How to prepare for a home purchase in 2021

By Jesse Abrams
January 29, 2021

It’s no secret that 2020 was a year of unexpected twists and turns, but let’s not forget the things that worked out in our favour. For Canadian homebuyers, in particular, interest rates hit record lows and encouraged considerable activity and opportunity in the marketplace. As we head into a new year with high hopes and low rates, there are many homebuyers enthusiastic and ready to enter the housing market or buy their next home.

If you are interested in purchasing a home this year, here are the key things to consider so that you’re prepared for this investment:

Know what you can afford by getting pre-approved

If you’re planning to purchase a home (either your first or next home), one of the first things to consider is getting pre-approved for a mortgage. This will help you determine your affordability, what kind of down payment you need and what you’re eligible to borrow based on your income and other key factors. Having this information will also guide your home search and give you clear insight into what cities and neighbourhoods you can afford to buy in. The early weeks of 2021 have been very busy for our team at Homewise, as pre-approvals have been continually growing over this time, especially amongst first-time homebuyers who set the goal to buy in 2021.

Consider all costs and budget accordingly

Once you know what you can afford, you can then figure out the size of your down payment and start budgeting for your mortgage and other associated costs. Homebuyers often forget that there are other expenses, such as closing costs, beyond their down payment. These can include home insurance, land transfer tax, lawyer fees, property taxes, home inspection and more. Factoring these other costs into your budget is essential as it can impact your overall home affordability and ensure there are no surprises.

Pay off your debt

Before purchasing a home, it’s a good idea to pay off any outstanding debts such as your credit card, auto loans, student loans or line of credit. When you apply for a mortgage, your lender will review what is called a “debt-to-income ratio” to determine your ability to manage your monthly expenses, while paying off your outstanding debts. You can calculate this figure by adding up your monthly debts, dividing it by your gross monthly income and multiplying it by 100. The lower your debt-to-income ratio is, the better. That’s why it’s essential to minimize as much debt as possible before you apply for a mortgage and make a home purchase.

Consult with experts

If you’re a first-time buyer or have purchased a home in the past, it’s always helpful to partner with experts. Whether it be an experienced real estate agent or a mortgage advisor, getting transparent and informed advice will help you make a better homebuying decision. At Homewise, our mortgage advisors partner with every client and provide unbiased advice throughout the mortgage process. They shop different lenders and compare rates and mortgage options to find the best product that suits their unique needs. In the end, you want to ensure that you’re working with someone who you can trust when making this investment.

Understand your current mortgage

If you’re a current homeowner and looking to buy a new home, it’s essential to understand the privileges and penalties of your existing mortgage. For example, if you’re looking to break your mortgage, you may be subject to large fees, depending on the terms and conditions of your contract. When it comes to mortgage privileges and penalties, every lender is different – making it even more important to source a knowledgeable mortgage advisor. Having someone walk you through the process of comparing lenders and mortgage features, will give you a better understanding of what you’re getting into and how it can benefit you over the long term.

Whether you’re a first-time buyer or not, making a home purchase is an exciting milestone – even more so when you’re fully prepared for it. Doing the right research and understanding even the little details will give you an advantage as you enter the market. It will help you avoid common mistakes that some buyers encounter and save you plenty of stress, time and money.

About Jesse Abrams

Jesse Abrams is Co-Founder at Homewise, a mortgage advisory and brokerage firm based in Toronto. thinkhomewise.com

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