Investing in your first home is one of the most important decisions you’ll ever make. Your home is where life unfolds and memories are made, all while building a financial foundation for your future. While buying a home can be challenging for a first time home buyer, there are some great advantages created to encourage newcomers into the real estate market. Here are 5 important steps to consider as a first time home buyer.
1. Assessing Financial Readiness
Getting pre-approved for a mortgage before looking at properties gives you a more realistic expectation of what you can afford. You can get mortgage pre-approval from a traditional lender, such as a bank and credit union, or by working with a mortgage broker who acts as an intermediary between you and the lender.
What do lenders require?
Mortgage lenders use 2 calculations to help determine your eligibility for a mortgage – your Gross Debt Service(GDS) ratio and your Total Debt Service(TDS) ratio. Lenders will also check your credit rating to ensure that it does not contain any errors.
Your GDS ratio is the percentage of your gross monthly income used for mortgage payments, taxes and heating costs and – if you are buying a condo – half of the monthly maintenance fees. As a general rule of thumb your GDS ratio should not be more than 32% of your gross monthly income.
Your TDS ratio is the percentage of gross monthly income required to cover monthly housing costs, plus all your other debt payments, such as car loans or leases, credit card payments, lines of credit payments and any other debt. Generally, your TDS ratio should not be more than 40% of your gross monthly income.
2. Considering Mortgage Options & Down Payment
A mortgage is a loan, generally used to buy a property. How much you pay depends on how much you borrow (the principal), the loan’s interest rate, and how long you take to pay it back (the amortization period). Do not be afraid to negotiate interest rates and mortgage terms with different lenders. They are offering you a product and talking to more than one lender or a broker who looks at multiples packages helps you make an informed decision.
A down payment is the portion of the property’s price not financed by the mortgage. You will need a down payment of at least 5% of the purchase price of the home. This is submitted either through cheque or wire transfer to the listing brokerage. This is legally required to make the agreement of the home purchase official.
3. Building Your Preference Profile
You have a number of options when purchasing a residential property: a traditional single-family detached or semi-detached home, a duplex, a townhouse, stacked townhouse, link home, condominium or co-op apartment. Each option has its pros and cons, depending on your homeownership goals.
It’s also important to know what specific features you need in your home – things such as size and neighbourhood all the way down to smaller details like layout. Scanning real estate websites such as www.realtor.ca, or having a real estate agent set you up on a specific search can help you get a sense of the pricing and availability of properties that offer the features that are most important to you.
4. Navigating With A Realtor
Navigating the home buying and paperwork process from start to finish with a realtor, ensures everything flows smoothly without any surprises. As a first time home buyer it is especially important to be aware of if you are eligible for government homeownership incentive programs. A realtor can connect you with qualified industry professionals such as lenders, real estate lawyers, home appraisers and home inspectors to ensure that you have trusted resources involved in your home buying process.
Realtors will use their hands on experience to help you to negotiate your purchase price and contact terms, such as date of possession, required repairs, included finishings or equipment. They will also help you plan for any additional closing costs and other related expenses such as land transfer tax, legal costs and moving costs, and make sure to communicate effectively so that you are well-informed throughout the entire buying process.
5. Making An Offer
So, you have viewed homes with your agent and have found one you would like to put an offer on. An offer is a formal, legal agreement to purchase a home and is legally binding once accepted by the buyer and seller. Offers to purchase a home can be made conditional on factors such as financing or a home inspection. If any of the conditions are not met, you can change or cancel the offer, even if the seller has already accepted it.
What are the next steps?
You will need to present a deposit (down payment) along with your offer. The amount varies based on the home’s purchase price and the market. You are usually required to produce the deposit in under 24 hrs, so make sure it’s in an account you can withdraw from in a timely manner.
Realtors must legally identify clients involved in the buying and selling of real estate. We’ll need to record your name, address, date of birth and occupation for our files. You must present us with a valid government-issued piece of ID.
Once the offer is accepted – if it is conditional, it is time to work on fulfilling your conditions. If it is firm, time to celebrate!