The Ultimate Guide for First Time Home Buyers

You are finally ready to start searching for your first house! That’s exciting. You and your partner are giddy with excitement; starting the next chapter in your lives. You gather around your dinner table in the apartment that you’ve been renting for the past couple of years and stare at the blank sheet of paper laid out in front of you as you sit down to write your to-do list to get started. But, how do you go through the process of searching, buying, and moving into your dream home? It isn’t as easy as snapping your fingers and all of a sudden you already have a wraparound porch with little kids and the family dog running around in the backyard. There are many factors for first-time homebuyers to take into consideration throughout their first real estate transaction and this ultimate guide I have written as a reputable mortgage broker specifically for first-time homebuyers.?

First thing’s, first...What does your dream home look like?

What town or city do you want to live in? Do you want to live within a specific school district? Closer to work? Do you want to live in a condo or a house? Do you mind having close neighbours? Do you prefer privacy from other people? Doing extensive research and viewing properties and scouting locations with an experienced realtor is the best approach to finding the perfect home. Evaluate your lifestyle and decide what you want for your family. Some first-time homebuyers even create a checklist with the pros and cons of the deciding factors they mentally review when seeking out their dream home.

Tackling the down payment

When you purchase your home, you will need money set aside for a down payment. A downpayment is a lump sum of money you put down upon purchasing a home; sort of like a deposit. If the purchase price is $500,000 or below, you need a minimum down payment of 5%. If the purchase price is between $500,000 and $999,999, you will need 5% down on the first $500,000, plus 10% down on the remaining amount. If your house is over $1 million, you need at least 20% of the purchase price as a down payment in order to secure the mortgage you need. If you’re self-employed, you may have to submit a larger downpayment depending on your situation and income specifically.

If you decide to put a larger down payment on the house you want to buy, you will save money on long-term interest and in other fees. A larger down payment means you will own more equity in the house right off the hop which will allow you to qualify for lower monthly mortgage payments as well. Making sure you have money set aside ahead of your house hunt for your downpayment will help eliminate financial worry or distress. For tips on saving for your downpayment if you haven’t yet done so check out this article.

Getting pre-approved for a mortgage

Before you move forward with a mortgage application, be sure you have paid off your debts. If your debt-to-income ratio is above 43%, it is unlikely that you will be approved for a mortgage. This is why you need to diligently review your debt, monthly payments, or budget, and cash flow along with taking a look at your credit score early on in the house-hunting process. If you want to get a rough idea of what you might be able to afford give me a quick call at 705-315-0516. I’ll ask a couple of questions about your income, and so long as you have rough numbers I should be able to give you an overview of what you might need to do to get started with a mortgage application. If the numbers don’t add up, I can also let you know if it makes more sense to wait just a bit longer before applying so that you have time to get your finances tidied up.

There are LOTS of mortgage options available for first-time home buyers and incentive programs too. If you work with a bank, you will find that they will likely have a set mortgage package with little wiggle room or flexibility when it comes to options. When you work with an experienced mortgage broker and financial advisor like myself, you gain access to many more options and various mortgage lenders and rates which ensures you get the best rates available.

An open mortgage for example allows you to make prepayments on your mortgage without facing any penalties in addition to your regular mortgage payments. However, there is a flip side - with this type of mortgage you are charged a higher interest rate compared to a closed mortgage. If you know you may be able to make a large payment (i.e you have an inheritance coming soon or you know you’ll be getting a large pay increase), then this may be the option for you. A closed mortgage on the other hand requires you to make smaller annual lump sum payments in addition to your monthly payments of up to 15-20% without paying a penalty fee. Again this varies depending on the mortgage you sign on to but, typically you can increase your payments by up to 15-20% annually if your mortgage includes that option. A closed mortgage limits your prepayment options but also has a lower interest rate. Then there is what is called an assumable mortgage which means that you take over the previous owner’s mortgage. If interest rates are very high, this could be a way for you to get a lower interest rate but, it can be a tricky transaction. If this is the approach you decide to take be sure to consult your mortgage broker before you sign anything as it will be crucial to understand your obligations under this type of mortgage while weighing the pros and cons as to whether it is worth the hassle.

The most important thing to know about getting pre-approved for the mortgage you need is that once you do you know exactly what price range to shop in and what mortgage rate you can expect ahead of your purchase. Knowing what your budget is, and that your financing is ready to go when you put that offer in gives you a ton of confidence when you’re house hunting. One of the biggest mistakes I see first-time homebuyers make is falling in love with a house and then finding out that they can’t get approved for the mortgage they need to buy it.?

Hidden costs to factor in:

There are additional closing costs you need to think about when becoming first-time home buyers. Lawyer fees, moving costs, title insurance, property taxes, etc. can add up. To make sure you are fully aware of all the costs involved take a read through this article here which outlines a more thorough list of what costs to expect and what they are for. These are just a few of the big ones you’ll want to make sure you factor in.

1. Home Inspection: This is beneficial for homebuyers to make sure the home they are buying doesn’t have any major structural issues or damage and may help reduce the cost of future repairs as well. When putting an offer in on a house, you have the option of making a conditional offer pending a home inspection. A home inspection can cost between $300 and $1000 and is a solid investment for first-time homebuyers unless you happen to work in the trades as a contractor, home builder, or the likes yourself. If you work in the home building industry you might have the knowledge needed to skip this added cost.
2. Property appraisal: An appraisal is an unbiased and professional opinion on the value of the home to confirm you aren’t spending more on a property than it’s worth. Lenders (the people giving you money to purchase your house) typically require your home to be appraised. A property appraisal can cost between $300 and $500 and sometimes the lender will cover that cost for you.?
3. Land transfer tax: When you purchase a property or a piece of land, you pay the Ontario government a land transfer tax. For first-time home buyers, you may receive a rebate for part of the cost so it’s important to investigate all the home buying programs available to you. The maximum rebate in Ontario is $4000 which is no small fee.

Where can you learn more?

There are many resources to help you purchase your first home both on my website and through the government’s website as well. Simcoe County has a program called the Affordable Homeownership Program which helps renters with lower incomes purchase a home by providing a 10% down payment in the form of a forgivable loan. The Government of Canada also has a First Time Home Buyer Incentive Program where they fund 5% to 10% of a home’s purchase price depending on the circumstance of those buying the home.

Of course, a mortgage broker like myself (oh, I know, a shameless plug), will help you through the entire process of finding and purchasing your dream home while taking advantage of all the programs and incentives available. I excel in finding the right mortgage rates and services to fit your needs exactly and pride myself on making it easy so that you can focus on the fun part; house hunting! To get started, fill out an application on my website here, schedule a virtual meeting with me or give me a call direct at 705-315-0516. Just like your mortgage options, there are many options for us to connect on your schedule to get you the mortgage you need.