The Simple Guide For First Time Home Buyers
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Let’s face it: buying your first home can be a bit terrifying.
Purchasing your home is a decision that will affect the course of your life. Not only will it impact your immediate environment and future opportunities, it is also one of the largest financial transactions most people will undertake in a lifetime.
Aside from the sheer gravity of the situation, there is also a detailed and complex process behind appraising homes, making deals, and actually finalizing a purchase.
Thankfully, you’ve come to the right place. Searching out expert knowledge and learning everything you can is the first step to a successful and rewarding home buying experience.
As tricky as buying your home may seem, there are literally millions of people who bought and sold property across billions of transactions.
This means that there is no need for you to reinvent the wheel. By studying what goes into your average real estate transaction, you can equip yourself with all the need to know information which will allow you to successfully purchase your first home.
Getting Started On Your Home Buying Journey
Your journey towards owning your first home should begin with careful planning. Lots of careful planning!
For a first time home buyer, there is a lot to learn. Your planning phase should begin with some diligent research.
There are a lot of questions which need answering about your budget, the dimensions and locations of the home, and all sorts of other practical considerations. However, before you can even get to that, it’s a good idea to assess how much you know about real estate in general.
Real estate is a complicated business. It’s full of all sorts of technical jargon and lingo which can help make things clear for those in the thick of it, but can make matters extra confusing for newcomers.
What’s more, real estate doesn’t exist in a vacuum. It’s intricately tied into matters such as law, financial institutions, homeowners associations, and a variety of other outside influences.
Taken altogether, a person’s first residential purchase can be challenging and confusing.
One of the best ways to mitigate these difficulties is to enlist the help of an expert. With a capable and experienced real estate attorney on your side, you’ll have a qualified legal expert with years of experience in real estate capable of assisting you throughout the entirety of your purchasing process.
The right real estate lawyer will oversee all legal matters relating to purchasing your home. They will ensure you are being treated fairly by everyone involved in the transaction, such as real estate agents and property owners.
After you’ve got some perspective by consulting with experts, you can start doing some practical and financial planning relating to your purchase.
Figure Out How Much House You Can Afford
Before we can even begin to work out our finances, it’s a good idea to get an idea of how much we’re going to spend on our first home.
There are three major factors which come into play when deciding our budget for a home purchase:
- Our requirements for the home (location, size, etc.)
- Our income, assets, and available credit (such as a mortgage) which can be used for the purchase
- Market prices for properties
Ultimately, the right house is the house which can meet your requirements as closely as possible while fitting comfortably within the limits of our finances and is being offered at a favorable price.
Sometimes, it is not possible to meet all of our requirements within our budget. This may mean making some compromises on factors such as location (e.g. moving further away from the city center,) the size of the home or property (e.g. reduced acreage and/or square footage,) or going without certain amenities (e.g. size of garage, fencing, etc.)
There are a wide variety of factors which go into determining the price of a home. By understanding what these factors are, you’ll become capable of assessing what goes into the price of a property and be able to understand what you’re actually paying for.
Here are some of the major factors which affect the final price you pay for a home:
- The location of the property
- The size of the property
- The number and size of buildings on the property
- The features and amenities in the home and on the property
- The age of the buildings and the value of their materials
- Local market and economic trends
- Your method of financing
You can use a purchase calculator to get a rough idea of how much a home with your requirements might cost.
While these calculators are a great way to get a ballpark estimate, they don’t take into account the huge number of factors which affect the final price. Try looking at homes in your area and compare their price to the projected prices from the purchase calculator to get a more realistic estimate of how much you’ll be spending.
Save Up A Down Payment Early
Once you know that purchasing a home is in your future, it’s a good idea to start saving up a substantial down payment as soon as possible.
With funds for a substantial down payment saved away, you’ll have a stronger negotiating position and more overall buying power.
You have the potential to reduce your loan burden and save on interest payments by making a sizable down payment, and may even qualify for better rates on mortgages by demonstrating your investment and preparedness with a large down payment.
