Buying a home for the first time is both exciting and a bit daunting. The purpose of this post is to educate first time buyers about the buying process, and to promote informed decision-making on the purchase of what may be your biggest asset.
Are You Ready?
There are several things to consider when deciding whether it’s the right time to buy your first home. While no one’s circumstances will ever be identical, the following considerations can be applied to any situation to help determine readiness.
- Think about your future.
Where do you see yourself five years from now? This includes your location, your career, and your family. It is generally not wise to purchase a home that you can’t see yourself living in for a minimum of three years. Because of the many costs associated with buying a home, you could end up losing money on your investment if you use it as a short-term solution. Not to mention, the home buying process requires time and energy, and can also be a source of stress.
- Do you have enough saved up for a down payment?
The minimum down payment required on a home is 5% of the purchase price for the first $500,000 and 10% of the remaining portion. Any down payment that is less than 20% requires mortgage insurance in case of default. This comes at an added cost to the borrower. If you only have a partial down payment saved up, you may wish to consider participating in the BC Home Owner Mortgage and Equity Partnership (BC HOME Partnership) program which matches your own down payment up to 5% of the purchase price, capping out at $37,500 on a purchase price not exceeding $750,000.
- Buying vs. Renting
Each has their pros and cons. While buying can be an excellent long-term investment with the possibility of making money if you buy and sell at the right time, renting provides freedom and flexibility with a smaller commitment. If you’re not quite ready to buy, know that renting won’t hurt you! I would actually encourage any young person to rent before they buy. It’s a great opportunity to prepare for the responsibilities of home ownership.
The Value of Working with a REALTOR®
Anyone purchasing a home will have a lot of questions. This is especially true if it’s your first time buying. A REALTOR® will represent your best interests while guiding you through the buying process, starting with helping you find a home. Your REALTOR® will sit down with you to discuss everything that you want and need to find in your new home. Your REALTOR® will then select properties that fit your requirements and take you out for viewings. Once you've found a home that's right for you, your REALTOR® will draft an offer containing a purchase price of your choosing, as well as terms and conditions that are most favourable to you. Working with a REALTOR® you trust can ensure a smooth buying process, get you the best purchase price on your new home, and relieve you from the stress otherwise associated with finding and buying a property.
Before meeting with your REALTOR® for the first time, it's wise to visit a mortgage broker or bank to get a mortgage pre-approval. A pre-approval will tell you how much you can afford, as well as lock in an interest rate (typically for 60-90 days). This gives you a budget to go by when searching for a home and protects you from rising interest rates during your search. Remember that your pre-approved amount is the maximum you can spend, so you don't want to go above this number. If you plan to receive assistance with your down payment from the BC HOME Partnership program, you must obtain pre-approval before applying.
The Costs of Buying a Home
Don’t get caught up in down payments and purchase prices without considering the additional costs related to buying your first home (or any home, for that matter). Leave room in your budget to cover up-front costs such as:
- Appraisal fee
Your lender may ask you to pay for a recognized appraisal in order to complete a mortgage loan
- Mortgage loan insurance premium
Can be paid up-front or added to your monthly mortgage payments
- Mortgage broker’s fee
If you choose to use a mortgage broker, you will be charged a commission for their services
- Home inspection fee
It is recommended that you make a home inspection a condition of your offer to purchase
- Survey or certificate of location cost
Your lender may ask for this; if the seller does not have one less than five years old or does not agree to obtain one, you may have to pay for it yourself
- Title insurance
Covers loss caused by defects of title to the property
- Land registration fees
The cost is a percentage of the purchase price upon closing
- Water and septic tank tests
Recommended if the home has a well or a septic tank
- Estoppel certificate fee
Outlines a condominium corporation’s financial and legal state
- Pre-paid property taxes and/or utility bills
You will need to pay the seller back if they have already paid tax or other expenses that apply to the time after the house is sold
- Property insurance
Required by your lender because your home is security for the mortgage; must be in place on closing day
- Legal fees
Must be paid on closing day
Be sure to remember other costs where applicable, such as moving expenses, renovations or repairs, new appliances, service connection fees, etc.
Ultimately, it’s up to you to decide when to buy your first home. Be sure that you’re prepared for the additional costs and the long-term commitment that comes with home ownership. It goes without saying that considering these things should be your first step. If you've made it to a point where you feel ready, then it's probably time to obtain that mortgage pre-approval and contact a REALTOR®!