A Quick Guide For First Time Home Buyers

What’s even scarier than tying the knot? Purchasing a first house to become your home that’s what. Don’t get me wrong, purchasing the house itself is not the scary part if anything that’s the easiest most stress-free part of the whole process; what may be scary and the most stressful part for first time home buyers is the process itself.

The first thing I would advise is to actually sit down, and do the math, calculate income, payments due each month, groceries, how much you spend on your car, your phone bills and so on. I would strongly advise you to not leave anything out, from the smallest payments to the biggest ones. This is important because once you do the math for the main every month spending, you will then have an idea on how much money you will have left at the end of each month, and if you can then afford to pay mortgage payments from those leftover monthly funds. Only then, once you have done those calculations, can you start looking into getting pre-approved for a mortgage.

Mortgage

A mortgage is a loan given to an individual looking to obtain a property in Canada. These tend to be large loans in the hundreds of thousands, or even millions, of dollars. It is required that the borrower pay back the loan on a monthly bases with monthly instalments consisting of the principal amount chosen plus the interest on the loan amount.

What backs this loan that you are choosing to take is the property you chose to purchase with the secured loan. Hence, if you cannot pay the monthly instalments for the mortgage, the lender has the capability of seizing your property.

Furthermore, with each loan comes a rate for the interest, as well as regulations which need to be followed for a set term. For example, let’s assume you have a gut feeling that in three years’ time, the rate will be shooting up and you want to be safe from facing the consequence of dealing with a higher rate, you may then choose to opt for a term that is, let’s say, about 5 years, maybe even ten years just to be on the safe side. This is why having a mortgage broker is just as important as a real estate agent because while the real estate agent can find you your dream home, your mortgage broker is the one who will be able to ensure that you can afford it not only for the first couple of months but rather for the long run.

Terms in Canada can range anywhere from six months up to ten years; its important to note that the higher the down payment for the purchase, the more power you will have in negotiating to get the best deal regarding your mortgages rates, monthly instalments and terms.

Down Payment

With respect to the down payment, the more one puts down the better it will be for them when they want to secure a good rate for their mortgage. Important to note however that there are guidelines with respect to just how much can actually legally put down in Canada for various price points.

For units costing $500,000 or less, needs to have a minimum of 5% put down of the purchase price. For units costing $500,000 - $999999, there will need to be a 5% put down for the first $500,000 of the price, and then a 10% put down on the rest of the value; for example, say a unit is being sold for $519,000, you would need to put down minimum, 5% of the $500,000, and 10% for the amount above the purchase price. Lastly, for homes which are being sold for a million dollars or more, these would require a minimum of 20% of the purchase price to be put down.

As a side note, it’s important to note that the government requires anyone purchasing a home and putting a down payment of less than 20% to purchase insurance for their mortgage from the Canada Mortgage and Housing Corporation. It's important to properly research this and to find out the monthly instalments from this purchase to ensure that once again, you will be able to carry a mortgage, its interest rates, costs and this premium as well.

It is important to note that yes, putting down a large down payment plays a role in receiving a strong mortgage agreement, it’s also important to remember that the down payment is not the only cost you will have to put down. There are many extra costs which will come to be as the process goes on which need to be noted.

Extra Costs

Once you have obtained your pre-approval, now its time to calculate how much will be needed to fulfil all the extra costs. From closing costs such as legal costs, inspection fees and land transfer taxes, to appraisal fees, property taxes, and then furnishing the unit as well. All of these extras should be accounted for beforehand, because the last thing anyone needs is to have been approved for a mortgage, put in an offer which has been accepted, and then face multiple extra costs which they need to take care of yet had not prepared for.

The Hunt

Once you have figured out all the above, and gotten your pre-approval, you can now start shopping around. The pre-approval is important because it will let you know what are the price points you can afford; that way you won't be viewing units that are out of budget or settling for a unit which is not good enough because you think you can't afford something better.

Next, come up with a detailed list of not just what you are looking for inside the home, but also the type of neighbourhood you would like to live in, if schools are important then that should be noted as well, where it is in proximity to shopping and transit, as well as your preference for the type of unit you are looking for. This is why people will hire real estate agents. Not only do they have access to units you would not be able to find on your own, but they will also hunt and show you listings that specifically match what you are looking for while advising you on what will be the best bank for your buck.

Closing

After searching and viewing multiple units, you have found the one! It matches most of what you were looking for, perfect in some ways, had to compromise in other ways, but all in all, this is the house that you see yourself turning into a home. Your agent gathers all the relevant information, gives you the rundown of the unit; you may ask them how they feel about it, what they advise if it's worth the price it's listed at, and what price you should ask for in the offer. Yes, you are able to go over or under the sellers asking price, however, there is something important to note, which is whether the unit is one where there may be a bidding war on, or if this is a unit where the seller is looking to sell for whatever offer comes their way which they are okay with.

Right now, I am sure there might be some head-scratching happening, a bidding war? On a unit? Yes, a bidding war on a unit, very common in Toronto I may add. A bidding war is when the seller will list the property for sale under a set price, however, they will set a date and time for all offers to be made, then make a decision. The disadvantage for the buyers is they would not be able to know how much other people are putting down for their offers; hence they would opt to put down a price much higher than they had anticipated in the hopes that they will come out ahead and get the property. In some cases, there may be a buyer who will send what’s known as a “bully offer” where they will put an offer that is too tempting to resist before the due date in order to come out ahead. Bidding wars are no joke and they are important to note, therefore when you are searching, you may need to search in units from the lower end of your budget, or even less than that because you should anticipate there may be a bidding war which you may have to put an offer with an over asking price.

Once the offer is submitted by the buyer and accepted by the seller, it is time to prepare for closing. The closing is the date and time where you get the keys to your unit, and it is now legally yours. It is now time to start transforming this house into your home.