Buying your first home
Am I ready to own a home?
Let's start by asking a few questions.
First of all, there are many things we all take for granted when renting a home. For instance, what happens if your tap starts dripping continuously? Or the dishwasher starts squealing? Well... you probably call the landlord or property manager and the problem is fixed (hopefully!). When you own, there is nobody to call except the tradesman and they will expect to be paid! Are you ready to take on the responsibility of property maintenance?
How you are with your spending?
- Are you able to save money? Not many people can but we still manage to own homes if we can be reasonable and responsible! How is your personal credit? Your current financial situation and credit history will be examined by your mortgage broker. This does not mean that your credit history needs to be squeaky clean to get a mortgage. However, if there are claims against you, or late payments, the lender may ask for an explanation and will more than likely want it cleared up before they will agree to lend to you.
Do you have a down payment?
- In Canada, you need at least a 5% down payment. Any down payment between 5 and 24% is considered a high ratio mortgage and the lender will require it to be insured by CMHC or GE Capitol. Additionally on high ratio mortgages the lender will charge a sliding insurance fee of up to 3.75% for 95% financing, but if you mortgage only 85% (a 15% down payment) your insurance fee is brought down to 2%.
- And while It may seem a little like "putting the horse before the cart" you definitely need to find out how much home you can afford by pre-approving yourself for a mortgage so that we can determine the price range of homes to show you.
See more information about mortgages.
What can I afford?
Lenders use a standard formula to calculate how much home you can afford.
There are two relevant calculations:
- First they look at your Gross Debt Service ratio (GDS). In High Ratio lending, lenders do not want to see your household expenses exceed 32% of your gross household income. These expenses will include your financing, ½ of the condo fees (if applicable) and heat.
- The second calculation is Total Debt Service ratio (TDS). This is calculated the same way as the GDS except they now include your contractual debts (car/student loans, child maintenance payments etc.). TDS cannot exceed 40% of your gross monthly income.
- Submit an online mortgage pre-approval request.
Attached versus detached living - which is right for me?
Okay, so lets say that you have been qualified for a mortgage and you are ready to make your purchase today. The first thing you have to do is determine what kind of housing you would like to live in -- attached townhouse, condo, detached single family, etc.
Condo Living
A condominium is defined as "a form of property ownership in which each owner holds a private ownership in his/her own unit and group ownership (an undivided interest) in all the non-unit or common property managed by the board of managers of the strata corporation".
What does all that mean? It simply means that the unit you live in is yours, you can do with it as you please (providing you are within your condo guidelines set by your condo corporation) and you pay a monthly fee to maintain the common areas, which would be the hallways, parking garages, courtyards, exercise facilities etc. So while you don't "own" the lobby of the building anymore than your neighbours do, you do pay fees to maintain it and the other common areas. Your control over how those common areas are maintained is exercised by voting and/or by attending your strata meetings.
Other things to remember about condo living are:
- That you have commons walls between your unit and the ones attached to it, beside, above and/or below. You must consider the amount of noise you make and the amount of noise you are prepared to accept.
- You also have to consider the condo corporation's by-laws prior to moving in. These tell you whether or not you are able to have pets, gardens or swings on your balcony, bikes in the hallways and all other pertinent information that may deter or encourage you into buying in a particular community.
- Condos do have rules and regulations that must be followed by all - if you are a rule breaker or have not enjoyed living in apartment style housing in the past, start looking at detached housing!
Detached housing
Detached housing r equires much more from you than attached living does.
You are required to keep your yard clean, sidewalk shovelled and if your roof starts to leak you have to get it fixed!
You don't pay a simple fee to have all these things looked after for you but if having a nice big yard and a garden and the freedom to do with them what you like then a detached home is the way to go for you.
New versus used?
Budget +15%
Whatever you budget, immediately add an additional 10-15% if you buy brand new! As the months of construction go by and you have seen everything new in door handles, light fixtures, water fixtures, appliances big and small, security systems, heating systems, digital wiring and electric garage door openers you will have upgraded your home by probably 10-15% of the original purchase price! It all adds up QUICKLY while you are thinking "Oh it's just another few hundred...".
Brown shag, gold velvet wallpaper ...
However, building does offer that whole "dream home" advantage where you get to pick everything from the fixtures to the carpet and paint. It's a sensation you'll likely never forget watching your creation come to life as the construction proceeds - we highly recommend you visit your site regularly to watch the process! Choosing tiles and appliances can also be a fun and exciting experience if you face it realistically with a firm budget in place. Most reasonable budgets can be accommodated and there is no need to always go top of the line just because you are building new - leave yourself room to improve ;)
Are you patient enough?...
If you think about it logically, you don't really want them to rush through the process and slap up your home in some company record that wins them dinner at the local diner! When you build a quality home it takes time several months on average to build - and there can be many, many delays along the way! Everything depends on good plans and a solid foundation so expect it to seem like forever before things get started.
Write your name in the concrete ...
Don't be afraid to take part in the process. No insurance company wants to see you out there swinging a hammer, but if you talk with your developers and builders and take the time to read your plans thoroughly and make regular visits to see the construction happening there will be little to complain about in the end. Don't forget to treat the people involved, both on and off the site, with the respect they deserve ... they are building your home and in control of the quality on which it will stand!
What are the costs associated with my purchase?
Be prepared to cough up at least $1500.00 on top of your downpayment for "closing costs".
Shocked? Well, let's start by explaining what needs to be covered over and above your downpayment.
- You will need to have a home inspection. This will cost approximately $310.00 and will give you a detailed report on the condition inside and out of the home you are buying.
- Next, you will need an appraisal from the bank to verify that the home is indeed worth what you are paying for it. This will cost approximately $200.00.
- There will be a land tax adjustment. This figure is hard to determine because it will depend entirely on what time of year it is when you buy and what the annual taxes paid on the property were - in some cases this could even be a credit. Speak to a lawyer about this.
- There will be legal fees of course. These fees will include their legal fees and disbursements. Count on at least $900 (an average purchase on an average priced home).
- You will also be required to have home insurance in order for the mortgagor to lend you the funds.
- And yes, GST will be a factor if you are purchasing a brand new home. GST is not applicable on used/preowned homes.
Keep in mind that as the home buying process proceeds you will need a security deposit to be attached to a completed offer to purchase. This amount should be close to $5000 but it is deducted from your downpayment - so if you are making an $8000 down payment, after the initial deposit of $5000 you only need to come up with another $3000 by closing.
I don't have a downpayment but have lots of RRSP's. Can I use them instead?
You can use up to $20,000 of your RRSPs towards a downpayment and you have 15 years to fully repay those RRSP's. Minimum annual payments of 1/15th of the original withdrawn amount are required each year; failure to do so will result in that 1/15th being added to your taxable income any year the minimum re-deposit is not made. If this seems confusing ask us for more information and we will be happy to explain in more detail.