Thinking about buying your first home? It’s one of the biggest purchases you’ll ever make and the process can easily seem daunting and overwhelming. But have no fear, there are some steps you can take to alleviate the stress and get you closer to home ownership.
Step 1 – Get Pre-Approved
A pre-approval is a written commitment from a lender stating how much you can afford, what your interest rate will be and how your monthly payments will work. It also gives you a specified mortgage rate hold for a period of time. You don’t have to spend the full pre-approved amount and there is no obligation to follow through. Be prepared for the lender to do a thorough investigation of your current financial situation including income, credit and savings. Once pre-approved, do yourself a favour and stop spending and avoid changing jobs until after you close on your house.
You have the option of meeting with a mortgage specialist that works at a bank or a mortgage broker that shops for a loan from different lenders to find the best rate. You can speak with a bank and a mortgage broker; why not get the best rate and mortgage terms available to you?
Step 2 – Closing Costs
It is important to be aware of all the costs associated with purchasing a home. Closing costs can add up quickly and if you are not prepared it can be quite a shock. Besides your down payment, you will need to have money set aside for:
Lawyer:Fees can vary and it’s best practice to get some referrals and call a few to ask about the services they provide and their cost.
Land Transfer Tax: This tax is based on the purchase price. We will discuss it in more detail in STEP 4
Adjustments: If the current owners have prepaid property taxes or utilities for the year, they are entitled to reimbursement. The lawyers look after this.
Moving Costs: You may have to hire movers or at least rent a moving truck. You may also have to rent a storage unit if there is a lag time between moving.
Title Insurance: Title insurance is a one-time premium insurance policy that protects property owners and their lenders against losses related to defects on the property’s title. Title insurance is not a requirement in Ontario and the decision on whether or not you should purchase title insurance should be discussed with your lawyer.
Step 3 – Find a Realtor
If you haven’t already contacted a Realtor, now is the time. Most Realtors will want you to have a pre-approval before they help you start looking. There is no sense in showing you houses and have you fall for a home you can’t afford.
A Realtor will be a combination of a personal consultant, advocate and negotiator. They will search and show you homes that match your criteria, negotiate the best price for your home, complete documentation and help you navigate any problems that arise. Using a local agent is beneficial as they will have knowledge about the market, neighbourhoods, types of houses as well as a network of individuals to refer you to such as inspectors and lawyers.
Step 4- Research Programs for First Time Home Buyers
There are a few programs available including a Land Transfer Tax rebate for up to $4000 on the purchase of your first home. Land Transfer Tax is calculated on a sliding scale and the rebate means you do not pay the tax on the first $368,333 of the purchase price.
The First Time Home Buyers Tax Credit is available for qualifying individuals which allows you can claim $5000 of the purchase price and the refund can be up to $750. The claim must be made within the year you purchase the home.
If you have RRSPs, The Home Buyers’ Plan (HBP) is a program that allows you to withdraw up to $25,000 to buy or build a home. You must repay the funds within 15 years.
Lastly, although it’s not only for first-time buyers, there is a GST/HST rebate for new home construction or substantially renovated homes.
Being prepared and understanding the home buying process can make everything easier. Having realistic expectations of what you can get for your money and keep in mind that your first home is just that (not your forever home) can help make searching for your first home a fun experience.That’s right, have fun and enjoy this once in a lifetime opportunity