Your first time buying a home can be confusing.
How does everything work? What are you entitled to? Who do you need to work with? What kinds of expenses can you expect?
Here are all the basics so nothing takes you by surprise.
What should I know about a down payment?
Your down payment is the largest chunk of money you have to put toward the house at once.
The minimum down payment for any home is 5%. So for a $400k house, your down payment is at least $20k.
A large down payment is always advisable. If your down payment is less than 20% of the home’s total value, you must pay insurance premiums to the Canada Mortgage and Housing Corporation (your lender will make the actual payments, as they will be lumped in with your mortgage).
These fees aren’t substantial, but if you can avoid them altogether, you should.
*Note – you and your partner can withdraw up to $25k each from your RRSP to go toward your down payment with no penalty (that is to say, you don’t have to pay normal RRSP withdrawal taxes). You just have to pay that $25k back to your RRSP over the next 15 years.
Should I get preapproved for my mortgage?
Yes.
Talk to a lender before you shop for your new home. They will do all the necessary checks and let you know exactly how much you can borrow and at what rate.
With this info, you can act quickly with any home purchase offers you want to make. It gives you an advantage over buyers who aren’t preapproved.
Mortgage broker or bank?
Generally speaking, mortgage brokers offer better rates than banks.
They are certified and regulated professionals with relationships across multiple lenders. Lenders want your money, brokers want the commission for bringing you to the lender, so both are highly motivated to get you a good deal.
Besides the house, what do you have to pay for?
Real estate fees come from the seller, so your real estate agent doesn’t cost you a thing.
You do have to pay for a few things outside of the house itself, however.
- Your lawyer.
- Your home inspector.
A lawyer could cost anywhere from $500 to $1,500 – this includes any supplementary fees for the home purchase, like title insurance and other municipal registration fees.
Your lawyer handles all the paperwork associated with transfer of ownership.
A good home inspector will cost around $400-500.
Speaking of home inspectors, should you get a home inspection?
A home inspection is a good idea when buying anything other than a new build.
Include a home inspection as a condition on your offer so your inspector can, well, inspect the house before you commit.
The inspector should produce a comprehensive report for you to review. If he/she finds something significant in the house (maybe the house is rural and needs a new well that could cost $15,000 or more), you can use that to renegotiate the price with the seller.
A home inspection is a common condition to put on an offer. Should I include other conditions?
Your real estate agent is the best source for you to talk to about this.
Your conditions often depend on the competitiveness of the home you want to buy.
If the home will see several offers, conditions might be enough to put the seller off your offer.
If yours might be the only offer, you can include more conditions.
Talk to you REALTOR® about the best course of action for your situation.
Land transfer
Your lawyer can apply the first time homebuyer land transfer tax refund immediately.
As a first time buyer, you are entitled to a tax refund of up to $4,000, based on the purchase price of the home. For most first time buyers, that means you don’t pay any land transfer tax.
Just remember, the next time you buy a home there will be an extra few thousand dollars to pay (since you have to pay land transfer on home purchases down the road).
First time home buyers have a lot to think about, and with no experience buying a home previously it’s easy to get lost and feel out of control.
A good REALTOR® will help you stay organized, on track and calm while you make the biggest purchase of your life.
Call us for a chat and see if our style lines up with the way you want things done. We love helping first time buyers enter the Milton real estate market confidently and successfully.