The 2022 federal budget made way for a new tax-free savings account (TFSA) designed specifically for first-time home buyers in Canada. The account ultimately combines the advantages of the existing TFSA and registered retirement savings plan (RRSP) – popular down…
How to buy a house in Alberta
Making the big decision to buy a house in Alberta is a no brainer. That means you’ve finally concluded that you meet the financial and paperwork requirements for securing your desired property. But if you haven’t, there are a number of things you need to prepare before setting out to find your dream home.
The entire process may require a long-term plan, from saving for your down payments to building your credit score and sorting other mortgage requirements. That is why buying a home is a major life decision and, of course, one of the biggest investments you’ll ever make.
Step 1: Determine if you’re ready to buy a house
We know the excitement of house hunting to find your desired house, but before running to do so, you’ll need to determine if you’re ready for such a huge expense. Assessing your financial and credit situation is the most significant step before searching for a house to buy in Alberta.
Income And Employment Status
The first thing you need to consider is your income. Are you employed or unemployed? As an employee, you receive a certain amount of money as payment for your labour every month. Even if you are self-employed, you will still receive income, although it may not be as consistent as an employed person.
Debt-to-Income Ratio (DTI)
While your employment status is crucial in determining your readiness to buy a house, your gross and net income are equally important. If you incur too much debt, then your net income will be too low to save anything significant to buy a house. As such, it is recommendable to keep your debt-to-income ratio below 42%.
If you do not have enough funds to pay for a house in Alberta outrightly, then you can go the mortgage way. But every mortgage requires you to have a down payment. A down payment is the amount you pay for a house upfront. While how much you pay as a down payment depends on the lender, generally, the down payment should not be less than 5% of the purchase price. Moreover the higher your down payment the less you’d have to pay in interest.
Before accepting a down payment your lender will assess your credit score which is also referred to as your risk profile. Importantly, when you want to buy a house using a mortgage, it is crucial to have a good credit score. Most lenders will require you to have a credit score of 650 which also provides you with mortgage options and lower interest rates. However, this does not mean there isn’t hope for people with a bad credit score. There are other options people with a bad credit score can capitalize on when they want to buy a house.
Step 2: Calculate how much you can afford to buy in Alberta
To get an idea of how much house you can afford in Alberta, a good rule of thumb is to use an accurate mortgage affordability calculator. The calculator uses your gross income, credit score, down payment amount and other important details to give you an idea of how much mortgage you should expect to get from the bank and the price of the house you should be looking at. You’ll also see your estimated monthly mortgage payment and expected interest rate to decide whether your income can handle such monthly expenses.
Step 3: Save for your Down Payment, Closing Costs & Fee
It goes without saying that purchasing a home is a costly endeavor. It could be one of your most significant purchases. But, don’t be alarmed; if you’re serious about purchasing a home, it all begins with small actions like saving.
Any small sum you come across should be saved. Because, at the end of the day, buying a house costs a lot of money, from the down payment to the closing costs, legal expenses, and so on.
Step 4: Choose your mortgage rate type and term
As soon as your down payment situation is settled, what’s next is to shop around for a mortgage lender with suitable terms and rates. You can either get a mortgage loan from a mortgage lender or a mortgage broker. How a mortgage lender lends money differs from how a mortgage broker. Make sure to carefully go over their terms and rates before choosing to work with them. A great move would be to hire an experienced mortgage lawyer who can review your terms to check for suspicious clauses.
To find the best mortgage lender for your needs, talk with several lenders about their products. Some great questions to ask yourself when seeking a mortgage lender includes:
- How long do you want the mortgage to be?
- What type of mortgage do you need?
- Do you want a mortgage with a rise or fall interest rate or one that is fixed?
- How often do you want to make a repayment on the mortgage?
Step 5: Get pre-approved for a mortgage
After finding the ideal mortgage broker or lender, what’s next is to organize your documentation to submit a mortgage application. Getting a pre-approval for a mortgage gives you peace of mind knowing you can confidently bid on houses you like. Getting pre-approved also means the lender has determined the mortgage amount you would qualify for so that you can have that price range in mind when house hunting. Typically, you will be asked to present several documents like your bank account or investment statement, proof of assets, proof of income, information about your debt, your identification, and so on. A pre-approval for a mortgage tells you the following:
- The mortgage interest rate available to you
- Your maximum monthly mortgage repayment plan
- The amount you can afford to spend on a house
Step 6: Begin house hunting
With all things settled, it’s time to start looking at those numbers to decide which neighborhoods suit your needs. You can buy different kinds of homes in Alberta, including Condos, townhouses, detached homes, and more. Depending on how much you can afford, you should be looking at areas with a price range that are within your budget.
Popular Cities & Neighborhoods in Alberta
LACOMBE AB: Lacombe is one of the best environments to buy a house and live in Alberta. It offers attractive scenery, a thriving economy and amenities that make it a great place to call home. Residential infrastructure and standard of living are also at their best in the area.
RED DEER AB: As one of the largest cities in Alberta, Red Deer is a beautiful place and is among the most preferred locations in Alberta. Whether you’re looking to raise a family or start a business, it offers exceptional facilities that make living worthwhile.
ST. ALBERT AB: This lovely city is the best to live in Alberta and is ranked among the healthiest cities in Canada. It offers a peaceful environment suitable for kids and has the infrastructure and amenities that home buyers are looking for in the various neighborhoods around the city.
CALGARY AB: As one of the largest cities in all of Canada, Calgary is regarded as a wonderful city to reside in. It has a stable economy with jobs and businesses thriving in all the locations. Residential properties with great infrastructure are also available, and the environment is excellent for a typical city lifestyle.
BONNYVILLE AB: Bonnyville is a small town in east-central Alberta with great infrastructural amenities that make life easy and enjoyable for inhabitants. It presents all the best amenities with the quiet suburban lifestyle that many homebuyers seek.
Helpful home buying resources in Alberta
Access to a home buying resource in Alberta comes in handy, whether buying a condominium or house. The resource will give you more precise information like requirements, cost, tax, and so much more. Housing Support Programs, CMHC , The Home Program and Canada.ca, are great resources to find helpful information about buying a house in Alberta.
Step 7: Make an offer on a house
When you find the house you want to buy, things move rapidly from there, but don’t get too worked up. The first thing you should do is make an offer on the house. Move on to finalizing your mortgage plan as soon as your offer is approved.
Step 8: Close on your new Alberta home
Before you pay for the house you want to buy in Alberta, request a home inspection; after the inspection, the house’s purchase price can change depending on the finding in the house inspection. Contact your real estate lawyer as you may make a down payment and transfer the title of ownership. The entire process shouldn’t take more than 30 to 60 days.
First-Time Home Buying Resources in Alberta
If it is your first time buying a home, there are certain difficulties you will face. However, the provincial and federal governments have developed a program to make buying a house easier for first-timers. As a first-timer, you are eligible for the following:
- Home buyers’ plan: With the home buyers’ plan, first-timers can withdraw up to $35,000 from their RRSP for a down payment. And the best part is that you can repay annually over 15 years.
- First-time house buyer incentive: As a first-timer, you get an interest-free mortgage on a second loan. It covers 5% or 10% of the purchase price of your home. You can repay the government after 25 years.
- The Home Program: Helps low-income people become homeowners with financial assistance and one-on-one counseling.
If your home purchase is not planned properly, it could turn out to be very stressful and challenging. With all that’s at stake, it’s essential to prepare your funds and credit patiently and also follow the steps stated in this guide or work with a trained professional to ensure a smooth buying process.
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