There's a lot to consider when buying your first home. Each province has its own set of regulations and taxes. There are also bank rules, interest rates and credit scores to factor in. Plus, you, the buyer, will have a lot to think about in terms of neighbourhoods, and types of housing such as a condo, townhome or detached house. Then there's the size of the home you want, the age, and the little perks like a backyard, a dog park nearby or underground parking. Buying your first home can be a huge accomplishment, a source of pride and a way to build wealth. But if the proper research and preparation are not done, then owning a home can become more of a liability as opposed to an asset. In this article, I will try to highlight some of the essential steps to get started, and I will link some helpful resources below.
You need to complete a realistic budget to see just how much you can afford in terms of a mortgage payment, plus things like utilities, condo fees or HOA fees, property tax, home insurance, security systems, home upkeep and repairs. Not all of these may apply to you since it will depend on the type of home you are getting. This link will bring you to a great budget calculator tool.
Once you have written down your budget, then you can assess how much you are able to set aside to save for a down payment, if you don't already have one. The size of the down payment will determine what price range of home you can afford. You also want to think about setting aside some of the money for closing costs. Closing costs include things like lawyer fees, land transfer taxes, inspection fees, appraisal fees and loan application fees. These vary by province.
Once you have a downpayment amount in mind, you can use free online bank calculators to see an estimate of what home price you can afford with your income and down payment size. I like this calculator by BMO. If you have an RRSP, you could leverage the first-time home buyer's savings plan. You can read more about this here.
You must understand that having a down payment is just one part of what's required to buy a home. You also need good credit and a debt service ratio below 44%. You can read more about debt service ratios here.
You will need to have a look at your credit to make sure you won't have any negative information on your report that could affect your ability to qualify for a mortgage. If you wanted an official score you would need to pay either Equifax or TransUnion. Alternatively, you can check if your bank is providing free credit monitoring.
Do some preliminary research. It is important to get an idea of what you want and what areas you like by doing some online searches. There are many free property search websites that allow you to look up homes for sale. This way you can get an idea of the price range of the type of home you want and the price range of different amenities. You can also look up different neighbourhoods to see reviews, walking scores, crime rates and amenities close by. Your realtor will be a great asset in helping you to narrow down your search, but it is always good to be prepared and to know what you want.
Narrow down your wish list. So once you have decided on the type of home you want to buy, let's say for e.g a condo, your wish list might be: in-suite washer- dryer, balcony, pet friendly and non-smoking. If you choose a house, your wish list could be something like: close to supermarkets, good daycares around, spacious backyard, finished basement. But, we all know that we don't always get everything we want, so there's also the task of separating your wish list items into must-haves and things you can compromise on, for e.g. maybe you can do without a balcony but you have a pet so the building must be pet friendly, or maybe you can compromise on a finished basement, but you need daycares and school to be within 15 minutes of your home. These things are important to consider because a home is a big investment and something you will have to live with for years.
Find a mortgage broker. Sometimes a realtor can refer a broker or a broker can refer a realtor. or you can do some research and find your own broker. The mortgage broker's job is to help you source financing. They will take a look at your credit, your down payment, your debt ratio and income, then help you find the right lender and interest rate for you. This step could actually be one of the first ones you take when starting your house hunt, especially when you don't know where to start.
Get pre-approved. The broker will reach out to lenders with your profile created from the information gathered above, and then let you know how much money you can get towards buying your house. It is important to note that you do not need to max out this amount, you want to refer to your budget to see if you can realistically afford the mortgage payments with that loan size. Also, the home you want may even fall under that amount and so you don't need to max it out. The other thing to note is that the lender will still need to do a valuation of the home you are purchasing to determine if it is worth what they are willing to lend.
Start working with a realtor. A realtor will be the one you work with to narrow down areas to look in and what to look for. The realtor's job is to help you find the right home. They will also set up showings, negotiate prices and facilitate the signing of documents. The realtor works for you but they make a commission from the sale of the home. The seller's realtor will split the commission with your realtor. Though it is not always mandatory to have a realtor, it is important because they can answer questions you have about neighbourhoods, prices, etc. They also have access to resources and can help you find out things like the pricing trends for a particular neighbourhood or to help you find that perfect investment property that satisfies all legal requirements. They can also spot things in homes that we might miss.
Find a real estate lawyer. Your lawyer will help you with all the legal paperwork and review any documents related to the house itself. Your lawyer will facilitate the signing of documents between you, the realtors and the seller. They will also be able to help you get the documents related to your home, such as your Owner's title. The lawyer's role comes into play after you make an offer, but it is a good idea to have a lawyer in mind so you know who to go to once you're ready to finalize your purchase. You will also be able to factor in the cost of legal fees ahead of time once you know your lawyer's rate for their service.
Start your hunt. This is when you really get out there, you start attending showings, actually seeing homes in person and realizing how deceiving pictures can be. You may also love a home but hate the yard, or love the neighbourhood but not the neighbours. This part of the process is equal parts frustrating and exciting. But finding the right home takes time and patience.
Selecting the right home for you. This is the tricky part. There may be so many good options like the fancy new condos with the fenced dog park, the cute townhouses by the new park, or the bungalow with all the yard space. This is where your budget and wish list come into play. Refer to these to see what is most affordable and that also satisfies your needs and wants. You can also find out things like the average utility cost and the property cost for the home to factor into your budget. Your realtor will further help you to narrow things down by highlighting resale values in the area, and any specifics to look out for. You may also want to ask about planned developments in the area and crime rates.
Get an inspection done. Once you've chosen your home, you get to make a conditional offer. The primary condition for the buyer is that the home should pass an inspection and for the seller is that your financing goes through. Your realtor and you may also work out other details to include, like possession dates or other stipulations. A home inspection is important for any property you wish to buy. An inspection will determine if there are any repairs that are needed, any serious flaws to watch out for or other concerns you may overlook during the initial stages of home hunting, like roofing and plumbing.
Moving in/ Moving out. Once everything is finalized, your moving dates will follow. I have known so many people who have unintentionally left themselves homeless by forgetting to align their move-in/move-out dates. You may be renting and your lease expires at the end of the month and you need to be out by then, but you don't take possession of your new home until the 15th. There are two weeks in between that you will need to consider. You may need to rent an Air BnB or hotel or stay with friends or family. Then there's your stuff, some moving companies will allow storage for a few days but you need to figure this out ahead of time. If you will need storage for a few weeks, then that needs to be worked out as well, plus who will bring your things to storage and who will pick them up? All these things are additional costs that need to be factored in.
It is important to note that these steps wouldn't necessarily be in this particular order, some people start with a broker first to find out if they'd even qualify for a mortgage, and others start with a realtor to see what the housing market is like, some may start with their bank and other may start with a family discussion and some research. I do hope this article has highlighted some important steps to consider and that the resources will prove to be helpful.
How KOHO can help
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