Thinking of buying your first home? Congratulations! Buying property is a milestone event worth celebrating, but before you pop the champagne - there are several things first-time homebuyers need to know before signing on the dotted line. If you educate yourself on each of these items below, you’ll put yourself in a good position with your first ever home purchase.
1. Closing isn’t cheap
Unfortunately, there is more to consider when purchasing a home than just the listing price or your offer. The Bank of Montreal suggests that you’ll want to budget between 3% and 4% of the purchase price (assuming it’s not a brand new home) to cover closing costs. That means that on a home that costs $400,000, you’ll be looking at between $12,000 and $16,000 in closing costs alone. That’s no small sum of money, so you can see why you need to keep closing costs in mind when creating a budget for yourself.
These numbers are estimates, and it’s likely your closing costs won’t be any more than 4%. Ratehub suggests they’re more likely to fall between 1.5% and 4% of the purchase price, depending on where you live, the kind of home you’re buying, and whether it’s a new build.
2. Know your subjects
The most common subjects you’ll see on a contract of purchase or sale include the following:
-Subject to obtaining satisfactory financing
-Subject to receiving and approving a property disclosure statement
-Subject to receiving and approving an inspection report
-Subject to receiving and approving a title search
-Subject to receiving and approving all strata documents
While these are the most commonly used, an offer can really be subject to just about anything you’d like, just don’t expect sellers to adhere to anything unreasonable. Talk to your Realtor about which subjects you should include with your offer, and study the most frequently asked questions about subject removal so you can bring your own ideas to the table.
3. The available mortgage options
First time home buyers should be intimately familiar with the different types of mortgages available. Speak to your lender about variable and fixed-rate mortgage options, and decide which kind of mortgage fits your comfort level.
You’ll also need to shop around to find an interest rate you’re comfortable with. A lower rate means more money goes towards the principle mortgage, while a higher rate means that - you guessed it - you’ll be paying more in interest. Though this may make it seem as though lower rates are always better, there can often be a catch to a very low rate, so read the fine print. Lenders with the lowest rates sometimes charge the highest penalties should you need to break your mortgage, and they can lack the ability to make extra payments. Read more on interest rates and mortgage options to really understand what you’re getting into before you choose a mortgage.
4. The neighbourhood isn’t always the same on paper as it is in person
The area your home is located in is going to matter to you more than you initially think, so don’t just make a purchase based on the home itself. You should be looking for the most affordable house in the best neighbourhood, not the best house in the most affordable neighbourhood. Read that again!
Moving into a nice neighbourhood and doing some renovations is a great way to increase your home’s value. While it’s not for everyone, looking for a home that could use some love in a great neighbourhood is an excellent investment strategy.
We’d also recommend that buyers really get to know the neighbourhood before placing an offer on a property. Drive by at night or on a weekend to hear the noise levels, take a stroll through the community, speak to some of your potential neighbours, and really get a sense of what’s nearby and what is not. You’ll save yourself a lot of headaches if you do a little bit of investigating, not everything can be summed up in a stat sheet.
5. You may qualify for a first time home buyer incentive
The first time home buyer incentinve helps qualifying first time home buyers in Canada with their down payment. By participating in the program, you’re essentially entering into a shared equity mortgage with the government of Canada. When you sell, you’ll have to repay the incentive you received based on your property’s fair market value. The program offers:
-5% or 10% for a first-time buyer’s purchase of a newly constructed home
-5% for a first-time buyer’s purchase of a resale (existing) home
-5% for a first-time buyer’s purchase of a new or resale mobile/manufactured home
Learn more about the incentive on the Government of Canada website.
6. Utilities and insurance expenses can add up
Make sure you write down a rough estimate for your utilities and insurance bills so you can budget properly. There’s nothing worse than realizing you’re hundreds of dollars over what you estimated your monthly expenses would be. Don’t forget to factor in the following:
Water, sewage, heat, electricity, internet, condo fees, and insurance. Fire, property, and contents insurance all add up as well.
7. Calculate and consider any home improvement or maintenance costs
Some of these will be one off costs, while others are ongoing. Check to see whether big ticket items like your furnace or your roof will need to be replaced soon, consider energy efficiency upgrades that can lower your monthly energy costs, and calculate the day to day landscaping or general repairs that you may need to make going forward. We’d highly recommend setting up a contingency fund for the unexpected maintenance that comes with owning a home. It’s a good idea to expect and prepare for the unexpected.
8. A good real estate agent is extremely valuable
Many first time buyers make the mistake of not evaluating their real estate agents enough. Take the time to speak with multiple agents and get a feel for who will best represent your needs. When it comes time to negotiate, you’ll want to have an agent who can go to bat for you and put your interests first. Sometimes, the right agent isn’t always the one closest related to you. We’d recommend evaluating agents by reading their reviews and setting up a time to talk. There’s no reason not to speak to a few people, considering you’re likely making the largest purchase of your life to date.
Consider each of these points carefully before you purchase your first property. If you do, you will be prepared for the costs, giving you confidence in your home purchase for years to come.