What You Need to Know When Buying Your First Home
Buying your first home is both incredibly exciting and extremely overwhelming. There’s a lot to know and things can move very quickly once you get started. To make the process go more smoothly, it helps to start preparing early. Here are seven great tips for first-time home buyers to make sure you’re ready for this major milestone.
1. Start Saving Early
For most first-time home buyers, the down payment is the biggest hurdle when it comes to purchasing a home. The minimum amount you are required to put down will vary depending on the purchase cost of the home. Here are the guidelines for real estate in Ontario:
- If the home you are buying costs $500,000 or less, your down payment must be at least 5% of the purchase price.
- For homes that sell between $500,000 and $999,999 the minimum down payment is 5% of the first $500,000, plus 10% of the remaining value of the purchase price.
- And for homes that cost $1 million or more you must put down a minimum of 20% of the purchase price.
If you are buying a home in Canada you will also have to purchase mortgage insurance if your down payment is less than 20% of the purchase price.
2. There’s a First-Time Home Buyer Incentive
First-time home buyers in Canada may be eligible for a shared equity mortgage. With a shared equity mortgage, government financing can help first-time homebuyers make a larger down payment. This results in a smaller mortgage and helps reduce monthly mortgage payments. But keep in mind you will have to repay the incentive after 25 years or if you sell the property.
3. Be Prepared for Additional Expenses
While the down payment is definitely your biggest expense, there are other costs that you should be prepared for. Closing costs, inspections, and moving expenses can all add up to a surprising amount. Many first-time home buyers aren’t prepared for these additional expenses and can be left scrambling to cover the fees at closing time.
Some of the additional costs that you should be prepared for include:
- Land Transfer Tax: 1% – 2.5% of the purchase price. (First-time home buyers are eligible for a tax rebate for this expense.)
- Legal Fees: Costs vary, but typically range from $1,000-$2,000.
- Title Search: Approximately $300.
- Mortgage Insurance: Total varies, based on a percentage of the mortgage.
- New Home Tax: New-build homes or condos are subject to HST on the purchase price.
- Home Inspection: Costs vary, average $500 per inspection.
4. Your Credit Rating Matters
When it comes time to apply for a mortgage, it’s not just your income and down payment that will affect the size of your loan. Lenders will also look at other debts and expenses as well as your credit history to determine how much money you are eligible to receive.
To help strengthen your credit rating, always make payments on time and try to pay more than the minimum amount. You should also try to pay down other debts such as credit cards and loans. You may want to consider reducing monthly expenses as regular payments can also count against the amount you receive.
5. Get a Mortgage Pre-Approval
Once your finances are in order, it’s time to find out how much home you can really afford. An online mortgage calculator will help you get an idea of how much you can borrow. But when you’re ready to start house shopping you should obtain a mortgage pre-approval from your lender of choice.
A pre-approval lets you know the maximum amount of mortgage you qualify for and helps predict your monthly mortgage payments. It also shows your real estate agent that you’re a serious buyer and prevents you from looking at houses that are out of your price range.
6. Don’t Skip the Inspection
With the current seller’s market in Ottawa, it can be tempting to remove any purchase conditions to help beat out other buyers. But unless you are buying a brand-new home, this can be a very risky practice. An inspection will let you know if there are any problems with the house, which can save you thousands in future repairs.
7. Find the Right Agent
Choosing the right real estate agent can make a big difference in how smoothly your home purchase goes. Look for a Realtor® that has experience in the area and type of home you are searching for. If you’re a first-time home buyer in Ottawa, our team has the local knowledge and experience to help you successfully navigate your first home purchase.
Buying your first home should be a memorable experience that you look back on fondly. These tips for first-time homebuyers will help you prepare for a successful purchase.