With mortgage interest rates at all time lows, it is a great time for first time home buyers to take the leap into the market. There are some considerations and prepartions to be made before starting the process.

Mortgage rules changes that came into effect July 2012 shortened the max amortization from 30 years down to 25 on insured mortgages. This has made it more difficult for buyers to meet debt-servicing requirements of lenders due to the higher monthly payments of the short repayment structure.

These components of the lending landscape have put first time home buyers in the hot seat. Most young people are newer to both the employment game and the credit world and have had limited time to build up their own savings for down payment.

Canadian Mortgage insurers (CMHC. Genworth and CG) have minimum credit requirements of two years history on at least two credit accounts with a good repayment record. Paying on time on at least two accounts, such as credit card or other loans demostrates credit responsibility because these two typers of accounts report to the credit bureaus, a third party, and demostrate a borrower’s credit responsibility.

Avoiding credit means there is no third party record of how credit is handled, leaving financial institutuions lacking the tools that helps asses how a potential borrower will handle repayment of such a large loan. While it’s not advisable for young people to apply for credit everywhere, it is a good idea to establish two different credit accounts as soon as possible to create a strong credit history.

Many first time home buyers are young people with limited employment history, there is a good chance they have not saved up a minimum of 5% down payment yet. Direct relatives, such as parents can gift the down payment to help them buy a home. There can not be requirements for re-payment and they should have no invested interest in the property being bought.

Keep in mind that if the first time home buyer has limited credit and their down payment is being gifted, they are really not bringing much to the equation as far as their own personal risk, so many lenders are requiring co-applicants to bring some strength to the deal. 

If you have any question about first time home buyers or want to get pre-approved please contact me, Dillan Kelly at 403-894-5818 or dillan@dlcme.ca

Thanks,

Dillan

Dominion Lending Centres Mortgage Excellence