Buying your first house is a huge step in your life. While entering the home market can be nerve-wracking, it’s also a very exciting time in anyone’s life. In Toronto, due to the high cost of real estate, most first-time homebuyers need to secure a mortgage in order to acquire their first home. Mortgages are simply loans in which the borrower agrees to pay the money back over an agreed-upon term. And if the borrower fails to pay the loan back, the lender can seize the property.
Since the consequences of not being able to pay a mortgage are very real, many people are hesitant about whether or not to get a mortgage and prefer to continue renting. While mortgages are arguably the best way to buy your first home, it’s also crucial to make sure that you apply for a mortgage at the right time.
Below are things you should consider when deciding whether now is the right time for you to get a mortgage. Keep in mind that a mortgage is a long-term commitment and you have to make that you’re ready to make the necessary sacrifices.
Is Your Income Stable?
First and foremost, your income must be stable. When you have a mortgage, you have to make regular monthly payments over the amortization period of the mortgage. In Canada, mortgage terms are typically five years, with mortgages amortized over 25- or 30-year periods. After, the mortgage term expires, you will have to renew your mortgage for another term. The problem is mortgage rates could have increased in the past five years, which means your mortgage payment could be higher when it’s time to renew your mortgage. To manage your mortgage payments, you need to have a regular and stable income.
Whether you’re employed by a company or self-employed, what matters is that your income is stable. Before applying for a mortgage, consider your finances and determine if your salary is stable enough that you can rely on it to cover your monthly payments over the long term.
When you apply for a mortgage, lenders will request your tax returns for at least the past two years and/or pay stubs as proof of income. Many lenders also require to see that the down payment amount has been in your bank account for at least 60 days as proof of financial stability.
How Well Do You Manage Debt?
If you have a history of managing debt properly, then you have a higher chance of securing a favourable mortgage. When applying for a mortgage, lenders will ask you for your credit score and credit history. From there, they can analyze your current debt situation, how well you pay off loans, and how punctual you are with payments.
If you haven’t been on time with your bill payments, then there’s a chance you won’t get approved for a mortgage. If you do have a low credit score, there are many things you can do to raise it to increase your chances of getting approved.
Have You Built an Emergency Fund?
Financial experts and advisors always recommend having an emergency fund in a savings account. Your emergency fund should be enough to cover at least 3-6 months of living expenses, and certain lenders may even require more.
Emergency funds can be really helpful if ever you find yourself without a job or to cover the cost of unexpected expenses. When you buy a home, there are deposits, closing fees, land transfer taxes and other costs that you have to take into account. And sometimes, these costs seemingly pop out of nowhere.
To help prepare you for living a life in a home you own, it’s always best to have an emergency fund tucked away in a savings account. After all, you’re never going to know when you need it.
The Best Time of the Month and Year to Apply for a Mortgage
Some times of the month are better than others to apply for a first mortgage. During the first few days of the month, lenders are eager to arrange mortgages as they have just wrapped up their previous month’s business. Consider applying for a mortgage in the first few days of the month to increase your chances of approval.
With respect to the optimal time of year to apply for a mortgage, not as many people sell their homes in fall and winter. As a result, these seasons are a good time to apply for a mortgage since mortgage lenders will be more eager to secure customers.
When you apply for a first mortgage in Toronto, it’s best to be prepared. Make sure that your finances are in order, you have a desirable credit score, and that you have an emergency fund that can serve as your safety net in times of need.
If you can check off all of the boxes listed above, it might be the right time to get a mortgage. Consider contacting different lenders to see what options you have available.
You might be interested in reading, “Make Your Home Renovation Stress Free“.
Very informative post! A mortgage is a big decision so it’s important to weigh everything out!
Yes! Getting a mortgage is a very serious decision. It’s important to realize what is involved. Cheers, Lori
Good things to think about. Someone once told me that the bets time to get a mortgage is when you need one — and not to be enticed or swayed by market trends or rates at the time.
Yes, that is another good opinion about when to get a mortgage. Cheers, Lori
The emergency fund is so important. Lots of good info here.
Thank you. I agree that an emergency fund is imperative because life can serve up so many surprises! Cheers, Lori
A great article!
Its always good to have an emergency fund built up There are always things that pop up like new water heater or furnace
I completely agree. When you own a home, there is always something breaking down. Cheers, Lori
Great post! Many things to consider before committing to a home purchase. Right now things are too crazy for me to make that kind of decision.
I’m sure with the pandemic that many people don’t feel this is a good time to get a mortgage. Cheers, Lori
Lucky for me I don’t need a mortgage
The emergency fund is so important. Very informative article.
this is a very timely article
I didn’t know there was an edge to applying for a mortgage in the first few days of the month. Very interesting.
Great post, to many items to think about. A lot of times you’re buying someone else’s problems.
I agree. There is a lot to think about before buying a home and yes, you are sometimes buying a property with several hidden problems. Cheers, Lori
Such great advice I wish I had it when I purchased my first home.
With coming rising rates now is an important time to review your mortgage and ensure you’re not over stretched
I never would have thought that the time of month you apply for your mortgage would make a difference. I’m well past the “first mortgage” stage of my life, but this is good to know for my kids. Thanks!
You’re welcome. I hope your kids find this information beneficial. Cheers, Lori
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