First-Time Home Buyer Tips
Posted November 11, 2020
The Ultimate First-Time Home Buyer’s Guide
For most of us, choosing the house we want to be our first home is the most important decision we have to make. It’s surprising to discover then, that the average time a person spends on viewing the property they decide to buy is under 30 minutes. We spend twice as long deliberating over what smart phone to get next as we do making the decision to buy our next homes, and three times as long when it comes to choosing a car. Obviously, these slightly sensationalist statistics don’t take into account the hours we might spend researching the housing market and viewing multiple properties before we make our decision. They do, however, ably demonstrate how emotive the issue is. A house is more than just bricks and mortar, it’s a home, and home is where the heart is. When it comes to making decisions about house-buying then, it seems emotion often rules.
Start with Pre-approval
We know this part can be intimidating, but it is very important to determine what first-time home buyer loan you can afford. The best part about this: sellers often take a pre-approved buyer more seriously than those who appear like they’re just shopping around.
Start a savings plan – and don’t touch it!
If you are looking to buy a home in the next few months then this is hopefully something that you have already done. As we have all been told, it’s never too early to start saving. You might be looking at a 20% deposit and think “I’ll never save that” but the actual amount you save is only a small piece of the overall picture. Yes you will need some cash to go towards a deposit but banks also look at your ability to set money aside each month and not touch it. They want to see that you can manage your money properly.
View the property more than once
This can seem difficult when the market is so fast-paced, but it is better to see the house a couple of times before you make a decision. The more viewings you have, the more chances you have to really see if this is the right home for you. Make sure you come back to view it at different times of the day, you might want to get a feel for traffic, people and activity. It might be a different story come school pick-up time or during rush hour. The last thing you want is the perfect home and only to discover that you can’t stand the neighbourhood.
Home Appraisals 101
When you get a new mortgage, an appraisal of the subject property is often required by your lender. An appraisal is an unbiased determination by an accredited appraiser of the estimate of the current fair market value of the property. The appraiser provides the lender with a written opinion of the property’s value, and is client-paid for most refinances, switches, conventional mortgages and only in exceptional situations, high-ratio mortgages. It’s required for refinances because you can only refinance up to 80% of your home’s appraised value, and for some purchases and switches because the property becomes the lender’s security. Keep in mind that when a realtor gives you an evaluation of a property’s value, that should not be considered an appraisal for financing purposes. And given the hot housing market in some parts of Canada that are seeing bidding wars, some buyers are paying well over asking and the appraiser may determine that the property has a lower value, which could affect the buyer’s financing. As always, please get in touch at any time if you have any questions.
Need a Bigger Downpayment?
New mortgage rules might mean that you need a bigger downpayment than you expected. Here are some of the sources that can be used:
A financial gift (or loan) from a parent/blood relative
RRSPs (up to $25,000 per applicant)
TFSA / Investments
Sale of an asset
If you still need help qualifying, we can discuss having a parent cosign the mortgage with you, which is very common with millennial homebuyers. I’m here to help, so get in touch for answers to all your questions!
Find an Agent
Finding the right real estate agent is important, but finding the right mortgage broker can save you money over a longer period of time. You need to find someone who you can trust and that understands what you are looking for in a home. Without sounding too self-serving, we think you found the right website!
Consider all the costs
If you’re buying a home that needs some work, make sure you have a couple of appraisals of the costs involved to get your home the way you want. Don’t forget to budget for legal fees, starting at about $1,000 typically, utility hook-ups, movers, moving costs, storage rentals (if needed) and cleaning services (if desired). Any other applicable adjustments will be made on closing. For example: If the seller has paid for three months of the property taxes and you are closing with one month remaining of that prepaid tax, the seller will need a reimbursement from you, the buyer, on closing. This will be part of the cheque given to the lawyer.
Purchase homeowners insurance
Once you’ve made sure the title is clear and there are no problems with you taking on ownership, make sure to purchase homeowner’s insurance. If something happens to your home or your belongings, Shop around at least 3 insurance companies, or use an insurance broker, and make sure you’re not just getting the best price, but also the best value and coverage.
Closing on the home of your dreams!
The closing is essentially the hand-off, where all the lawyers and players get together, everyone is in a good mood because this crazy process is finally over, and the signing begins.
Post-closing, you own the house and can move in at any time. But there’s a lot of paperwork that you need to sift through in preparation for closing, and you will spend many, many hours on the phone with your lawyer, bank loan officer, broker, and possibly a contractor (discussing any repairs that the bank may require in advance of closing). Just be patient, have a good printer/scanner at the ready, and take it one thing at a time.
One thing to note for freelancers: since you’re probably not making consistent deposits, you’ll have to provide documentation to the bank explaining any “large deposits” – so make sure you keep excellent records tracking your income.
You should also make sure that both partners’ names are on all of your bank accounts – for some reason our savings account is only in my name, so I’ve had to sign (and have the bank sign) a “Gift Letter” documenting every transfer from our savings account into our joint checking account saying that I basically gave our marital union a “gift”. Why? No very good reason, other than procedure and to make me crazy.
Prior to closing, the bank will also do their own appraisal and inspection – they want to know that the house is “worth” the amount of money that you’re borrowing to pay for it, and they may require some fixes to be made in advance of closing. These are generally the seller’s responsibility to fix and pay for, but of course who does and pays for the repairs is open to negotiation.