The First-Time Homebuyer's Guide

A Guide To Buying Your First Home 

To want a home is human. Home means safety. It’s a comfy sanctuary in our hustle and bustle world, a retreat, a place to be ourselves. For many of us, the first place we call our own is a bedroom in our parents’ home. It’s our space, our first private domain within four walls. 

As we grow older, it’s natural to want our own home. Many of us will buy a home to live in, raise a family, and make memories. 

Home buying is exciting! It is a new beginning. A step forward. An opening to opportunities, big and small. Everything from the freedom of designing your living spaces to entertaining friends to almost anything. And while the joys of being a first-time home buyer are wondrous, it’s also essential to understand and be prepared for first-time home buyers' responsibilities, as this is one of the most significant decisions you can make in life. 

This first-time home buyers guide outlines some critical financial responsibilities first-time home purchasers need to know when entering home ownership. When your purchase is completed, and you are enjoying your new home, we want you to be confident your financial house is in good order. 

This is a lot to think about. Proceed one step at a time. Use this first-time home buyers guide to help you. Buying your first home is exciting. Enjoy the journey! 

Understand Your Finances 

While financial planning and budgeting are not generally the most exciting household topics, they are crucial in ensuring you feel confident and comfortable when purchasing your first home, and thus are included in our first-time home buyers guide. Begin to ask yourself some critical questions about how your situation will change, monetarily speaking, as you begin to contemplate your home purchase. Take notes on your phone and keep a diary. More than anything, recognize that asking yourself some key questions can help start this process right! 

Here are a few questions to help get you started: 

• Are you financially stable and financially able to buy your first home? 
• Will you qualify for a mortgage? 
• Are you financially able to make a down payment? 
• Can you pay monthly mortgage and ongoing bills such as property taxes, utility, first-time home insurance, and home maintenance costs? 
• Do you have savings to cover expenses in case of unforeseen problems, such as a job loss, broken appliance, or to fix a damaged roof? 
• Will you still be able to maintain the lifestyle you currently enjoy if you purchase a home? 
• Will you have enough of a budget for groceries, entertainment, car payments, and other bills? 

It is important to keep in mind that you also will need money not just for bills and groceries. You also need to have some set aside for things like savings and an emergency fund. It is important not to become “house poor” and to ensure that you have enough money to live your life.  

Know Your Credit Score 

Another essential consideration in our first-time home buyers guide is your credit score. Your credit score is a snapshot of your financial well-being. It gives lenders details on your financial history and how consistently you pay off your debts and bills. Your credit score is essential to determine your approval for a mortgage. Make sure to speak with your bank to assess your credit stability or risk. 

It is also worth knowing that some great free options, including most of Canada’s top banks, can help you determine your credit score. At this point, maybe you have your credit score before you, but you’re asking yourself: What score do I need to qualify for a mortgage? While there is no hard-and-fast rule, a credit score of 680 would often be the benchmark you’re looking for to qualify for one at the best mortgage rates available. 

Another thing to consider is tax credits. The federal government offers two types of incentives: The Home Buyers Plan and the GST/HST Housing Rebate, which may be helpful to you. Also, ask your mortgage broker or lender if you qualify for a provincial first-time home buyer incentive. 

The Canada Mortgage and Housing Corporation recommends that monthly housing costs, including mortgage payments and utilities, be at most 32% of your gross monthly income. It also notes that your monthly debts—including your mortgage and all other debts—should not exceed 40% of your gross monthly income. 

Prepare A Down Payment 

The next step in our first-time home buyers’ guide is to make a down payment toward the home’s purchase price. A down payment is the amount that you pay upfront, as you do not take out a loan on all of the money used to buy a home, just most of it. While the amount that you pay upfront will often differ, it is commonly recommended that your down payment be 5%- 20% of what you paid for the home.  

Understand Mortgage Payments 

Unless you pay 100% of your new home’s cost upfront, you will be required to borrow money to pay for the rest. This is known as a mortgage, where you borrow money from either a mortgage-specific lender or another financial institution, such as a bank. While this gives you the freedom to purchase a house that is more expensive than you would normally be able to afford without such a boost, you should be very careful when determining how much you can afford. If you are unable to make the monthly payments needed to repay the loan with interest, your new home is treated as collateral against your loan. While you can reduce your monthly payments by making the loan paid back over a longer time, this will increase what you owe in interest, which will also increase the total amount you need to pay back. 

