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, live, laugh, and love. 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. Plenty of us rent before we buy; however, in the end, many of us will buy a home to live in, raise a family, and make memories.

Buying your first home is exciting, thrilling, exhilarating, and much more. 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. Our goal is to help. 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, too!

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!

Start Thinking About How Your Costs Will Change As A Homeowner

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. 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?
• Will you still be able to maintain the lifestyle you currently enjoy if you purchase a home?
• Will you have enough monthly money for groceries, entertainment, car payments, and other bills?

Begin To Determine Costs Involved In Your Upcoming Home Purchase

Here’s where the fun starts! It’s time to brush the dust off your calculator or use the one on your smartphone and begin preparing a spreadsheet to review your income and expenses. What expenses will you no longer have when you buy a home? Take rent, for example. What new costs will you take on? One is a mortgage.

The next step in your first-time home buyers guide is to list the upfront and other costs of buying a new home. Some items to include on your list: Legal costs, first-time home buyers insurance, land registration, adjustment costs, GST/HST, interest adjustments, certificate of location costs, township or municipal levies, home inspection and home appraisal costs, moving costs, mortgage default insurance, provincial sales tax on mortgage default insurance premiums, utility costs, and condo or other fees, if applicable. (Depending on the home you purchase, some of these costs may not apply.)

Don’t worry if you cannot place actual amounts beside each item in the early stages of preparation for buying your first home. There is more information on these topics below. The professionals you work with in the home-buying process, some examples of which include real estate agents, real estate lawyers, mortgage brokers, insurance brokers and other professionals, will help you determine the costs that apply to you. As a general guideline, the Financial Consumer Agency of Canada (FCAC) suggests these costs—sometimes called closing costs—will amount to 1.5% to 4 % of your home’s purchase price. For example, if you were to buy your house for $500,000, FCAC suggests you may expect closing costs to be $7,500 to $20,000. Our first-time home buyers guide recommendation is that you budget for the costs to be higher, just in case.

Do You Know Your Credit Score? It Helps To Know This!

Another essential consideration when being a first-time home buyer 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, such as most of Canada’s top five 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 a mortgage at the best 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.

Mortgages & Financing For Your First Home

One of the first steps toward homeownership 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. For illustration, a mortgage broker may say: “You are pre-approved to purchase a home up to $350,000.” 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 $350,000.

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
• Much more

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.
• Provides 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.

Online research and suggestions from family and friends may help you decide which mortgage lender or broker to choose for assistance with a mortgage. 

What Documents You Should Take To Your Mortgage Meeting

First-time home buyers must also pass a mortgage stress test to qualify for a mortgage loan. Passing a stress test ensures you, as a home buyer, don’t take on too much debt and can meet payments at qualifying interest rates when buying your first home. Don’t worry; you do not need to work through this process alone. A mortgage broker will walk you through it. To ensure the mortgage broker has what they need when you meet with them, the Canada Mortgage and Housing Corporation recommends you bring several documents to a meeting with a mortgage lender.

• Government-issued ID
• Proof of address
• Proof of income
• Your employer’s contact information
• Proof of down payment (more on this below)
• Proof of savings and investments
• Information about current debts
• Credit score details

If you don’t qualify for a mortgage, options are available. These include improving your financial situation with help from a credit counsellor, paying off debts, saving for a larger down payment, buying a less expensive home, and/or trying to increase your savings and lower your expenses.

Why First-Time Homeowner Insurance Is Important

You already know that the government mandates you must have auto insurance to drive a car, but there’s no legal requirement to have homeowner insurance to buy a home. However, it’s essential to understand that just because the government doesn’t require first-time homeowner insurance doesn’t mean you can go without it. Most mortgage lenders will not approve your mortgage without seeing proof that you have home insurance that meets their specific requirements.

It may be surprising initially that mortgage lenders require proof of home insurance, but it makes plenty of sense. There are two key reasons why they deem it necessary. One, mortgage lenders are making an investment in your property that they expect you to pay them back for, and they want to ensure that their investment is protected so you can get the insurance compensation necessary to handle repair and restoration if it suffers damage due to an insured peril. Two, they want to know that you’ll still be able to continue making monthly mortgage payments even if your property is destroyed or seriously damaged. That helps them protect their investment, of course, but it also protects you from having to deal with the financial consequences of being unable to keep up with your monthly payments on your mortgage.

