First Time Home Buyer

Budget

Do your homework. Many of use dream of a 4-bed home with a driveway for the car, unfortunately that may not be in the cards at least not for your first home. Figure out how much you can comfortably spend on a house before you start to look around. There are many mortgage or home affordability calculators that can help with determining what you can afford based on your current income, debt, down payment, and credit score.

Be realistic with what you can afford on a monthly basis. Once you have your home, there are many other expenses besides the mortgage payment. You will need to also budget for property taxes, heating and hydro costs, repair or maintenance fees.

Other expenses in addition to your down payment to consider at closing are closing costs: lawyer fees, land transfer tax, title insurance and adjustments. An estimate of how much this would be is 3-5% of the purchase price. Also, you will need to budget for after the home purchase for immediate home repairs, upgrades and new furnishings.


Once you have your budget, stick to it. A lender may offer to loan you more than what you are comfortable with, or you may get caught up in the market frenzy to spend more to beat another buyer's offer. To avoid financial hardship later, set a price range based on your budget, and keep it. Only look at properties that are expected to sell below your budget. That will give you some wiggle room for bidding in a competitive market.

Protecting your credit

The most important thing to do before you start you house search is ensuring that your credit score is in good standing. Your credit score will determine whether you qualify for a mortgage, the mortgage amount and affect the interest rate lenders will offer you.

Things to keep in mind are:

• Get free copies of your credit reports from the credit bureaus — Equifax and TransUnion. Carefully review them and dispute any errors that could hurt your score.

• Don't be late. Pay all your bills on time, watch out for payment dates when you pay through your bank, there may be a delay in when your payment is received. Every late payment can affect your score. 

• Keep current credit cards open. Closing a card will increase the portion of available credit you use, which can lower your score. Keep credit card balances as low as possible.

• Track your credit score. There are many websites that will provide this service.
• Major purchase - don't make any before you buy a property as they can affect your score. It is especially important during the period between when your offer has been accepted and when you close on the property. The lender can rescind their approval if your credit score has changed.

Down payment

The first and biggest hurdle for first-time home buyers is saving for a down payment. A savings plan is essential and helps you set a target amount for your down payment. The more you can save the larger your down payment will be and will decrease the amount you need to borrow. A larger down payment will make you less house poor once you own.

Did you know that your minimum down payment is determined by your home's purchase price? The absolute minimum down payment in Canada is 5% for homes that cost $500,000 or less. That is $25,000 you will need at the minimum and in today's market you are looking at much more. The down payment on a 1 million dollar or more home is 20% so you will need at least $200,000 for your down payment! That is a lot of money!

Once you've figured out the down payment amount you can afford, you can use a mortgage calculator to estimate what your monthly payments will be.

Buyer programs

As a first-time buyer, you can take advantage of many programs that will assist you in your first purchase. There are several government programs listed below that can help you potentially save some money when you buy your first home:

• The Home Buyers' Tax Credit currently works out to a rebate of $750 for all eligible first-time home buyers.
• The Canadian government's Home Buyers' Plan (HBP) allows first-time home buyers to borrow up to $35,000 from your RRSP for a down payment, tax-free.
• If you qualify, land transfer tax rebates are available to first-time home buyers in Ontario. There is also a land transfer tax rebate available for first-time homebuyers in the city of Toronto.
• The First-Time Home

Buyer Incentive enables first-time homebuyers to reduce their monthly mortgage payment without increasing their down payment. Borrowers who meet the criteria can apply for a 5% or 10% shared equity mortgage with the Government of Canada.

• The GST/HST New Housing Rebate offers qualifying homebuyers a GST/HST rebate on the purchase price of a home.

Pre-approval

The most important thing to do is to get a pre-approval from your lender. I will say it again, get pre-approved! Apply for pre-approval from your lender BEFORE you're ready to start home shopping.

Once you've saved up enough for your target down payment amount, the first thing you should do is get a mortgage pre-approval. Call your mortgage broker or your bank's mortgage specialist. If you do not have a referral, call me and I can provide you with contacts for some experts. A lender will pull your credit and review documents to verify your income, assets and debt. A pre-approval letter is a lender's offer to loan you a certain amount under specific terms. Having a pre-approval letter shows home sellers and real estate agents that you're a serious buyer.

Needs vs. wants

How to find your dream home? One that ticks all the boxes and within your budget, you need to be real! Having hard conversations about what you truly need versus what you would like are very important to ensure you are happy with your new home and that the process was as easy and pain free as possible. The first thing to know is that you most likely will not get everything you want, that is the case for most people, but the better understanding you have of want is a true deal breaker the greater chance you have of getting your dream home.

Here's why differentiating wants and needs is important:

• Save time - only look at houses that meet your needs
• Stops emotional buying - prevent buyer's regret
• Find the best house that fits your needs
• Make educated decisions about compromises
• Move fast when the perfect house is found

What is a dealbreaker:

These are items you cannot live without under any circumstance - the house must have at least 2 bedrooms.

What is a need:

These are items that you need to have, like location, parking, schooling, etc. these items are top of your priority list.

What is a home buying want:

These are items that you would like to have in your new home, but you can forgo if the home checks off all the other boxes. An example would be a skylight in the bedroom.

Ask yourself the right questions:

1. What do you love or hate about your current home? Is it too small? Too close to the train tracks? Not enough storage? Do you love the garden? Do you love walking to restaurants? Think about where you are now and what you feel about it.
2. How long do you think you will live there? Chances are you will not live in your first home forever, so does it need to meet all your future needs? If you are single today, do you need to buy something that has extra bedrooms for children? Probably not.
3. How handy are you? Don't buy a fixer-upper if you have never handled a hammer. Homeownership is a lot of work and maintenance, and repairs are guaranteed. Unless you have the budget to hire someone to do the work, think twice about the deal you got buying a home that needs work as it will make your life miserable.

Neighbourhood

Picking the right type of house and neighbourhood involves a lot of thinking and planning. You need to weigh the pros and cons of different types of homes, given your lifestyle, budget and proximity to work and family and friends. Then all this needs to fit into your budget!

Options to think about:

• A condominium or townhome may be more affordable than a single-family home, but shared walls with neighbours will mean less privacy. Don't forget to budget maintenance fees when shopping for condos. • Another option to consider is buying a fixer-upper — a single-family home in need of updates or repairs. Fixer-uppers usually sell for less per square foot than move-in ready homes. However, you may need to budget extra for repairs and remodelling and depending on your budget, you may have to live with the current conditions for a few years until you have saved up enough to do the work.

Long term goals

Your long-term goals will influence your home buying decision. Do you want to expand your family? Are you looking to size up in 5 years? Retire early and live by the beach? All of these will have a factor on what and how you make decisions today.

Homeownership can be a lucrative way to increase financial wealth, if it fits into your long-term goals. Owning a home is considered a solid investment that pays out over the long-term helping you to achieve your goals. Answering these questions about long-term personal goals can help clarify what home is the right choice.

• Job Status: Are you only planning to stay with your current job a few years? Is this a job you hope to keep long term? Is there opportunity for growth within the company within the department? Will a move be required for career advancement? Job stability is one of the most concerning factors for everyone when purchasing. If I need to can I sell it quickly?
• Home Occupancy Length: If you sell too soon will you make any equity after expenses. This is a concern for many millennials, who may find job-relocation as a part of their career building.
• Is this the start of your portfolio? Have a long-term goal to start using homes as investments? Will I be able to move any equity to another investment? Overall, home equity is on the rise and starting now can increase the chances of profit long-term.