First-Time Home Buyers Guide
If you're a first-time homebuyer, buying a home can be nerve-racking. These 7 tips will help you navigate the process and get you the keys to your dream home.
1. Be Prepared for the Down Payment
Your minimum down payment is determined by the home’s purchase price. The minimum down payment in Canada is 5% for homes that cost $500,000 or less.
The biggest obstacle for first-time homebuyers is saving for a down payment. This is why a savings plan is crucial. This is the best way to help you set a down payment goal. Remember, a larger down payment will decrease the amount you need to borrow for the home. Aim to save at least a down payment of 20% or more.
As a first-time homebuyer, make sure to do your research. There are a number of government programs that can potentially help you save money when buying your first home.
2. Pay Off Debt and Have an Emergency Fund
Owning a home is expensive—much more expensive than renting. Your monthly house payment may be similar or cheaper than renting but be mindful that when you own a home, you’re responsible for all the maintenance and upkeep costs. And those can add up fast!
Before you think about buying your first home, make sure you’re debt-free and have an emergency fund of three to six months of expenses in place. Beware that taking on new debt in the middle of buying a house could potentially delay your approval for a mortgage and make you miss out on the perfect home.
3. Get Preapproved
Once you’ve saved up enough for your target down payment amount, the next thing you should do is get a mortgage pre-approval.
Get pre-qualified for a loan and make sure to get a preapproval letter before you start your home search. Preapproval shows sellers that you’re a serious buyer, which is a great way for first-time homebuyers to get ahead in a competitive market.
To get preapproved, your lender will need to verify your financial information (proof of income, taxes, etc.) and submit your loan for preliminary underwriting. Once you’ve been pre-approved, you will receive your pre-approval document. This document will outline the interest rate you’ll receive, the loan terms, and the mortgage amount you’ve been pre-approved for. It is very important to read the fine print on every page carefully.
4. Save for Closing Costs
Along with your down payment, you’ll need to pay for closing costs. As a first-time homebuyer, you may be unsure of how much it costs to close on a house. On average, closing costs are about 3–4% of the purchase price of your home. These fees pay for these important steps in the home-buying process:
- Home inspection
- Credit report
- Homeowner’s insurance
5. Make sure you can afford the home you want
Many of us dream of buying a home but we also need to be realistic about what kind of properties we can actually afford. Your household income, personal monthly expenses, and home costs like property taxes, condo fees, and heating & electricity bills all factor into the total amount you can borrow.
Look at properties that cost less than the amount you were approved for. Although you can technically afford your preapproval amount, it doesn’t take into consideration other monthly expenses or problems like a broken dishwasher. Shopping with a firm budget in mind will also help when it comes time to make an offer.
6. Research Neighborhoods
After you’ve found some homes for sale in your price range, be careful not to make a decision based on the property alone. Homebuyers are often more willing to compromise on a home’s condition and size than on the quality of its neighbourhood and distance from a school. Even if the home is right, the neighbourhood could be all wrong. Make sure you factor neighbourhood quality and location into your decision.
Ask your real estate agent for information on crime rates and the quality of schools around your prospective neighbourhoods. Calculate your new commute times to see if they seem manageable. Visit the neighbourhood at different times and days to check traffic conditions and noise levels. Only choose a community that you and your family feel good about.
7. Make a Competitive Offer
You’ve found the home you want and can afford. You’re preapproved for a loan and you’re ready to make an offer. As a first-time homebuyer, it may be hard to know how much you should offer. That’s when you can rely on the expertise of your real estate agent.
Your agent will help you make a competitive offer that is within your budget. Be careful not to make an impulsive offer that’s higher than you can afford just to knock out the competition. A personalized letter might help your offer stand out among multiple bids in a hot market.
8. Prepare for Closing
Once your offer has been accepted, the closing process begins. The average closing process takes 43 days. Your real estate agent will schedule everything from home inspection to final walkthrough.
As you prepare for closing, always make sure to read every document. Ask your real estate agent to explain anything you don’t understand. These documents will include the official contract for the home transaction. Remember it will be your signature on these documents, so you’ll be the one responsible for anything you sign.
Make sure you have the following items when you head to the closing table:
- Proof of homeowner’s insurance
- A copy of your contract with the seller
- Your home inspection reports
- Any paperwork the bank required to approve your loan
- A government-issued photo ID (Note to newlyweds who just changed their name: The ID needs to match the name that will appear on the property’s title and mortgage.)
Be prepared to sign a ton of paperwork. An attorney or settlement agent will guide you through the process. When you’re done, you’ll collect the keys, and you're now a homeowner!