Buying a home can be one of the biggest moments in your life and that is especially true when you are a first time home buyer. But how does the process work and what do you need to know? Here’s are some useful tips for anyone buying a home for the first time:
Clean up your finances
Let’s get this clear from the start: if you don’t have a decent credit score or enough money saved up for a down payment, you’re going to struggle to buy a house. With both your credit score and your down payment, the higher the number the better it is for you. A good credit score will entitle you to lower rates on your mortgage, which increases the amount you can borrow. Run a credit check on yourself to see where you stand; if it is low, take some time to improve it because it will make a big difference when buying a house. You should seek the advice of a financial advisor on how to you can improve your credit score – this could mean ensuring you have something in your name that provides credit (like a credit card) and ensuring you make payments on time, regularly.
Meanwhile, even though it is possible to buy a house with a 5% down payment, you’re best aiming for 20% because this will reduce the amount you need to borrow and means you will not be required to obtain mortgage loan insurance.
Work Out How Much Can You Afford
This is probably the most important when buying a house and a good place to start is to get pre-approved for a mortgage. This is when a bank assesses your financial status and then approves a loan amount and rate. You will be told how much you can borrow and what the monthly mortgage payment will be; this pre-approval will then be guaranteed for around 120 days and gives you a clear indication of what you can afford when combined with your down payment.
However, just because the bank has pre-approved a certain amount, you don’t necessarily have to borrow that full amount and, in some cases, it may not be in your interest. If you didn’t already factor this in during the mortgage pre-approval, you need to assess the payments you are likely to encounter when buying a home: closing costs, the cost of utility bills, condo fees and/or municipality taxes, other household costs such as food, and the cost of maintenance, with most people suggesting you should set aside at 1%-3% of your house’s purchase price each year. After that, think about any potential future expenses – a growing family, or upgrades and renovations you’d like to make, plus personal savings! Once you have taken these things into consideration, you will have a clearer idea of how much you want to spend on your mortgage each month and can use that figure to dictate how much you will borrow and, therefore, how much you can afford to spend on a home.
Speak to people with experience
As a first time home buyer, this is all new to you. However, you probably know several people who have bought a home before – perhaps even multiple times. Talk to them about their experiences when buying a home. What went well? Would they want to do anything differently? Do they have any recommendations for you? The more people you talk to, the more you will get an idea of how everything works and you may even avoid some pitfalls thanks to their recommendations.
Be aware of the benefits
There are various government benefits available to first-time buyers in Canada that help make housing more affordable. These include the First Time Home Buyer Tax Credit (HBTC) and the Canada Home Buyer’s Plan (HBP). The HBTC offers a yearly income tax break while the HBP allows you to withdraw money from your RRSP to assist in the purchase of a property. Full details of the benefits offer can be found in our guide to Federal tools and credits for first time home buyers.
Get a REALTOR®
As a first time home buyer, you probably have an idea about the areas you would like to live in and what kind of property you would like. If you followed our earlier suggestions, you also now know how much you can afford. The next step is finding someone who can combine those things and find the right home for you. That’s where a realtor comes in.
A good realtor will have extensive knowledge of the market, the area and the kinds of homes you are looking for, and they will be able to guide you through the whole process of buying a house. They will take away a lot of the stress, be your go-to person for all the questions you have, and can help you get the best price for the right property.
Look at the local public amenities
There are many different ways to judge a neighbourhood but one of the best is to look at the local amenities, such as schools, parks and community centres. This suggestion applies to all buyers, even those who aren’t sure what their family situation will be in the future. This is because the quality of schools and other public amenities are generally good indicators of the quality of a neighbourhood.
This can have a reflection in the price of the house, with homes closer to better schools, parks, libraries and other community amenities often having higher prices. Naturally, this benefit works both ways and when it comes time for you to sell your home you can often get a higher sale price.
And finally… enjoy the Experience
You will only ever be a first time home buyer once and, while it can be a stressful time, it can also be fun and exciting so try to make the most of it. You’ll remember this time for the rest of your life!