What Home Buyers Need to Know When Shopping for a Home

The decision to buy your first home is one of the most important and exciting milestones of your life. It also presents a potentially stressful process if you aren’t sure where to start.
While you should always go into a major purchase with your eyes wide open, you should also try to enjoy the experience too! Here we list everything you need to know when shopping for a home to reduce stress and up the enjoyment factor.

Speak to a Real Estate Agent

Finding a real estate agent that you feel comfortable with can take time. You can ask for referrals or search online to find an agent specializing in the neighbourhoods you are targeting.

A real estate agent is a must for first-time buyers, as they will guide you through the process and help you avoid making costly mistakes. They can also walk you through the steps and advise you where to find a mortgage. They know the best areas for your budget and set up tours of the most suitable listings for your needs.

If you are looking for a special type of home — like a condo or repurposed loft — it makes sense to find someone who specializes in what you want.

Determine Your Budget

The best way to avoid disappointment is to set a budget for your purchase. Talking with a lender will help establish your financial status by applying for mortgage pre-approval. This is the only way to get a realistic view of how much money you can spend. Perhaps more importantly, it also gives you a better idea of what your mortgage payments will look like.

According to Canada Mortgage and Housing Corporation (CMHC):

• You should never spend more than 35% of your gross monthly income on your housing costs. You would include your mortgage payments and all utilities to come up with a realistic monthly budget.
• Your entire monthly debt load, which includes your mortgage and any other outstanding loans, credit card balances, car payments, etc., should never exceed 42% of your gross monthly income.

To avoid rejection, check your credit score to make sure you can qualify for a mortgage. In general, this should be about 640, depending on the lender. Some will settle for 620, while others demand 680. If you do the math and you still feel comfortable with your budget, it’s time to consider a lender.

Types of Mortgage Lenders

Banks are not your only option for your mortgage. You can also choose a mortgage broker. If you are comfortable with your bank and don’t have any special needs, a bank is always a good place to start. However, some situations might make it necessary to consider a broker.

For example, if you have poor credit or have filed for bankruptcy, you’re not likely to get a loan from a bank. Special circumstances — such as being self-employed — or owning your own business can be less appealing to a bank. Your home insurer may choose not provide coverage if there is a non-traditional lender as a mortgagee. This is important information you should declared to you broker as an additional referral process may be required.

Determine Your Down Payment

Every home purchase requires a down payment. You require the following down payment for your home:

• $500,000 or less 5% of the purchase price
• $500,000 to $999,999 5% of the first $500,000 of the purchase price and 10% for the portion of the purchase price above $500,000
• $1 million or more 20% of the purchase price

Of course, you have the option to put down more than the required amount. The more you put down, the faster you pay down your mortgage, the more equity you have in your home, and the lower your monthly mortgage payments will be.

Mortgage Insurance

If you put less than 20% down on your home, you will have to buy mortgage loan insurance. Some lenders will even expect you to purchase insurance if you make a 20% down payment. It is required to protect the lender if you default on your mortgage payments. Other mortgage insurance options available include:

• Life
• Critical illness
• Disability
• Employment

These options are designed to protect you should you encounter unexpected issues such as job loss, illness or death. Speaking to an insurance expert about your options will ensure you get the coverage you need without wasting money on options that won’t be worth it.

Know Your Tax Credits

There are two tax credits available from the federal government, including:

• First-time homebuyers can get up to $750
• GST/HST housing rebates: This is available if you buy a new home and rebates the GST/HST paid on your purchase

You can also find out about provincial incentives in your area.

First Time Buyers Incentive

The First-Time Home Buyer Incentive from the Government of Canada offers:

• 5% or 10% for a first-time buyer’s purchase of a newly constructed home
• 5% for a first-time buyer’s purchase of a resale (existing) home
• 5% for a first-time buyer’s purchase of a new or resale mobile/manufactured home

However, it allows the government to share in your home equity, which means when you pay them back, the amount is based on current home value, not the purchase price.

Understand All Costs

Other than your down payment, you will also have “closing costs” to consider. These costs usually range from 1.5% and 4% of the home’s purchase price. Costs include:

1. Legal fees

   These fees are due on closing day and cover the work performed by your lawyer. The range can vary greatly, but you’re usually looking somewhere between $400 to $2,500.

2. Home insurance

   Home insurance is required to get a mortgage. It is also needed to protect your home from fire, theft, damage to the structure and your belongings. Too often, home insurance isn’t thought of until you are trying to close on your home in the final week. You should contact your broker before you have the home inspected or download this questionnaire so that you can gather important details to assess the home for insurance purposes.

3. Land registration

   This fee covers registering your home title in your name and is usually called land transfer tax. It is 1.5% of your home purchase price.

4. Adjustment costs

   Your lawyer or real estate agent will inform you if you have any adjustment costs due to the seller.

5. New build GST/HST

   As mentioned, a new home requires GST or HST.

Other closing costs might include interest adjustments, Certificate of Location costs, condo estoppel certificates, new subdivision municipal levies, mortgage default insurance premiums, and the provincial sales tax on premiums for mortgage default insurance.

Professional fees for home appraisals, home inspections, moving costs, and even incidentals such as paint, new curtains, area rugs, furniture, etc. should all be considered, so you budget enough money for your new home. Don’t forget the fees for utilities, internet, and cable.

Property Taxes

Your property taxes vary based on your home value and the town or municipality where you buy your home. It makes sense to research property taxes to make sure they aren’t much higher than you expect.

If you consider the average cost of a home in your desired area and a relatively low property tax rate of 1%, you can see how quickly these can add up. You can make installments, or even ask your bank to add your property taxes to your mortgage payments to make them more manageable.

These steps will help make buying a home less stressful.

Remember to download this “New Home Buyers” questionnaire to gather the details your insurance broker will need to find the best insurance plan for your purchase.

For more information about shopping for a new home, call WB White at 1-877-727-0757 or contact us here.