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 and cautious you may be, there’s always the risk of accidental damage—not to mention the risk of damage or destruction from factors you can’t control in the least. Most first-time home buyers, and everyone else, don’t have the extra funds just lying around to cope with the cost of restoring a seriously damaged building and replacing all the belongings inside it. Home insurance gives you the peace of mind that comes with knowing you won’t have to pay out of pocket—or lose your home altogether—if the worst happens and you’re struck by an insured peril such as fire, natural disasters, theft and much more.

Down Payment Requirements

To buy a new home, you must make a down payment toward the home’s purchase price. The minimum amount for a down payment depends on the price of the house you want to purchase. For homes priced at $500,000 or less, the minimum down payment is 5% of the purchase price. For homes priced from $500,000 to under $1 million, the minimum is 5% for the first $500,000 and 10% for the remainder to $999,999.

If you want to make a down payment of less than 20%, you will need mortgage loan insurance, which protects lenders against mortgage default. This or mortgage default insurance does not protect you if you cannot make your mortgage payments. Canada Mortgage and Housing Corporation provides an online table to help you determine mortgage loan insurance costs. For first-time buyers with the means, making a down payment of 20% or more is often advisable. A larger down payment reduces your mortgage and can save you money in interest payments. A larger down payment also means you will pay a lower mortgage loan insurance premium. In fact, in most cases, when a buyer’s down payment is higher than 20%, no loan insurance premium must be paid. That said, for buyers with less than a 20% down payment, do not let the loan insurance premium deter you from purchasing today! You will need to know more about when to consider a down payment of less than 20% to ensure you’re making the right purchase decision.

Government Incentives For First-Time Home Buyers

Here’s some good news for first-time home buyers. The Government of Canada offers a first-time home buyer incentive to help purchase a first home. Qualifying first-time home buyers can receive 5% toward purchasing an existing home and five to 10% toward buying a newly built home. The incentive needs to be paid back, and there are several ways to do this. It can be paid back at any time without penalty, after 25 years, or when the home buyer sells the property. The property’s fair market value determines the repayment amount at the time of repayment. The incentive is part of the federal government’s National Housing Strategy.

First-time home buyers can also withdraw up to $35,000 from their Registered Retirement Savings Plans (RRSP) to assist with the purchase of a home. The withdrawal is not taxable as long as you repay it within a 15-year period.

If you have a tax-free savings account (TFSA), this money can be used to help with the down payment.

Determine What Paradise Means To You

So now you’ve completed a budget, understand the expenses of buying your first home, and qualify for a mortgage (because you’ve been pre-approved, right?!). Now, the real fun can begin. You are finding the home that is right for you!

Consider where you want to live, what type of house you like, and what inside and outside features are essential to you. Also, consider what kind of home you want and need now and into the future, say 5 to 10 years from now. Making a list of these features can be handy. You can refer to it when looking at homes you are interested in.

There are several types of home ownership, including freehold, where you own the home and land, and condominium ownership, where you hold your unit and share common elements such as gyms, lobbies, and hallways. Other ownership types include leasehold, where you own and lease or rent the land, and co-operatives, where you purchase a share in a building and live in one of the building’s units. Consider what kind of home you prefer, and additionally, begin thinking of your answers to the below:

• What size home do you need?
• What size property do you need?
• Is it necessary to have school(s), stores, churches, entertainment, or other amenities nearby?
• What kind of neighbourhood do you want to live in?
• Do you want to buy a newly constructed home or an existing home?
• Do you want to live in a city, a suburb, or more rural areas?
• Do you want a detached or semi-detached home? A condo, a duplex?
• Do you want a home with a second unit and rental income possibilities?
• Are you ok with commuting or driving to work and other services?
• Are there particular features that are important to you, such as accessibility features?

Yes, we know! It is a lot to think about. Arming yourself with the answers to these questions now will be highly beneficial when you begin “getting out there” and shopping for your first home! Speaking of which, don’t forget about the importance of working with an exceptional real estate agent.

Selecting Professionals To Help In Your Home Buying Process

Working with a real estate agent, home inspector, real estate lawyer, and home insurance broker can help make your home-buying process stress-free. Outlined below are some things to consider when talking to a professional.

