1st Time Home Buyers: Where to Start When You Don't Know Where To Start
Updated: Aug 29, 2019
They say hindsight is 20/20 - and for me and my 1st time home buying experience this couldn't be more true! Sitting here with the Real Estate knowledge I now have, I look back at my 1st time buying experience in absolute horror. For whatever reason it may be - let's just add it to the list of things the main stream education system fails to prepare us for - there is A LOT of confusion and misconceptions floating around about the buying and selling of Real Estate.
For this post I am going to focus on clearing up some of the main misconceptions I come across in regards to First Time Buyers. I will also offer some tips in hopes of better educating those who are looking to get into the market, but are very unsure of where to start. A few years ago that was me - and THIS is what I wish I knew.
1. Get Down with the Down Payment
Most of you likely have an idea of what this is - essentially it is the initial up-front payment you put towards your home purchase. The required amount in Ontario is based on the purchase price of your home - and are currently as follows:
5% Minimum Down Payment on homes under $500,000
For homes purchased over $500,000 but under $1 Million, the minimum Down Payment is 5% on the first $500,000 plus 10% on the remaining balance of the purchase price
For homes over $1 Million the minimum Down Payment is 20%
For most buyers the down payment is the biggest hurdle of home ownership. I know countless people paying monthly rent higher than most peoples mortgages. So the cold hard fact is that YES you do have to stash some cash to prove to lenders that you are a serious and qualified buyer. This may look different for everyone - whether it's getting a second job, moving back into your parent's house for a year or two, or just putting an end to your Uber eats obsession and being more diligent in your spending🤣. No matter the extent of the sacrifices you have to make - IT WILL BE WORTH IT, I promise!
2. Get Pre-Approved (A little louder for those in the back!!)
Have you ever gone shopping without a defined purpose, and before you know it you've spent two weeks of pay and now own half a wardrobe that would only be appropriate if you lived another life?🤷♀️ Well this is a glimpse into what house hunting would look like without a Pre-Approval.
Your pre-approval is the maximum amount you MAY qualify for. With this information you can calculate your down payment, estimate your potential monthly mortgage payments, know the rate for the first term of your mortgage, but MOST important of all you can start your home search with a more realistic and effective approach.
In order to get a pre-approval you must meet with a lender or a mortgage broker. For some this is a simple trip to their banking institution, and for others it is visiting a broker at places like Dominion Lending. Despite the route you take I would urge you to explore your options before making a final decision. Although you don't NEED a Realtor before getting pre-approved, if you know of one you trust it's worth your while to reach out and ask the question - they will more than likely have a few quality suggestions of who to contact.
3. Shop Within Your Means
This may seem extremely obvious but it is much easier said than done. We've all ended up on Expedia a couple glasses (bottles🙃) of wine deep with our best friends clicking confirm to a trip you damn well know your bank account isn't thanking you for. We pay the price and feel the consequences for a month or two before we're back on our feet. Well imagine that but on a MUCH larger scale.
The last thing you want is to purchase a home on the maximum end of your budget and not be able to afford anything but to sit at home and freak out about what you've done. Don't get me wrong - buying your first home will inevitably lead to a freak out or two at some point because the majority of 1st time buyers have never spent on this scale before. It can be daunting and scary, but it doesn't have to be if you're realistic and well informed.
All this is to say - when you get your pre-approval make sure to take into consideration any other costs you know you have. Your approval will not take into consideration the cost of caring for your pets, saving for travel, or playing in sports leagues - but if these are things that are very important to you and non-negotiable, then they are things you must factor into your monthly budget on top of your mortgage.
4. The Truth About Commission (Buyers - Relax)
You often hear people discussing the costs of Real Estate transactions and negotiating percentages. Essentially in Ontario the average commission rate is 5% (2.5% going to the Selling agent and 2.5% going to the Buying agent). This is not how each and every transaction conspires these days, but it is the "going rate" if you will.
The good news is the SELLER is responsible for paying the commission on a transaction - so as a Buyer you will not need to worry about factoring in the costs of an agent's services.
Connect with an agent who understands and listens to your needs. In Canada, Real Estate Professionals are licensed to practice within the Province they are licensed in. So if you know of one, reach out and see if they are willing to help you in your home search.
It's our job to do the hunting, show you homes, and negotiate on your behalf. We're used to driving around - most agents cover a large geographical area in their career so never feel bad!
5. Take Advantage of 1st Time Buyer Programs (YES - these exist!)
Remember how earlier we were talking about how darn hard it is to get into the market as a 1st time buyer? Well the government, as well as some other institutions have taken note of this and created various programs to assist in the process.
A few common ones are: 3
The Home Buyers' Tax Credit - this adds up to a rebate of $750 for those 1st time buyers who are eligible
Land Transfer Tax Rebates for 1st Time Buyers - this can be up to $4,000 depending on your purchasing situation
Government of Canada Home Buyers Plan - this allows 1st time buyers to borrow up to $35,000 from their RRSP tax free (if you don't know what these words mean - or are currently laughing at the thought of $35k - don't sweat just yet🤣)
There are also many more localized programs offered by some municipalities that assist with a portion of your down payment when you purchase a home in their region - each has certain regulations of how much must be repaid and when it is to be repaid (i.e. Hamilton, Simcoe County, Niagara, Kitchener, etc.)
If you purchase a home before it is built, or you do significant renovations to your home you may qualify for a rebate of a portion of the sales tax (this is based on purchase price and other factors)
When your time comes and you're in the midst of your 1st home purchase there will be a lot more "nitty gritty", but for now this is an informative outline of the key steps to set yourself up for success and be a well informed buyer.
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