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Tips for First-Time Home Buyer in Canada

Buying your first property can be a huge milestone in your life. However, it can be a tricky process and one which is difficult to get right. It is all in the details and knowing each step like the back of your hand.

Here are some tips for first-time buyers who are ready to step onto the property ladder.

Get a home inspection before you commit

A home inspection is wholly essential, especially if you’re purchasing an older home. The home inspection will ensure the structure and mechanical systems of the property are sound and in working order. The inspector will assess the property for potential problems and provide a finalized report for you to opine on.

It is often wise to make a home report an essential part of your offer on the property. This allows you a get-out clause if the home report comes back with some highly negative aspects, which puts you off the property.

A tip here is to make sure you get a well-respected inspector and make sure they look at all the house details. This includes the roof and any crawl spaces which are outside the sights of any normal property viewings.

Purchase home insurance

Your lender will often require you to get homeowners insurance before the deal is closed on your property. This is to protect the asset that they have lent you money against.

Home insurance will cover the cost of any damage to the property from instances such as flooding, theft or vandalism. Most types of insurance will cover all of the contents in the property as well.

A good rule is to get more insurance than you think you need. You don’t want to be left in a situation where there’s a house fire, which causes $500,000 worth of damage, but you only have insurance for $250,000.

Don’t go over budget!

Just because the lender is offering you the money, it does not mean you should take it. Taking on a mortgage that is well outside your comfort zone may lead to regret and financial issues in the future.

A good rule is to keep your monthly mortgage payments below 28% of your pre-tax income. This isn’t something that the lender will consider, but it is a general budgeting tool to ensure you don’t go over-budget.

It is especially tempting to go over-budget when you’re in a bidding war with another buyer. This is when it is important to remain calm and think logically instead of with your heart. There are many properties on the market, and going way over budget may lead to resentment and regret.

View plenty of different properties

Visit as many properties as you can. Even go to properties that you may not have thought would be the type of home you would like on paper. Seeing as many properties as you can allow you to really understand what your likes/dislikes are and your wants/needs.

Thinking about what we want in our ideal property can be quite simple and easy on paper, but there are often factors that we don’t think of until we actually see them in person. For example, you might not have thought about whether outdoor space is essential or not for you, but then you visit a property without any private outdoor space and suddenly realize how much you want it.

Due to Covid, virtual online tours have become more popular. Unfortunately, these tours don’t really allow you to get the true feel of a property, but they are a great start if your local real estate brokers are not doing actual property tours or open houses.

Open your senses when you visit properties and understand and appreciate all the quirks and unique aspects of each property. Listen to any noise, pay attention to any damage or covered-up damage, and ask plenty of questions if you have them.

Understand your mortgage options fully

It is easy to blindly walk into a mortgage unknowingly when you’re smitten with your dream property. It is always recommended to discuss your mortgage fully with your lender or broker and get a full understanding of the mortgage agreement’s ins-and-outs.

You need to consider fundamental factors, such as early repayment fees, the mortgage term, as well as what type of mortgage you have and the consequences as such.

A mortgage broker is likely to be somewhat less biased and open regarding the pros and cons of each type of mortgage and explain all the unique quirks of your agreement to you.

Take a good look at the local neighbourhood

Sometimes the perfect house can become a nightmare if it is in the wrong neighbourhood. It would always be recommended to take a drive and/or walk around the local neighbourhood before making an offer on a property. Sometimes returning to the area at night is also wise, as an area which seems perfect during the day might be the opposite at night time.

It is never recommended to judge a book by its cover. However, you can generally get a good idea of what the neighbourhood might be like just from the appearance and things around you.

Look into first-time buyer assistance

Many areas will offer some assistance for first-time buyers, and these can really help you out if you’re struggling to get onto the property ladder.

Normally they will provide low-interest-rate mortgages and provide some assistance with your down payment, whether providing the ability to have a lower down payment or giving contributions towards your down payment. There are also some tax credits available for some first-time buyers.

It may be worth booking an appointment with a local mortgage broker in your area, as they will know exactly what first-time buyer assistance is available.

Improve your Credit Score

Your credit score is one of the core determinants of whether you are approved or rejected for your mortgage and at what rate you will be approved. There are some easy steps you can take to make sure your credit score is looking as clean as possible by the time the lender looks at your credit report:

  • Look at and understand your credit report. You can gain access to it for free and figure out what aspects might be dragging your score down. The most common providers of these reports are Experian, Equifax and TransUnion. You may also come across some errors on your credit score, which you can report.
  • Make sure you pay all of your bills and loans on time. If you have a credit card, make sure it is paid off each month and keep your credit utilization at a minimum.
  • Closing a credit card can actually reduce your credit score, believe it or not. Even if you don’t use the card, don’t contact the credit card company to close the account. If it requires usage, then buy something small on the card each month.

How much can you afford?

Many first-time buyers will completely overestimate how much they can really afford to buy.

It is always recommended to sit down with either the lender themselves or a mortgage broker to discuss your current individual financial circumstances and conclude exactly what you can afford to spend each month on a mortgage – as well as what you might actually be approved for.

There are also plenty of affordability calculators online that can be used to determine a price range you can afford based on your income, debt, and down payment availability.

Start saving sooner rather than later

You will need to pay for three main categories when purchasing your first home: Down payment, Closing Costs, and any moving in expenses.

The down payment will have to be at least 5% of the value of the property you are purchasing. Therefore, if you are buying a $300,000 property, the down payment requirement could be $15,000. However, there are currently some options for first-time buyers who have a good credit history, allowing as little as a 3% deposit.

There are plenty of down payment calculators online which can be used to calculate exactly what you will be paying here.

There are costs associated with the closing of the property, such as legal fees and home inspections. You can probably estimate these to equate to about 2% for simpler properties or up to 5% for more complex properties based on the property’s value.

Finally, you can’t just move into an empty home and carry all your belongings yourself. There are costs such as moving costs, new furniture, small repairs or changes you may make to the property. People will often spend thousands within the first few months of moving into a property.

Try and think logically rather than emotionally

It is difficult not to think with your heart when you are buying your first property, but unfortunately, it is not always the best approach to get the best home for you. Often we can look at things with ‘rose-tinted glasses’ when viewing properties for the first time and overlook clear issues which we otherwise would not have missed.

Going into property viewings with a plan of action and a series of “yes/no” type questions can really help you nail down the perfect home for you. Simple questions like “Do the walls need to be painted?”. It may seem simple, but redecorating can be expensive, and understanding all your wants/needs when on the property hunt can really help.

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