Buying your first home is an exciting time. You’re preparing to finally enter the real estate market, building up equity, and investing your hard-earned money into a place that you can truly make your own.
Buying you first home will require a lot of time, effort, and financial investment. Here are some things to consider as you begin the process.
Get a good real estate agent
It’s so important to have a good agent who will work for you and not for themself as you are going through the process of buying your first home. While it’s tempting to hire a friend or family member, remember that this is a major life decision so you want to have someone knowledgeable and impartial who can help you choose an area, type of home, and price point, point out things about a house you might not notice, and help negotiate the best possible deal.
Consider your finances
In this crazy housing market, it’s tempting to want to get into a bidding war to obtain the home of your dreams, in the location of your dreams. But don’t get caught up in spending more than a house is worth just so you can remain in a certain area, or conversely, buying a massive home on the outskirts of the city without taking into consideration your daily commute. Take time to consider every angle, including schools, commutes, your budget, and possible changes to your future financial situation, whether or not your have an emergency fund set-up to deal with unexpected household expenses, etc. It’s also good to get your family finances under control before you make the leap into home-ownership.
Be a little conservative
Get pre-approved by the bank first to find out how much you can spend, and note that while you will likely get approved for a mortgage that’s far more than you’re willing to pay, don’t get stars in your eyes. You’ll find differing views as to how much you should spend on a home in relation to your income.
One conservative estimate suggests setting aside 28% of your monthly income in housing payments. So if a dual-income family brings in $8,000 per month, for example, you shouldn’t be spending more than $2,240/mo. for mortgage payments. Another less conservative way to calculate affordability is to buy something that’s no more than four-times your annual salary. So a single person who makes $80,000 annually shouldn’t take out a mortgage loan for more than $320,000, which would equate to a $400,000 home with a 20% payment down. (That’s not taking interest rate into consideration, mind you.) The main point is to feel comfortable with the amount, not restricted and tied down by a too-high monthly mortgage.
Get life insurance
It’s important to protect your investment, and life insurance is your best defense, since you can personalize it to your specific health conditions. Mortgage insurance protects the lender against any defaulted payments. But adding life insurance as well would be prudent to protect your future. Research options, and discuss with a provider to determine the right fit.
Decide on the right type of home
There are various types of homes, from condominiums to freehold, co-ops, and others. Analyze the benefits and drawbacks for each, and which would make the most sense for you based on your lifestyle, work location, size of family, income, and abilities for upkeep.
Educate yourself about various governmental programs
The First Time Home Buyer’s (FTHB) Tax Credit is a Government of Canada program that helps in buying your first home because it includes a non-refundable income tax credit on the purchase of qualifying homes. There’s also the Home Buyers’ Plan (HBP), which allows residents to withdraw up to $25,000 in a calendar year from an RRSP (Registered Retirement Savings Plan) to use toward the purchase of a qualifying home. You might also qualify for GST/HST New Housing Rebates based on the purchase price of a home, the cost of building a new home, or monies that go toward substantial renovations.
Get a home inspection
Before agreeing to purchase any home, it’s important to have a home inspector come in to ensure that things below the surface are up to par, and whether any major replacements or repairs are needed. If so, factor this into your offer price or conditions for purchase.
Buying your first home is an overwhelming, but exciting experience. Once you get through all of the paperwork, though, it’ll be time to take possession of your new place, and start working on making it your own.
What is your top advice for anyone planning to buy a new home?