For first time buyers in the Calgary real estate market: some useful information and tips - part 2
In the last post we talked about the importance of picking a great location for Calgary Real Estate.
For our second installment we’ll look at how to finance your Calgary property. Even for experienced buyers of real estate in Calgary, the process of getting financing can be a stressful chore, and for first time home buyers it can seem overwhelming. By being prepared and by taking a systematic and planned approach you can avoid the stress and confusion that may come from securing financing for your new Calgary home purchase.
The very first step is to create a budget that you can manage and live with. This budget will encompass everything, from the cost of moving, monthly mortgage payments, cost of utilities for your new home, any additional taxes, fees, and any other expenses associated with purchasing your new property (don't forget to include an amount for annual maintenance and depending on the type of property, periodic big ticket items like furnace, roof, or air conditioning replacement). If you’re purchasing a Calgary condo or townhouse you’ll also need to include the monthly condo fees (99% of Calgary townhouses are condominiums).
Once you've gathered and added all these items together, you’ll have a better idea of the overall costs involved and the type of property you can afford to purchase. Also, when making a budget, don’t forget that your income will likely change over time, as will some of the costs of your home. While it is difficult to estimate these future changes, flexibility in a budget is something to aim for.
Now that you have a budget, it’s time to start thinking about where you will get the capital. Unless you’re fortunate enough to have a huge savings account - something most first time buyers don’t have the luxury of – you’ll have to take out a mortgage from a lender.
I thought it might be helpful to actually define a mortgage, because we often take it for granted even though it is a very special type of loan. A mortgage in layman's terms is an agreement where you put up collateral, normally in the form of a home you’re purchasing, in exchange for a loan of a specific amount, and a promise to pay it back over a prescribed time period and at a certain interest rate. In other words, it transfers an interest in a property to a lender as security against a debt. The term mortgage actually was derived from the old French “dead pledge” which meant the pledge to pay back the loan ends or dies when the loan is repaid or the property is foreclosed on.
The mortgage rate, or the rate of interest you pay back is very important, but equally important is the amortization period, which is the term of the loan. A low interest rate over a longer period could mean you’ll pay more at the end than a higher interest shorter amortization loan. It’s a good idea to talk with a lender *either a mortgage broker or a traditional banker* prior to looking at property. We can provide you the names & contact information for several Calgary lenders. The majority of first time buyers are more likely to get better terms through a mortgage broker who may have hundreds of funding sources competing for their clients *whereas a bank typically would have less than a dozen*. In addition, the Government of Canada’s Home Buyers’ Plan also allows first time buyers to withdraw up to $25,000 tax free from their RRSP's to help with the purchase of a new home.
My parting advice when it comes to financing Calgary Real Estate is: don't be afraid, be smart. Educate yourself and gain some exposure by talking with several mortgage brokers and bankers; just like getting a feel for a new home location, the more familiar you are with your mortgage choices, the more confidence you’ll have knowing you’re choosing the right financing for you. Once you’re pre-approved contact us by phone or via Website Contact regarding finding the Calgary property of your dreams.
Jim Sparrow sells Calgary Real Estate with Royal LePage & specializes in South Calgary and luxury homes. Browse through our Living in Calgary blog, view current listings, and when you have questions, simply email, or page me directly at Royal LePage Solutions 403.252.5900.