Get Pre-Approved For A Mortgage 

One of the first steps in this first-time home buyer’s guide is determining if you qualify for a mortgage, given your income and expenses. Mortgage lenders and mortgage brokers loan money for real estate purchases. They can help you determine the mortgage you can afford. 

Mortgage lenders and brokers can also help you get pre-approved for a mortgage. Note that a preapproval is not the final approval for a mortgage. Preapproval is the first step to determine how much you can spend on a home. To illustrate, a mortgage broker may say you are pre-approved to purchase a home up to $500,000. While you would be welcome—and financially conscious—to spend less than that pre-approved amount, spending more would not be advised as you are not qualified to spend more than $500,000. 

We suggest that you shop around when looking for a mortgage. Interest rates and conditions for mortgages can differ. Contact a mortgage lender or broker who will meet with you and discuss your financial situation and possibilities. The FCAC website features key mortgage features, including: 

• Explanation of open and closed mortgages. 
• Fixed and variable interest rates. 
• What to do if interest rates increase. 
• Title insurance. 
• Various terms. 

The Financial Consumer Agency of Canada provides some handy tools that we encourage you to explore; however, we insist that these be treated as estimates only. 

• Use a mortgage payment calculator to estimate your mortgage payments. 
• Provide a mortgage payment schedule. 
• Use a mortgage qualifier tool to determine your qualification for a mortgage based on your expenses and income. 

Speaking with a professional mortgage broker will help you confirm your mortgage payments and the purchase price you qualify for with certainty. 

Set A Budget 

It is an important step in our first-time home buyers' guide to balance your financial needs with the home you want to buy. Just because you've been approved for a mortgage to buy a home worth up to $500,000 doesn't mean you need to spend the entire amount. Spending less than your maximum allows you to take out a smaller mortgage, which means a smaller loan to pay back and less interest. It is critical that you keep this in mind what your mortgage rate will be when making a purchase. While it is tempting to overbid for what you perceive to be your dream home, this can get out of control fast. Keep in mind that there is a reason you have a budget in the first place, and there’s nothing wrong with delaying your purchase if you want to shop around for a better deal. 

House Hunting 

Just because your house-hunting adventure probably didn't get featured on a reality show doesn't mean it isn't important. Getting the right home is one of the most important decisions you'll make in your life and is a deeply personal matter. There are several factors that you will need to keep in mind when making your decision, such as the location, price and size of the place. A real estate agent can be a large help when choosing the right place. 

Work With A Real Estate Agent 

Researching online and asking family and friends for suggestions can help you find a real estate agent who is right for you. Work with an agent who is friendly, helpful and has expertise in the real estate market for the areas and home type you are looking to buy. Select a real estate agent who will happily and clearly explain the first-time home buyer process, someone who listens and with whom you are comfortable. 

Meet with them to explain the type of home you want to purchase. The agent will look for homes that meet your expectations and send you listings for sale on the housing market directly to your email, which you can review while house hunting. It can also help to drive through neighbourhoods you like and write down the addresses of homes for sale. Your real estate professional can get you information on these homes, too. Read the details when you have listing information for the homes you are interested in. You can learn a lot from the listing information. The listings for homes include the following details and more: 

• Address of the house and details of the neighbourhood. 
• Interior and exterior photos of the home.  
• Asking price for sale. 
• Number and size of bedrooms, bathrooms, kitchen, dining room, living room, laundry area, storage room, foyer, basement features and HVAC information. 
• Size (square footage and stories). 
• Property type, such as freehold, year built and lot shape. 
• Lengthy description of features and highlights of home and neighbourhood. 
• The cost of property taxes. 
• Driveway, garage, and parking spaces information. 
• Lot frontage and depth. 
• Roof type, such as asphalt shingles. 
• Any items which the owner has excluded from the sale, such as light fixtures or appliances. 

