Being new to the housing market can be a rollercoaster of emotions. It’s so exciting to be at a place that you feel ready to buy, but the market these days can be daunting.
That’s what led us (my colleague Mikala McNeaney and myself) to create this guide to first-time buying written by actual first-time home buyers! We know what it’s like; we’ve recently jumped into the market. It’s certainly not the same as when our parents bought: there’s often tons of offers on one property, bids far above asking, and things moving at a quickened pace.
But it doesn’t need to be so stressful. There are many variables you can’t control, but some you can. And those can make all the difference in your outlook and experience.
First, you should learn the basics on numbers and terms for the sale of a house if you haven’t yet. A 5 to 20% down payment is required at the time of purchase. If you’re not able to put 20% or more down, you are looking at getting a high ratio mortgage, which requires insurance and costs extra. To put an offer- on a house in motion you must put a deposit down. Yes, a deposit, not a down payment, they’re not quite the same thing even though they sound so similar. A deposit is essentially an amount of money you use to secure your offer and show your intent. It’s put into a trust when the offer is accepted, which then goes to the seller, usually through their brokerage. It is a portion of the down payment that is usually non-refundable should the offer be accepted and all conditions met.
The process generally goes like this:
- Mortgage financing pre-approval with your financial institution
- Putting in an offer with a deposit
- Having your offer accepted by the sellers & paying your deposit
- Mortgage approval by your financial institution
- Closing: down payment and other closing costs with your lawyer
Saving for your down payment, pre-approval and talking to a financing expert provide a good indication of affordability for beginning the process. Saving a down payment is really viewed as the first step before you can begin because it is the largest amount of funds you need ready. But this isn’t the only cost! In Ontario you need to have roughly 2% of your home purchase price set aside for land transfer tax. First-time home buyers can also be eligible for a provincial land transfer tax refund for all or part of the tax. Then there is the cost of a lawyer for completing all of these steps. Your lawyer will provide the best information on closing costs (land transfer tax and refund eligibility).
Don’t forget about the costs after as well; your home’s taxes and any immediate purchases you need for maintenance like a lawnmower, snowblower or shovels, etc. can add up. Shop around, use online wish lists, check flyers, get all the deals you can, it makes a difference!
A Coach can help walk you through the process. This is something Libro is known for; their transparent and open approach to financial Coaching and genuine advice. Home Financing Advisors are looking out for your financial best interests, not to sell a mortgage. They’re honest and responsive and help you get your ducks in a row, even if you don’t yet know what those ducks are yet. Coaches also continue assessing your financial future after the point of purchase of your home. They want you to be able to pay off your mortgage earlier and will advise you on techniques to do so.
But what if you don’t know what you can afford? A Coach can help. And it’s never too early to start having conversations to understand how to work towards your home buying goal, even if it’s a year out, or more. It can feel like a lot to learn, so starting early makes sense.
Ask All of the Questions
You’re going to need to ask a lot of questions. If someone says a term you’re unfamiliar with, if you see a home with something that seems off to you, maybe if you’re not understanding what’s going on with the housing market… never be afraid to ask. It may not even stick the first time, so don’t be afraid to ask again. This also goes hand in hand with our best tip for home tours, look everywhere in the home. Check everything and ask questions as they come up. Example: Is there a sump pump? Do you know what that is or looks like? It’s okay if you don’t!
Tips for Looking at Houses
Trust your nose. It may be the first sense to notice signs of moisture issues, smoke damage from a fire, mold, or damage from smoking homeowners.
Look everywhere. Flick light switches, look in crannies of closets, see any crawlspace access, etc. The more you can see, the better. Your realtor will also probably have some pro tips for you. Make sure you’re looking to confirm the house has what you really need; everyone’s must-haves are different. You can also bring an expert with you, be it a tradesperson in the family (lucky you!) or a contractor. Unless you’re a trained professional, it can be hard to know what you’re looking at. A home inspector will always know best, it’s most likely in your best interest to make your offer with an inspection contingency. An inspection contingency is a clause that makes the offer conditional upon the home inspection results that you (the buyer) find satisfactory. You can talk to your financing, realty and legal experts more about this. Remember, if you’re going without an inspection that’s an added risk.
Use Apps. Apps like House Sigma and Zillow can send you alerts when you set up searches for your price in your favourite location.
The Offer, Closing and Beyond
You need to understand the risks of going in with no conditions on an offer. It’s a bit like you’re doing a high jump, but you’ve just removed the safety mat. You should also think about insurance. Whether it be life or mortgage life, it’s a good time to think about what would happen to the mortgage payments and household expenses if something unexpected were to happen.
Consider additional resources to try to understand it all the best you can. Read some learning guides, or handouts (check out our terms and definitions cheat sheet and surprise costs checklist), watch some videos, or research online (be sure you’re looking at resources from Canada, or better yet, Ontario). But also have fun with it! Some people like to read for themselves, others like to talk to someone, but no matter what if you treat it like a learning opportunity and not homework you’ll be more positive about it. Our main page for first-time home buyers has a list of government resources, and there’s also a financial calculator you can play with.
We wish you the best of luck on your home buying journey. May it be short, sweet and exciting!