Borrowing responsibly: advice for first-time homebuyers

Buying a house, especially for the first time, is the largest and most intimidating financial commitment most people ever consider.

Fortunately, there is plenty of good free advice available. The Canada Mortgage and Housing Corp. offers a useful guide with the question list for prospective home buyers here.

CMHC gets right to the point with the affordability rule: Mortgage payments should not be more than 32 per cent of gross income, CMHC advises, and your entire debt load should not be more than 40 per cent of gross income.

That means if you earn $84,000/year or $7,000/month, your monthly mortgage payment shouldn’t be more than $2,240/month. Depending on the size of your down payment and the length of your wish list, the first time Yellowknife homeowner may find this hard to achieve.

The next step is to sit down with a banker.

Get Pre-approved

Sherry Stuart, a CIBC mortgage consultant in Yellowknife, advises that at this point, even before the hunt for a house begins, it’s time  to get pre-approved for a mortgage.

Like the CMHC affordability test, Stuart says the mortgage approval process “gives them a realistic view of their financial health, and whether they can afford to buy a house.

“You don’t want to be house poor, so that all of your money goes to paying the mortgage and household expenses,” Stuart says.

“It gets the home buyer in tune with mortgage rates and any credit issues they might have. And having a pre-approved mortgage also gives them a realistic picture of what they can afford.”

The largest hurdle for many first-time buyers is the down payment. There is no way around the five per cent minimum, says Stuart, but there many ways to put it together.

Finally, local realtor Adrian Bell advises that buying a home should be approached as a full-time commitment, with house hunters prepared to make offers on as many as 10 properties.

It’s also important for buyers to find a realtor they can work with, who is working for them, not the vendor and a sales commission, says Bell.

For more real estate stories, the city’s best rental board and property listings, visit Property North

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