Buying your first home is simultaneously thrilling and terrifying. Achieving your dream of homeownership is exciting, but given the size and the complexity of the transaction, along with the responsibility, it can be a little daunting as a first-timer, to say the least.
Doing research and becoming knowledgeable is your best way to create peace of mind and make good, rewarding decisions. Here is what you need to know as a first-time homebuyer.
Set a Budget
The absolute first step when you are looking for a home is to establish what your budget is. It’s tempting to draw up a wish list with all of the features of your dream home, but you need to use your budget as the framework for your house hunt- not the other way around. Determining what you can afford will actually help you to build your wish list and reduce your financial vulnerability down the road.
It’s a good idea to keep some wiggle room in your budget, so you don’t become house poor. Don’t forget an increase in interest rates could make your home less affordable. Having a cushion is a good idea.
Have you considered finding a home with an income suite? Would you consider buying a home with another person or couple? There are several creative ways to get into the real estate market.
Get Your Financing Organized
Once you have determined what your budget will be, get pre-approved for your mortgage. Not only will this let you know what you can realistically spend, having everything organized ahead of time can speed up the process when you do find a home.
It’s important to note that a pre-approval for a mortgage doesn’t actually qualify you for the mortgage, but lays the groundwork until you find a home. It’s also usually a way to get a rate guarantee as well. There are plenty of mortgage calculators online that can give you an idea of what your monthly mortgage payments would be I like the TD Bank Mortgage Calculator , because it’s simple to use.
Make a Wish List
Now is the time to make a wish list for your home. Beyond things like floorplan and finishes, determine details like neighbourhood, location and housing type. Recognize that location will figure heavily into what you are able to attain with your wish list.
Beyond the features of your home, what would you like to create comfort for your lifestyle? Do you mind a commute to work? Is there shopping and nightlife nearby? Do you have a yard or access to green space? Does the local community fit your vibe? Don’t forget that you are buying not just a home to live in, but a location that will provide you with the lifestyle that you seek as well.
It’s always a good move to buy a home near shopping, schools, green space and public transit. These coveted features will always fetch a premium from buyers, which can help to boost your home’s asset value down the road.
It is also a good idea to consider how long you intend to live in the home. Is there space to accommodate any changing needs, or the ability to alter it to suit, or would you possibly be looking to move within a shorter timeframe? Timeline for homeownership is important as well, as this can factor into your return on investment when it is time to sell.
Determine your Comfort Zone for Compromise
The reality is as a first-time homebuyer, and especially in a city like Toronto where prices are high and stock is limited, there is a good chance that you may have to compromise on one or more of your items on your wish list. What are your priorities? What are must-haves vs. nice to haves? Is there any room to move up in your budget if the right opportunity emerged? Would you consider changing property types or neighbourhoods? Could you swap turn-key for fixer upper, if all the other criteria matched?
Determine how comfortable you are with various points of compromise. This will not only give you the confidence to seize an opportunity, but will make you more comfortable with your decision, reducing the likelihood of buyer’s remorse.
Remember to Budget for Closing Costs
First-time home buyers focus very closely on amassing the savings for a down payment, which is no small feat. However, don’t forget to include the various closing costs that you’ll need to cover, from taxes to professional and legal fees, appraisals, inspections and more.
It is highly advisable to get a property inspection prior to purchasing a property. It can be tempting to forgo this in a high-pressure market like that in Toronto, but that is a risky move. Even if your home is newer, there are potential problems that aren’t obvious to the average home buyer- and you could be on the hook for substantial amounts of money.
Additionally, be aware of what is covered and not covered in a property inspection. Due diligence is the key to reducing risk and protecting yourself.
First Time Homebuyer Programs
As a first time homebuyer, you are eligible for support from a number of different government initiatives. Make sure that you are taking advantage of what you can, because this can help you increase your purchasing power or reduce your overall debt. There are qualification criteria around buyers and around the properties that are eligible, so be sure to read all the fine print.
The First-Time Home Buyer Incentive (FTHBI) is a shared equity mortgage backed by the Federal Government, where they provide either 5 or 10 percent of the purchase price of your home (depending on if it is a new build, resale or mobile home). This can help boost a down payment, making home ownership more affordable. You must repay the amount in 25 years or when the home is sold (whichever comes first). You are also free to repay at any time.
The Home Buyers Amount lets you claim $5000 on a qualifying home, which works out to $750 in a Federal tax relief.
For new homes (or homes that require substantial renovations) you might be eligible for the GST/HST rebate. The Provincial Government also offers rebates for the provincial part of the HST.
The Home Buyers Plan (HBP) lets you withdraw up to $35,000 from your RRSP to use as a down payment on your home. Withholding tax isn’t applied to amounts of $35,000 or less. You must repay the amount that you withdraw back into your RRSP within 15 years.
In Ontario, first-time homebuyers are eligible for a tax rebate for the Land Transfer Tax to a maximum of $4000. Additionally, in Toronto, first-time homebuyers are eligible for a tax rebate on the municipal Land Transfer Tax to a maximum of $4,475.00.
Set up a Home Repair Fund
Once you become a homeowner, don’t forget that you’ll be responsible for home improvements and repairs going forward. And the older your home, the more costly (and likely) your home repairs and maintenance will be. Plan ahead to put some savings aside on a regular basis after closing to cover these costs on an ongoing basis.
Surround Yourself With Support
When embarking on the journey to buy a home and throughout the process, you’ll need the help of a number of professionals, like a good realtor, lender and lawyer. It is a good idea to form relationships with people that you trust early on in the process. Surrounding yourself with support will help you to pursue your housing dreams successfully.
From finding a home, to negotiating prices, to navigating bidding war, to arranging documentation, to securing financing and insurance, buying a home takes a team!