The housing market in Canada seems to be the craze these days, with millennials facing the challenge of finding affordable housing for their first home investment. To help make your house hunt a little easier, we share 5 tips for first time home buyers.1. Decide what type of home fits your needs
First and foremost, distinguish what your real motivation for buying a home is, besides the need to simply “get out”. Is your motivation to avoid “wasting” money on rent and instead work toward something you can eventually own? Do you want to assert your independence and gain responsibility? Your initial thought-process should involve identifying your goal. Then you’ll want to consider the features that meet your budget, needs, and desires. Is a traditional single family home, multi family home, townhouse, or condo right for you? Ask yourself what size home you’re looking for, if you want a backyard, and other important questions to narrow your options. For example, an area with a grocery store, public transit, and green space nearby would be ideal for someone who is without a car. Develop a wish list comprised of what you want and what you could do without and start to hone in on your criteria.
2. Determine how much you can afford
Perhaps the most important tip for first time home buyers is to think about your budget early on. Putting aside some time to look at your average income and spending habits from the last three months will be time well spent. Consider the do's and don'ts when buying a home, and figure out how your income, savings, rent and utilities, and other expenses fit into your budget. Getting pre-approved for a mortgage before you even start shopping for a home is key, saving you time when an opportunity arises and avoiding any surprises. Once you find out what you actually qualify for, look at the bigger picture, including monthly payments and expenses that come along with home ownership, not just the lump sum of the home. There is so much more to factor in: property taxes, electricity and hydro bills, insurance, home improvement costs, moving expenses, furnishing your home, and closing costs for things like legal fees, appraisal fees, land transfer tax, etc. that are sometimes overlooked. Once you’re settled and have a clear idea of your spending, start an emergency fund for other expenses your home may require over time. Be sure to stay mindful of activities that may be affected by your big purchase. While you may be able to make monthly mortgage payments, you may be tight on leisure spending like affording a night out every now and then.
3. Take your time and research the process
Whether you plan to use a real estate agent, search online, or simply drive around neighbourhoods you love to find the perfect listing, be aware of your options when searching for a home. A real estate agent is experienced with the essentials: putting in an offer, taking a loan, and and completing the paperwork. Depending on your situation, you may even want to research other cities to find affordable housing a little further away or discover an up-and-coming neighbourhood you didn’t know about. Now is the time to scope out your options, but it’s also the time to budget. Once you’re pre-approved for a mortgage, look at all the costs, including what would be left at the end of the month after all home expenses are paid off. We also recommend not skimping out on a home inspection to get a professional stamp of approval on the house’s condition and save you on potential major costs down the road. Purchasing a home is one of the biggest investments of your life -- don’t rush it. Like any big investment and important life decision, do your own research and become well-informed.
4. Consider payment schedules
There are two main costs to consider when purchasing a home. First is your down payment, a recommended 20% of the cost of your home, and an extra 5-10% of closing costs to have on hand to cover other closing expenses. First time home buyers can use up to $25,000 tax free from their RRSP towards their home, meaning you can contribute $50,000 as a couple. Next, consider ongoing costs. What monthly expenses will you have, and how much will you have left over for your mortgage payments? Understand your options and how the payment process works, whether you’ve opted for monthly, biweekly, or weekly payments -- sometimes you can make lump payments to help pay your mortgage off a little sooner. Decide on what’s right for you: A higher down payment means less in interest payments; a smaller monthly payment and a longer amortization period, on the other hand, will give you more time to pay off your mortgage and free up your cash flow, but will result in more interest payments. There are many online mortgage calculators to help you decide. Once you've determined a schedule that you're comfortable with, you can find out if you're approved for the amount.
5. Be realistic
Remember, whichever home you choose, it doesn’t have to be perfect. Don’t settle for something you don’t love, but also remember you don’t have to live there forever. Some things can easily be fixed, like painting the walls and updating the kitchen cabinets. The foundation is what’s important: the roof, plumbing, insulation, heating and air-conditioning, and other fundamentals. What’s more important is the location.
As always, we’re here to guide you through the process. Speak with one of our advisors for more tips for first time homebuyers to get you on the right track.
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