If you see a home you like, you can drive by it. If you want to learn more, your real estate agent can make an appointment to view the home. In most cases, you can expect to visit several homes before you buy one. In-person visits are essential. In-home viewings enable you to learn a lot about the house. Take your time during a walk-through. Look around. Ask the real estate agent any questions you may have. If the real estate agent can’t answer your questions right away, they will get back to you. You may find that you want to see a home for a second time before you make an offer to purchase. Sometimes, you will see things you didn’t notice during the first viewing. 

Location, Location, Location 

The location of a home is one of the most important aspects of the purchasing journey. It determines who your neighbours are, what the local culture is, will impact the price, local amenities, and commute times. Here are some questions you should ask yourself when thinking about the location of your new home: 

• Is it necessary to have school(s), stores, churches, entertainment, or other amenities nearby? 
• Do you want to live in a city, a suburb, or more rural areas? 
• Are you ok with commuting or driving to work and other services? 
• Is this place friendly to children, the elderly and pets? 
• Do you like the neighbourhood, surrounding area and scenery?

Get The Right Size  

When looking for a home, the amount of space you get really matters. Your dwelling has to fit you and the family who lives with you. If you're a couple just starting out, a small one-bedroom, single-floor place might seem like it gives you everything you need, but if you want to have kids in the future or want to host large parties, it helps to be prepared for that. On the other hand, having more space just for the sake of it is almost certainly a poor investment, not just due to the higher cost, but you also need to keep in mind that all that space must be cleaned and maintained. As a first-time home buyer, it's best to think carefully about how much space you need to fit all your needs while being small enough to be manageable and affordable. 

Look For The Right Type Of Home 

Not every type of home will be a good fit for everybody. While a detached, single-family home is the dream for many people, the affordability and amenities provided by a condominium can be perfect for many people. Townhouses often provide a community and can be great for people who want to save some money and don't mind sharing a wall with a neighbour. Here are some things to think about: 

• Do you want to buy a newly constructed home or an older home? 
• Do you want a detached or semi-detached home? A condo, a duplex? 
• Do you want a home with a second unit with rental income possibilities? 
• Are there particular home features that are important to you, such as accessibility features? 
• Are there compromises you're willing to make on your dream type of home to save on your budget? 
• Are there certain in-home amenities that you need or prefer? 

It is important to go inside a home and picture how it will look after you have your furniture and other personal items, as homes can often appear larger or smaller than they feel. 

Getting The Right Insurance 

Buying a home is one of the largest investments you will ever make. It makes sense that you want to protect it as much as possible.    That’s what insurance is for. It's important to note, however, that the type of insurance you get changes based on the type of home you get. Traditional home insurance will provide different protections than condo insurance for example.  

If you need someone to help you understand the insurance industry, insurance brokers, such as those at Morison Insurance, can assist you with this. Hiring an insurance broker will mean that you save yourself some time dealing with insurance companies, and also gives you someone who understands the small details, advanced terminology, and fine print. For example, they will be able to tell you about 4 main types of home insurance: the main dwelling, contents insurance, personal liability coverage, and additional living expenses insurance. 

Understand First-Time Buyer Insurance 

You already know that the government mandates you have auto insurance to drive a car, but there’s no legal requirement to have homeowner insurance to buy a home. However, most mortgage lenders will not approve your mortgage without seeing proof that you have home insurance that meets their requirements. 

But your mortgage lender’s requirements aren’t the only reason homeowner insurance is included in this first-time home buyers guide. No matter how careful you are, there’s always the risk of accidental damage—not to mention the risk of damage or destruction from factors you can’t control. Most first-time home buyers don’t have the extra funds just lying around to pay the cost of restoring a seriously damaged building and replacing everything inside it. Home insurance gives you the peace of mind of knowing you won’t have to pay out of pocket—or lose your home altogether—if you’re struck by an insured peril such as fire, natural disasters or theft. 

Getting Optional Coverages 

There are several other types of coverage that you can get to have greater protection for your first home, or any home for that matter. These include the following: 

• Garden Insurance 
• Wine Cellar insurance 
• Musical Instrument Insurance 
• Fine Art Insurance 
• Water Damage Insurance 
• Jewellery Insurance 
• Overland Water Coverage 

Please note that this is just the beginning of the many types of policies you can use to protect yourself from the many dangers to your home and its contents. 

Offering And Purchasing 

Now that you have your finances in order, have picked out the type of home you want, it's time to finally make your move as a first-time home buyer and purchase the home itself. 

