Information for First Time Home Buyers
Buying your new home is a serious venture. It can be an absolute pleasure or a massive headache. Your house is not just your home, it is a serious investment in the dwelling, the area and your future.
When buying a home – you’re bound to have many questions. For example, “In what area can I find a home that suits my needs?”, “How much money will I need to afford the monthly payments?” and “How long will the home buying process take?”
Below are some articles that you might find useful in the home buying process. If you have additional questions that are not answered below, please contact me directly.
Advice for First-Time Buyers
- Pre-Qualification: Meet with a mortgage broker and find out how much you can afford to pay for a home.
- Pre-Approval: While knowing how much you can afford is the first step, sellers will be much more receptive to potential buyers who have been pre-approved. You’ll also avoid being disappointed when going after homes that are out of your price range. With Pre-Approval, the buyer actually applies for a mortgage and receives a commitment in writing from a lender. This way, assuming the home you’re interested in is at or under the amount you are pre-qualified for, the seller knows immediately that you are a serious buyer for that property. Costs for pre-approval are generally nominal and lenders will usually permit you to pay them when you close your loan.
- List of Needs & Wants: Make 2 lists. The first should include items you must have (i.e., the number of bedrooms you need for the size of your family, a one-story house if accessibility is a factor, etc.). The second list is your wishes, things you would like to have (pool, den, etc.) but that are not absolutely necessary. Realistically for first-time buyers, you probably will not get everything on your wish list, but it will keep you on track for what you are looking for.
- Representation by a Professional: Consider hiring your own real estate agent, one who is working for you, the buyer, not the seller.
- Focus & Organization:In a convenient location, keep handy the items that will assist you in maximizing your home search efforts. Such items may include:
- One or more detailed maps with your areas of interest highlighted.
- A file of the properties that your agent has shown to you, along with ads you have cut out from the newspaper.
- Paper and pen, for taking notes as you search.
- Instant or video camera to help refresh your memory on individual properties, especially if you are attending a series of showings.
- Location: Look at a potential property as if you are the seller. Would a prospective buyer find it attractive based on school district, crime rate, proximity to positive (shopping, parks, freeway access) and negative (abandoned properties, garbage dump, source of noise) features of the area?
- Visualize the house empty & with your decor: Are the rooms laid out to fit your needs? Is there enough light?
- Be Objective: Instead of thinking with your heart when you find a home, think with your head. Does this home really meet your needs? There are many houses on the market, so don’t make a hurried decision that you may regret later.
- Include inspection & mortgage contingencies in your written offer.
- Have the property inspected by a professional inspector.
- Request a second walk-through to take place within 24 hours of closing.
- You want to check to see that no changes have been made that were not agreed on (i.e., a nice chandelier that you assumed came with the sale having been replaced by a cheap ceiling light). Be Thorough: A few extra dollars well spent now may save you big expenses in the long run. Don’t forget such essentials as:
- All the above may seem rather overwhelming. That is why having a professional represent you and keep track of all the details for you is highly recommended. Please email me or call me directly to discuss any of these matters in further detail.
How to Negotiate with Sellers
- Be prepared Research the housing market in the target area. Once you have information about the general area, focus on the particular property and seller. Look for answers to questions such as:
- Why is the homeowner selling? (If they’re moving because they find the area undesirable, you might want to consider this issue.)
- How long has the home been on the market? (If it has been on the market for a long time, perhaps there are negative facts about the property that you need to know.)
- How much did the seller pay for the home compared to the current asking price? (If the seller paid more, find out why. Was it a general real estate trend, or did property values in that particular neighbourhood go down?)
- What is the seller’s time frame for selling and moving? Does it fit within your needs?
- Are there any defects in the home or problems with the surrounding neighbourhood? (For example, is the roof so old that it will likely leak during the next storm? Is there a new construction project in the area that will lead to major traffic congestion?)
As the potential buyer, you want the advantage. While you want answers to all your questions to the seller, reveal very little about your circumstances. Do not give the seller personal information such as your income, the maximum you are able to pay for a down payment or the home, or when you want to move. Make sure that your agent knows not to reveal any such information to the seller or his/her agent.
Also, do not let the seller see how much you want the property. If you appear desperate or overly enthusiastic, the seller then has the stronger bargaining position. When meeting with the seller or listing agent, keep your emotions in check.
- Establish a Timeline Find out if the seller needs to have the sale closed sooner rather than later. If the seller is feeling pressured to sell, use that to your advantage in negotiating. Even if you, the buyer, are the one with the deadline for purchasing a home, don’t let yourself be rushed into making concessions or a purchase you may regret later.
Mortgage Terms Hints, Tips & Advice
Choosing an Interest Rate
- Interest rates for mortgage terms fluctuate with factors such as economic, political, domestic and international elements influencing the market. As a result, good interest rates for mortgage terms are not always available when negotiating a new term. It is even harder to predict where future interest rates will be. A good tip to remember is to closely watch interest rates before you start negotiating your new mortgage term, which will provide some insight into the general direction of the market. Although interest rates are relatively unpredictable, knowing the present trends will be an invaluable aid in selecting a rate that suits your budget.
