First Time Home Buyers — How to Start Building Equity In Your First Home

One of the greatest steps to financial security starts buying saying good bye to your land lord and start building equity in your first home.

How does one get started on the path to becoming a first time home buyer in Canada , first step is knowing where your credit stands because the first thing lenders want to know is how well you managed your credit. Credit scores are reported through several organizations but the main two are Equifax and Trans Union. Canadian First Time home buyers must show a history of at least two years history of being able to manage their debts, lenders will look for at least two lines of credit usually a credit card and a loan. Credit scores range from 300 to 900, 300 being low and 900 being perfect which I have never seen. CMHC requires first time buyers to have a minimum score of 620 to qualify for a mortgage.

Income Requirements for First Time Buyers

First Time home buyers must have a Down payment, it can come from several sources, of course you can save 5% but you will also need money for closing costs. CMCH requires 1.5% additional funds for closing but in Alberta the amount is more likely to be in the range in the 1500 dollars. First time buyers can also get down payment by way of gifts from immediate family members, a letter will be required to say that does not need to be repaid. There is also a program through CMHC called Alternative Down Payment where if you qualify you can borrow part or all of your down payment. The program requires that we add the cost of borrowing the down payment to your liabilities.

Debt Servicing Ratios

Insurers have set our guidelines that say how much you are allowed to owe including your mortgages property taxes and heat. These guidelines increase the better your credit score is on the scale, credit above 680 can have a higher debt servicing ratio of 44% TDS and 39% GDS. As a first time home buyer these numbers are important and it is why you need to sit down with a mortgage professional before you start your house hunting. A simple rule of thumb is that for every 500 dollars in other payments reduces you mortgage amount by 100000 dollars.

Employment Requirements

Your employment history is important in this process as mortgage want to see some consistency. Most lenders would prefer to see first time home buyers with two years on the same job before reviewing a file. If you are in the trades and work a lot of over time then you will need a two year average so that we can include over time into your income. Normally Lenders will want to see that first time home buyers can qualify with just their regular hours of employment.

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