Getting A Mortgage 

There are plenty of places you can get a mortgage from, such as a specialized mortgage lender or a bank. You will want to bring the following documents with you: 

• T4 slips 
• Income verification such as pay stubs   
• Proof of assets such as bank statements and retirement savings statements 
• Information on liabilities 

 You might be pre-approved for a mortgage already, but that doesn't mean you have the money yet. You don't actually complete the process until your offer has been accepted. Also, getting pre-approved doesn't always mean that you'll get your mortgage, as the situation may have changed, and your mortgage lender might change their mind. If you are later declined, you can increase your down payment and change the length of time that the loan lasts to try and get the mortgage company to give you the loan. 

Withdrawing From Your RRSP Or TFSA For A Home Purchase 

If you've been saving into a retirement fund such as an RRSP or TFSA, you can withdraw funds from there to increase your downpayment. 

You can withdraw up to $35,000 from your RRSP via the Home Buyer's Plan (HBP). It should be noted that you need to first fill out Form T1036 from the Government of Canada's website and pay back the money borrowed over 15 years. You can also withdraw from your TFSA, which offers more flexibility. 

Hire A Home Inspector And Get Your Home Inspected

You may want to hire a home inspector along the home-buying journey. Are you concerned about the foundation of the home? Are there cracks in the basement? Has the brickwork been well maintained? Is the wiring old? What is the estimated value of the house? Do you want to make changes to the home and determine if these are possible before you buy? A home inspection can help you answer these questions and address concerns. Your real estate agent, family, friends, and online research can help you find and hire these types of professionals if needed. 

You may also want to gather details on recent house sales in the neighbourhood to learn about the features of other homes recently sold and their selling price. This information can help you determine the value of the home you are buying and how much your offer should be. 

Remember to be patient. It takes time to find your perfect home. Many first-time home buyers view several homes before finding a place they want to make an offer to buy. Also, be prepared that you may not get the first home you offer to purchase. Purchasing a home can be competitive. Several people may make offers on the same house. Your purchase offer may need to be higher and accepted by the seller. The good news is other houses are always coming on the market. 

Get Your Home Appraised 

In addition to a home inspector, first-time home buyers often need to hire a home appraiser. While these two positions may seem similar, there are key differences. While they are both real estate professionals that a home buyer will hire to assess the home inside and out, they are looking for different things. A home inspector is looking for possible dangers or things in your potential soon-to-be home that are in need of repair, as well as other potential red flags. A home appraiser will determine the fair value of a home to ensure that you, as a consumer, aren't drastically overpaying. The institution that provided you with a loan will often require you to get a home appraiser before the transaction is complete. 

Closing The Deal 

So you've decided which homes to try to purchase. You got approved for your mortgage, hired an insurance broker, real estate agent, inspector and appraiser, and it turns out, your target home was within reach. Time to dot the i's, cross the t's and make it official. 

The Move 

Once everything is official, it's time to move in. There's a lot going on when you move, and for a first-time home buyer, it's easy to forget something and let it slip through the cracks. Be prepared in advance for these possibilities to prevent a major headache from happening down the road with a moving checklist. 

Know That You've Remembered The Little Things 

When you change your address, you need to let many people know. This often involves a lot of paperwork and, in some cases, must be done in advance. Remember to contact everyone you need to, such as medical professionals, government agencies, and professional, educational, and personal contacts, and let them know your new address. 

Keep Track Of Your Belongings 

One of the scariest things about moving is the fear of forgetting some of your most valuable items. This is why it's recommended that you make a home inventory list, so that you know what to keep track of when moving, and don't forget anything. 

Protect Your Stuff During Your Move 

Something that can be just as scary as losing items can be breaking items that aren't properly insured. You often need to take extra steps to ensure that your items are properly insured while moving, which can alleviate this fear. 

Enjoy Your New Home 

It's important to remember that you're going on your home-buying journey because you think it will improve your life. No matter how much you have to do, it’s vital that you take the time and enjoy all the benefits you get from having your new home. Your home can be a lot of work, but it's vital that you do not make it more work than it's worth. Your home can be a lot of work, but making it perfect; making it perfect, just remember to make it yours.