Island Savings

Buying Your First Home

Buying your first home is an exciting step—you can stop paying rent and start building your own equity. Before you jump in with both feet though, consider some advice from our experts.

 

Saving a down payment

  • Your down payment is the amount of money you can pay upfront on the purchase price of your new home.
  • The larger the down payment you make, the smaller your mortgage will be and the less interest you'll pay over the life of your mortgage.
  • A typical down payment is 20% of the purchase price of the home which makes you eligible for a conventional mortgage.
  • You can, however, buy a home with less than 20% down and as little as 5% down. This type of financing, called a high-ratio mortgage, requires you to purchase insurance from either Canada Mortgage and Housing Corporation (CMHC) or Genworth Canada.
  • You can pay the associated application fee and premium upfront or add it in to your overall mortgage. Premium varies depending on Loan-to-Value (LTV) ratio and amortization.

EXPERT TIP

First-time home buyers can withdraw up to $25,000 from their RSPs (without immediate taxation) to use for their down payment. Remember though, whatever amount you withdraw will need to be repaid to your RSP within 15 years. Check out the Government of Canada website for further details.

Determining how much you can afford

When approving your mortgage, we'll consider your income as it relates to not only your home, but your other debts as well. Generally, we'll use two calculations to determine the maximum amount of financing you can afford.

  • Gross Debt Service (GDS) ratio
    Your monthly housing costs should not exceed 35% of your gross monthly income. Included in housing costs are: monthly mortgage principal and interest payments, property taxes, heating costs, condominium or strata fees, or your annual site lease for leasehold property.
  • Total Debt Service (TDS) ratio
    Your overall debt load (including housing costs and payments on car loans, credit cards, personal loans and lines of credit) shouldn't be more than 42% of your gross monthly income.

Mortgage options

Getting a mortgage is simply borrowing the money you need to buy the home you want.

  • Fixed rate mortgages are great if you're looking for set payments on regular payment dates.
  • Variable rate mortgages give you the advantage of payments that remain the same, but if our prime rate goes down, more of your payment will go towards your principal. Conversely, if our prime rate goes up, more of your payment will go towards the interest.

Get pre-approved for your mortgage
You may want to consider applying for a pre-approved mortgage so you’ll know the price range of homes you can look at.

EXPERT TIP

You may be eligible for the First-time Home Buyers' Tax Credit—cash back in your pocket to cover some of the costs associated with buying your first home. If you are a person with a disability or you're buying a house for a related person with a disability, you do not have to be a first time home buyer. Check out the Government of Canada website for further details.

Money saving options

Interested in paying less on your mortgage? Of course you are. Well, here are some insider tips to ensure that you pay us less on your mortgage.

  • Make bi-weekly payments on your mortgage rather than monthly payments. If you paid $450 bi-weekly versus $900 monthly, you'd knock off about 4 years on your mortgage.
  • Increase your payment amount. Adding even $30 extra to your regular monthly payment amount will shave years off your mortgage.
  • Make one lump sum payment each year and you'll be surprised at the impact to your bottom line.
  • Lessen your amortization period. Simply put, choose to make payments against a period of time less than 25 years. This is a sure way to save on interest costs.

Other costs & fees

When assessing how much you can spend for your home, don't forget about the many one-time expenses that you'll face. Expect related fees to cost about 1.5 to 3 per cent of the purchase price of your new home. Here's a brief list of items to consider:

  • GST—applies to certain properties, including new or recently constructed homes.
  • Property transfer tax—applies to most home purchases in B.C. The tax is 1% of the first $200,00 of the market value and 2% of the balance.
  • Inspection fees—to check your home for structural soundness, confirm mechanical condition and identify any problems.
  • Appraisal fee—to ensure the property is acceptable security for the mortgage.
  • High-ratio fees—to cover the premium and application cost for default mortgage insurance on high-ratio mortgages.
  • Legal fees—to register the mortgage and transfer the property to you as the new owner.
  • Tax/utility/interest adjustments—to compensate the vendor for any pre-paid property taxes, utility fees or interest payments.
  • Home insurance—to protect your home in case of fire, earthquake, or other damage. Did you know that Island Savings can help you get home insurance that's right for you? Click here for more information on home insurance.
  • Mortgage insurance—is always a smart choice because it enables your family to keep your home in the event of your death. It can also protect you in the event of prolonged illness, injury or loss of employment.
  • Moving costs—to settle into your new home no matter where you move.
  • Utility costs—to establish new utility hook-ups. Renovation and repair costs—to cover any immediate repairs, renovations or decorating costs.

 

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