A Guide To Buying Your First Home

August 29th, 2022 / Buying

Are you thinking about buying your first home? There are few milestones more exciting and satisfying. Nothing compares with turning the key into the door of a place that is 100% yours. However, buying a home in this climate can be complex. That’s why I put together this guide to walk you step-by-step through the entire process. Plus, I’ll show you the resources and government programs that will help make your purchase more affordable.

Plus, I’ll show you what resources and government programs you might be able to use to make your purchase more affordable.

The Benefits Of Buying Rather Than Renting

Buying instead of renting comes with many advantages. First and foremost, buying gives you a sense of security that you’ll never have as a renter. You never have that worry in the back of your mind that you’re about to be evicted or that your landlord will raise your rent.

Every mortgage payment builds your equity and adds to your net worth. When you pay rent, that money is gone forever.

Your home is so much more than a roof over your head. It becomes an asset that provides financial stability for the rest of your life.

Analyze Your Finances: What Can You Afford? 

How much can you afford to pay for your first home? A recent article reported that it takes approximately $220,000 in annual income to afford a house in the city today.

When you hear news like this, you may think you’ll never be able to buy a home. However, there are other options available, and you should consult with your real estate agent before you decide to give up on your dream. There is no cookie-cutter approach to buying a home!

The general principle is that your home expenses should not exceed 30% of your income before tax. For example, if you earn $6,500 each month, you have $1500 available for housing. Remember that this has to cover your mortgage, property taxes, and heating and hydro bills. In Toronto, $1,500 may not go far. 

However, let’s imagine that you’re buying with a partner. Now you have far more purchasing power, and your new home becomes much more attainable.

Information is the key to a successful transaction. Here are some other resources you may find helpful:

Saving For Your Down Payment

The average home in Toronto runs about a million dollars, but the situation is changing quickly. The prices have decreased significantly since the beginning of the year, and may come down even more. Townhouses and condos typically cost less and are ideal for many first-time buyers. You can also find less expensive options further away from the downtown core. Plus, your real estate agent can often find back-to-market listings where the prices may have been reduced.

There is a misconception that first-time buyers need to have 20% of the total price for their down payment, which can scare many potential buyers off. You only need the full amount if you want to avoid paying mortgage insurance.  

What Do First-Time Buyers Really Need Upfront?

Let’s imagine you’ve found a home for $750,000.

20% works out to $150,000, which can be difficult for a first-time buyer, but you don’t need that much. You need 5% on the first $500,000 and 10% on the remaining $250,000. 

This brings your down payment to $50,000, which is much more manageable. These funds should be easily accessible and not locked away in an investment account. 

Real estate transactions move fast. If a seller accepts your offer, you’ll have to place a deposit within 24 hours.

The Next Step? Get A Pre-Approval

If everything checks out, your next step is to visit your lender or a mortgage broker to get a pre-approval. Not every home buyer does this, but there are two advantages to doing so:

You know that you can qualify for financing and for how much.

Even more importantly, you can make more compelling offers that will stand out if there is competition for the home you want. Sellers love to see a pre-approval because it shows that you have the ability to pay.  

Want to stay up to date with everything happening in the real estate market? Sign up for my newsletter right here.

Work With A Local Real Estate Agent

Did you know that it generally costs nothing out of pocket to have an experienced professional by your side? Many people worry about the real estate commissions, but it isn’t the buyer who pays them. Commissions are paid by the seller after the house closes. Working with an experienced buyer agent provides a level of protection you won’t have on your own, legally and financially. 

For the best results, look for a real estate agent who:

  • Has experience with first-time buyers
  • Will take the time to answer your questions and explain the process to you  
  • Is available to answer your calls, texts, and emails
  • Has extensive experience in negotiation

Government Programs For First-Time Buyers

Buying your first home can feel like an overwhelming task. Luckily, there are several plans in place to help you. You’ll find some of the best federal and provincial resources below:

The First-Time Home Buyer Incentive Program 

The First-Time Home Buyers Incentive Program is a shared equity plan that helps you with your down payment. The federal government will put up 5% of a resale property or 10% of a newly-constructed home. Some conditions apply, and, of course, this isn’t free money. The loan must be paid back after selling the house or 25 years, whichever comes first. There is no interest on the loan, but you pay the amount back plus a maximum of 8% of the annual increase in value. In the unlikely event that the property loses value, you pay back the original amount minus 8% of the loss.

The Home Buyer’s Plan

Saving for your down payment is often the most difficult part of buying your first home. The Home Buyer’s Plan helps first-time buyers by allowing you to withdraw up to $35,000 from an RRSP for your purchase. If you are buying with a partner who is also a first-time buyer, you can combine this program for a total of $75,000, with no tax penalty. Any amount you take out of a registered investment plan must be paid back within 15 years.

Land Transfer Tax Rebate

Land transfer taxes are one of the highest closing costs, and they often take buyers by surprise. In Toronto, you get hit with both the municipal and provincial tax, and the worst of it is you can’t put it into your mortgage. It must be paid upfront. The Land Transfer Tax Rebate for first-time buyers can save you up to $4,000 on this expense, making your purchase much more affordable and attainable. 

First-Time Home Buyer Tax Credit

This non-refundable tax credit encourages Canadians to buy a home instead of renting. It allows you to claim a maximum of $5,000 on your tax return, resulting in savings of up to $750. It may not seem like a lot, but every dollar counts when moving into your brand new home. 

Are you ready to make your dream of buying your first home a reality? Reading my Buyer’s Guide is an excellent first step. You can download it for free right here.

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