Working 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 interested homes. You can learn a lot from the listing information. The listings for homes include the following details and more:

• Address of the house
• Interior and exterior photos of the home
• Name of neighborhood
• Asking price for sale
• Number and size of bedrooms, bathrooms, kitchen, dining room, living room, laundry area, storage room, foyer and other rooms
• Number of stories
• Square footage
• Heating and air conditioning information, including type, such as forced air, and heat source, such as gas, as well as the age of this equipment
• Basement features
• Property type, such as freehold
• Lengthy description of features and highlights of home and neighborhood
• Taxes
• Year built
• Driveway, garage, and parking spaces information
• Lot frontage and depth
• Lot shape
• Roof type, such as asphalt shingles
• Any items which the owner has excluded from the sale, such as light fixtures

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.

You May Need a Home Inspector

You may want to hire a home inspector, a home appraiser, or a contractor 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? These professionals 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.

Working With a Real Estate Lawyer

When shopping for a new home, you will also need the help of a real estate attorney. Purchasing a home is one of the most significant financial commitments many of us will ever make, and hiring a great real estate lawyer is essential. A real estate lawyer will safeguard your legal rights and interests.

A real estate lawyer will review legal documents, including purchase and sale agreements. A lawyer will also make sure no claims (or liens) are listed against the property, taxes are paid up to date, the property title is searched, and the cost of land transfer tax is calculated. Hiring a real estate lawyer is money well spent. The Financial Consumer Agency of Canada advises that you should generally expect to pay between $400 to $2,500 in legal costs.

Working With a Home Insurance Broker

Home insurance can financially protect you, your home, and your belongings in case of damages or losses, such as a fire, injury to others while at your home, theft, water damage and more.

Home insurance is a contract between you and an insurance company where you pay a premium, and the company agrees to pay for losses caused by perils specified in the home insurance policy. Insurance is necessary when considering how much money you have invested in your home, and the annual premium is well spent. Think of it this way: Without home insurance, if something unexpected happens, such as a fire, you will have to pay for repairs entirely on your own.

When you contact an insurance broker, they will ask for details on your purchased home and discuss what type of insurance and coverages you want. Your insurance broker will guide you and get several competitive first-time home buyers insurance quotes. The insurance broker will review the quotes and prices with you, and you can choose the insurance policy you want.

Online research and reviews can help you find an insurance broker who is right for you. Select an insurance broker with a fantastic reputation. Also, select an insurance broker who will happily explain first-time homeowners insurance to you.

Selecting an insurance broker who will provide personal service throughout the policy term is essential. Suppose you decide to renovate and want to know if your insurance will protect you during renovations. Or you could upgrade the wiring in your home or install a monitored alarm system. It’s good to share these details with your insurance broker. Some changes may even help to reduce your premium. Select a broker who will provide personal service with a smile.

Maintaining Your Home And Your Investment

Between backyard barbecues, at-home movie nights, cooking your favourite meals and the thousands of other things you will enjoy in your new home, keep up with regular maintenance. Some items that require maintenance include the roof, the furnace and air conditioning equipment. Other items also require care and attention, such as fencing, landscaping, painting, replacing plumbing fixtures and more. Regular home maintenance can maintain and increase the value of your investment. You can do many things to boost your enjoyment of your home and enhance your investment. Something as small as fixing a leaky faucet can save you money on water bills and bring relief from an annoying dripping noise. Fixing the small leak may also prevent more significant problems in the future. Suppose your backyard fence is falling. Fixing the fence before it collapses may save you from replacing it later at a more significant cost.

Another way to ensure you maintain your investment is by creating a home inventory list. This document will list all your valuable possessions in your home so you can prove what you had if they are ever destroyed or stolen. This is a great time to start the list as you will unpack all your items when you first move in, making the documenting process much more manageable.

Regular maintenance can enhance your enjoyment of the home, save you from higher maintenance costs in the future and protect your investment in your property.

A Closing Word On Budgets And The Home-Buying Journey

Know your expenses, track them, and save money for a rainy day. We hope this first-time home buyers guide has been helpful in your process of finding your brand-new home. There is so much to think about and do when buying your first home. It’s a journey.

May your journey be enjoyable and your destination be everything you want it to be.