
Making payments and paying down debt is always important, and this is especially true before applying for a mortgage.
Repair Your Credit
If you review your credit score and it is less than ideal, that doesn’t mean you will never qualify for a mortgage. Knowing this beforehand means you can start working on improving your score beforehand.
Avoid Applying for New Credit or Making Large Purchases
Prior to purchasing a house, it recommended to avoid making any large purchases or applying for new credit. This will affect your overall score and lending experience.
2. You need to have a downpayment.
As a first-time home buyer, you likely know that a downpayment is required to buy a home. What many people don’t know, is you can put as little as 5% down on your new home—or 20% if you want to avoid a mortgage insurance premium offer by companies such as CMHC.
Additionally, the downpayment for your home does not need to be made up entirely of your own savings. A downpayment can also come from:
- A gift from a family member
- A line of credit or RRSP
When it is from your own income, you will require a 90 day history to show where the money has come from.
Somethings to account for when saving your money for a downpayment are the additional expenses the come on top of a mortgage when buying a house. Inspection fees, furnishing your houses, any immediate maintenance required, and moving costs are some of the first costs to come up.
Once you own a home, in addition to your mortgage payments, you will also have to pay for utilities, property taxes, and sometimes condo fees or HOA (homeowner association) fees.
3. Your income matters.
A lender will take into consideration the income of yourself and anyone else included in the home purchase. For a first time home buyer, this will include income that comes from employment, child or spousal support, CCB income if you have children under the age of 14 and other investments. Different income amounts will qualify for different house prices.
To qualify, you must show your lender than you can afford the amount you’re asking for. Lenders and brokers will require income documents you provide to calculate your housing costs and total debt load. Commonly request documents are an employment verification letter + pay stub. If your income fluctuates, a 2 year average can also be used based on the amount of income you have claimed on your annual tax filing.
Your Total Debt Load
Your total debt load should not be more than 44% of your gross income, but you may still qualify for a mortgage if your TDS ratio is a little higher – it just means you’re increasing the risk of taking on more debt than you can afford, and you will likely pay a higher interest rate for that reason.
Other debts may include things like:
- credit cards
- car loans
- student loans
- child or spousal support
- lines of credit
Mortgage Stress Test
Banks require you pass a stress test to get a mortgage to prove you can afford your mortgage payments at a qualifying interest rate. The bank must use the higher interest rate of either:
- 5.25%
- The interest rate from your lender plus 2%
4. The property itself.
This is the final thing a lender will consider before finalizing a mortgage. An appraisal may be required on the property to confirm that it is worth what you will pay for it.
The key takeaway? Get advice from home professionals.
Every situation is different, and we’ve worked with Katelyn Smith from The Mortgage Group to put together a few numbers of what a home buyer might expect in different price points.
These numbers include the income needed to qualify based on the minimum amount of down payment required. If a home buyer were to put more than the minimum down payment, less income would be needed.
These sample numbers are based on current interest rates. When interest rates go down, the qualify amount goes up—as interest rates decrease, it will take less income to qualify for a property.
Talk to a Mortgage Broker
For the most current rates, Katelyn Smith can be reached online through her website, The Mortgage Group Canada or on Instagram, @MortgageBrokerKatelyn.
205, 53 Akins Drive · Offered at $144,900
Down payment of $7,250 requires a $40,000 annual income to qualify.
108 Westerra Boulevard · Offered at $309,900
Down payment of $15,500 requires $80,000 annual income to qualify.
11, 130 Element Drive · Offered at $424,000
Down payment of $21,200 requires $110,000 annual income to qualify.
50 Tilia Place · Offered at $799,900
Down payment of $55k requires $190,000 annual income to qualify.
Find something that works for your lifestyle.
The numbers above include the income needed to qualify based on the minimum amount of down payment required. If you have a property in mind or are preparing to move, reach out to our Edmonton & St Albert Area Real Estate Team or a Mortgage Broker to see how you can prepare to buy your first home.
Katelyn Smith – The Mortgage Group
Mortgage brokers are a great resource for first time home buyers and current home owners alike. They can potentially save you time and money.
We worked with Katelyn Smith to put together this information and have had the pleasure of having her work with previous clients of ours.
Katelyn Smith
The Mortgage Group Canada
Mortgage brokers are a great resource for first time home buyers and current home owners alike. They can potentially save you time and money.
We worked with Katelyn Smith to put together this information and have had the pleasure of having her work with previous clients of ours.
