A Guide For First-Time Home Buyers
Monday Oct 05th, 2020
Buying your first home is a huge step in every adult’s life, but the process isn’t always easy. The excitement of finally being able to make such an important purchase can cloud your mind and result in you making some decisions that are not 100 per cent based on logical thinking. To avoid making the common mistakes first-timers make, such as buying more than you can afford or miscalculating renovation costs, here are some things you should keep in mind.
Are You Debt-Free?
Owning a home implies many other costs besides the initial buying price and renovation costs. You may be happy to see that the monthly mortgage payment is lower than your current rent, but keep in mind that when you own, you are responsible for all the maintenance costs. This is why you should make sure you start this new chapter in your life debt-free (or as close to debt-free as possible). I know that's hard to do, but with home ownership comes a life long journey of other expenses.
Pay off as much of your debt as you can and, if possible, try to build an emergency fund. You will feel much more at ease when you have a rainy-day fund to deal with unplanned home expenses. Remember Rome wasn't built in a day. Make peace with the fact that you may have to decorate one room at a time or use just a mattress on the floor to sleep for a little bit. These sacrafices now will make for some good stories in the future.
Know Your Limits
Before even starting to look for a home, set up your budget. Most first-time buyers can’t afford to make the purchase without a mortgage, so you need to determine how much you can afford to borrow. To keep it safe, your house payment should not account for more than 25 per cent of your monthly income. If you want to take out a bigger loan, you should consider making a bigger down payment.
Also don't forget about the Land Transfer Tax (LTT). LTT is often overlooked when considering the total cost of purchasing a home. All provinces have a land transfer tax, except Alberta and Saskatchewan, who instead charge a much smaller transfer fee. LTT is based on the purchase price of your property. Check out my Mortgage Calculator to crunch some numbers. It will show you how much you must pay in LTT as well.
Narrow Your Search
There is no point in scouting the whole city for a house, only to end up living on the other side of town and spending more time and money every month commuting to work. Try to narrow down your search to two or three neighborhoods that provide the most benefits.
Nearby schools are among the first things you should be looking for, even if you don’t already have kids, as this can affect home value. Then, make sure the neighborhood has all the amenities you will need, such as grocery stores, a pharmacy and maybe even a hospital, at a close range.
Once you’ve narrowed your search down to a few neighborhoods, you can start scouting for houses that better suit your budget and needs. One piece of advice that many Realtors give is to purchase the most affordable house in the best neighborhood you can. This way, you can add value to your home in time and end up selling it for more in the future.
Buy a Home That Fits Your Lifestyle
When buying your first home, keep short and long term needs in mind. Even though your needs may be fairly basic now, in 5 years a lot can change.
How many bedrooms will you need? Are you planning on having kids? Will you have visitors who will stay the night? Do you need room for a home office?
Think about possible renovations that you can do to increase the value of the house, but at the same time make sure it fits the needs of your family and gives you enough space to grow. Use the MoSCoW approach to prioritizing your needs. Make a list of Must-haves, Should-haves, Could-haves, and Won't-haves (for now).
Do a Home Inspection
So you found the right home for you. Before posting that selfie of you next to a sold sign, make sure to do a home inspection. This will tell you if the house has any issues that may not be obvious to the untrained eye.
A good inspector will check everything from pipes to walls, basement, insect or rodent issues, and many other parts of the property that you might not otherwise think of. When you negotiate the Agreement of Purchase and Sale, you can present the seller with the issues you have found and maybe even get a price reduction.
Be careful when you sign the contract, especially when it comes to contingencies. You need to be able to back out of the sale after inspection, if there are issues that can’t be fixed, or in case something happens with financing.
After the inspection, be realistic about the issues that are worth fixing. Don't nickel and dime the small stuff. However, if you do encounter significant concerns like mold issues or a degraded foundation, it may end up costing you more than it is actually worth paying, so if you don’t get a generous discount to cover the repairs, walk away from the deal.
If you have any other questions, don't hesit8 to call 416-REALST8