Choosing Proper Mortgage Term
- Mortgage terms need to be balanced with your interest rate selection. A mortgage term should be selected to suit your financial situation and based on what interest rate you receive. Choosing the proper term will create less financial strain on your personal accounts. An important thing to remember is that terms can be as short as six months or as long as 30 years, so you don´t always have to select the longest term when negotiating. Some individuals prefer to negotiate short terms over the life of their mortgage because it provides more financial flexibility. The choice of term length should be sustainable for your current and future financial situation.
Mortgage with Flexibility
- The real difficulty with mortgage term is making sure it leaves some flexibility in other aspects of your financial life. Remember that you are going to be owning a property that will require other costs, such as electricity, water and repairs. New homeowners often forget that mortgages often take 10 to 30 years to fully pay off. Within this time period, unforeseen repairs and issues will arise, so keep those emergency costs in mind when negotiating your mortgage term.
Paying down your Mortgage
Make it a Priority
- Skip the expensive weekly night out, or instead of going to a resort for a vacation try staying close to home. To pay it off early, you’ll want to be paying more monthly than necessary, and even the smallest amount extra will help. Take into account interest as well. Figure out a time line and budget for that time line.
Live Like You’re Broke
- The more bills you have to pay, the harder it’s going to be to pay it off early. If you don’t need a new car, don’t buy one, and if you need one look at the least expensive options. Paying $500 a month for your car is going to seriously hinder your budget. Don’t purchase new furniture if you don’t have to, and don’t count out refurbishing older furniture.
Raise Your Payments
- Don’t keep paying the same amount if you’re making more money. Go ahead and add an extra few hundred dollars to your monthly payments. When you receive a raise, adjust your budget accordingly. Remember, it will pay off in the long run. When you get a bonus, put a certain amount aside to add to the mortgage payment, as every little bit helps.
- Paying off the mortgage can seem like a very daunting task. But think about the options it opens up once that extra $1,500 a month is available. Skipping a vacation here and there or fixing burgers at home instead of going out for them won’t seem so bad once you’re able to take your dream vacation or even retire early. While there may be times when the extra money you add to the mortgage payment may be needed for emergency expenses, don’t let little things deter you. Make it a habit of working a few extra hours a week or using your credit card for emergency expenses only.
Buying a home is of the most stressful and difficult processes you will ever go through in your lifetime. In Canada, arranging for financing will be one giant step in that process, and knowing as many of the options and features as possible can go a long way toward making the experience as painless as possible.
Research Mortgage Rates, Options and Offers
- Canadian banks offer many different terms and options, and choosing the one that suits your needs necessitates a little research. Visit a few bank websites and have a look at their mortgage offers. One of the most common offers is “cash back,” where the bank gives the buyer a cash payment equal to a certain percentage of the mortgage amount upon closing. Cash back can translate into a very nice benefit. For example, 4 percent cash back on a $250,000 mortgage means $10,000 back in your pocket.
Talk to the Bank Where You Currently Do Business
- Canadian banks are renowned for offering better rates on mortgages to their existing customers. Call the mortgage representative at your local branch and advise them that you are an existing client looking for a good mortgage deal. Ask them repeatedly to give you the best offer that they can come up with, and threaten to move your businesss omewhere else if they cannot do better.
Make a Down Payment of at Least 20 Percent
- Your mortgage will not be classified as high ratio and you will not have to pay CMHC mortgage insurance. This could save you up to 2.70% of the mortgage amount on a 25-year amortization, which is $6,750 on a $250,000 mortgage
A higher down payment will also reduce your monthly mortgage payment and save you interest in the long run.
Use the RRSP Home Buyer’s Plan
- The Canadian Government allows you and your spouse or common-law partner to each withdraw up to $25,000 from your RRSP (Registered Retirement Savings Plan) to use as a down payment toward the purchase of a home. You must meet the qualification of a first-time home buyer, which is that neither you or your spouse have owned a home in the previous four years. The RRSP withdrawal is not subject to income tax but must be repaid back into the RRSP within 15 years. No interest is charged in the meantime because you are withdrawing your own money.
First-Time Home Buyer Tax Credit (FTHB)
- The Canadian government introduced the FTHB tax credit in January 2009 to provide tax relief for people purchasing their first home (you must meet the qualification of a first-time home buyer, which is that neither you nor your spouse have owned a home in the previous four years). The tax credit is equal to $5,000 and, based on 2009 tax rates, can provide $750 of tax relief to the claimant when the 15 percent rate is applied in the Federal Schedule 1 tax form. The FTHB tax credit can be claimed by either spouse, or can be shared between the two as long as the total claimed does not exceed $5,000.