I think I'm ready to buy my first home – now what?
So, you've weighed your options and decided living in your parents house or your old college apartment you've been renting is no longer for you. You've looked at the pros and cons and have made the decision it's time to buy. You're ready to start looking for a place to purchase and find yourself thinking 'now what'?
Well, for starters, congratulations on this next step! It's one of the most exciting and rewarding times of your life, and simultaneously one of the scariest and overwhelming.
Your mind is probably going a mile a minute filled with questions about what the next steps are and what exactly buying a property entails. You might find yourself wondering how much of a down payment you need, if any? How do you obtain a mortgage? Should you get pre-approved for a mortgage before you start looking, during, or after? What kind of costs will you have?
Sound familiar? Yes? Well then keep on reading, this blog is for you!
Let's start with the basics and most common FAQs.
How much of a down payment do I need, if any?
In order to obtain a mortgage you will need a minimum down payment of 5% of the purchase price of the home. For example, if you plan on purchasing a $400,000 home, you will need $20,000 down (400,000 x 0.05).
As a first time home buyer, there are several options available to help you with the purchase of your first home. Two of the main ones, however, are the Home Buyers Plan and the First-time Home Buyers Refund Program.
Home Buyers' Plan (HBP) is a program that allows you to withdraw up to $35,000 in a calendar year from your registered retirement savings plans (RRSPs) to buy or build a qualifying home.
First-time Home Buyers Refund Program is a tax rebate for the land transfer tax where first time home buyers may be eligible for a refund for all or part of the tax payable up to $4000 (this is determined by the purchase price of the home). To learn more on this check out my blog here.
How do I get a mortgage?
There are a number of different mortgage sources, such as: banks, credit unions, loan companies, and insurance companies. Different lenders may have different rates and conditions for similar products – it’s best to talk to several lenders to make sure you are getting what is best for your needs. Once you’ve found the best option, your mortgage professional will then require your financials to do a thorough investigation to see what you can afford.
When should I get pre-approved and what does it mean?
Getting pre-approved sooner rather than later is best. While window shopping is fun, it is always better to have an accurate price range to determine what houses you should be looking at, and which ones you can truly purchase before starting to look. It is also important to note that being pre-approved is typically only valid for 90 days (make sure to ask your broker/lender the time frame) and is different than being approved. Being pre-approved means you have met with a mortgage professional and they have determined how much you can afford, established you are a qualified buyer, and gives you a guideline for your budget.
What sort of costs will I have?
You've probably heard of closing costs before, but maybe don't know what exactly that means. Closing costs are additional to the purchase price of the home and may include lawyer fees, title insurance (if applicable), land transfer tax (may not apply to first time home buyers), moving costs, and adjustments if the current homeowners have prepaid property taxes or utilities.
You will want to make sure to set aside some money for these, typically 1.5 - 2% of the purchase price.
Being a first time home buyer is one of the most exciting, scary, stressful, overwhelming and liberating times of your life all wrapped up into one package. It's one of the largest transaction you will surely ever make to date, and that can be extremely scary. In order to ensure everything goes smoothly and stress-free, hiring a professional to assist you in your home buying journey is always a good idea. Using your local, trusted Realtor® will help to protect your interests as a buyer and take the pressure off of you so you can truly enjoy this exciting once-in-a-lifetime experience.
And as an added bonus, working with a Realtor® as a buyer is absolutely free!
No asterisks required.
Happy house hunting!