Starting saving up for your down payment as soon as possible. Even if you don’t plan to buy a house within the next few years, creating a savings account for your down payment fund is a good idea. Properly managed, your down payment fund can accrue interest or be invested until you are ready to make a purchase.
Get Your Financial Health In Order
Purchasing a home is a major financial commitment which requires years of planning and dedication. Before you take the plunge, it’s important to make sure your finances are in good health.
Setting your finances in order is likely to mean something different for everyone. Everyone’s finances are unique and require different strategies and levels of management. If you don’t have a good handle on your finances, it’s a good idea to consult an accountant or financial advisor.
As varied as finances can be, here are the major contributors to financial health and how to set them in order:
- Accounting For Income and Expenses: Create a complete accounting of your income from all sources and all of your monthly expenses. Use this to create a budget and stick to it.
- Minimize Debt: Having debt is not always a bad thing, but having a high Debt-to-Income ratio is a bad sign. Pay off any high interest debts immediately to minimize their total cost.
- Maximize Credit Score: Keeping a high credit score will help you qualify for better offers on mortgages. A low credit score can disqualify you from financing a home entirely. Take steps to maximize your credit score like keeping your credit utilization below 30% and always paying your credit card bills on time.
- Think Ahead: Buying a home can be a lifelong commitment. With mortgage contracts often spanning multiple decades, it’s important to do some long term planning. Project your income and expenses as far into the future as possible. Consider costs of the home’s depreciation and potential repair costs.
- Create An Emergency Fund: No matter how exact your accounting or how fastidious your planning may be, a financial emergency can rear its ugly head and turn the best laid plans into tragedy. To provide a bit of a buffer against disaster, it’s a good idea to set aside an emergency fund with enough money to cover a few months or even a year of your expenses. Such a fund can allow you to stick to your long term financial plan even if it is disrupted by an emergency.
Financing Your First Home
Behind almost every purchase of a home is a mortgage.
A mortgage is a loan from a financial institution (such as a bank) which allows a property buyer to use the property they are purchasing as a form of collateral. The buyer pays off the loan plus interest over the course of the contract, which can last as long as thirty years. Should the buyer default on the loan, the lender will foreclose on the property.
A home loan is one of the largest debts a person will take on. It’s important to take your time and perform every due diligence when deciding how to finance your home.
Take your time and shop around. Look at every possible option by doing exhaustive research into every offer you qualify for. Don’t be afraid to talk to different lenders and even pit their offers against each other. Understand what the market has to offer and never be afraid to negotiate.
When securing financing, it’s important to seek out an experienced real estate attorney who will guide you through the entirety of the loan process and help you get the financing you need. The right lawyer will ensure that everything is being handled fairly and is in complete compliance with the law.
Traditional Lenders: Brokers, Banks, And Credit Unions
When looking for financing to purchase your home, you’re likely to come across a few different types of potential lenders. Let’s take a look at the most common lenders offering home loans and the pros and cons of going with them.
- Brokers: A broker is an individual or business which specializes in finding financing for an individual. Brokers pursue a wide variety of different financing options from numerous lenders. Although a broker is effectively just a middleman who connects home buyers with lenders, they can provide a personalized experience and often open up the broadest range of financing options. However, this does come at the expense of paying the broker’s fee.
- Bank: Many banks offer home loans. Working with a bank can provide you with a direct connection to your lender and can sometimes help to minimize fees. However, many banks offer limited financing options, especially when compared with the range of options a broker may have available.
- Credit Union: Getting a home loan from a credit union is almost identical to getting a home loan from a bank. However, credit unions are often more flexible with their approvals and terms. They also typically offer lower interest rates than banks. However, while a credit union might be more forgiving when it comes to your credit score, you will have to meet other requirements to be a member of the credit union, which might include things such as membership dues or where you keep your permanent residence.
Don’t limit yourself to any single type of lender when searching for your home loan.
Consider every potential option and shop around. Look at every offer which you might qualify for, be it from a broker, bank, or credit union. Compare them all to find the best rate and the best terms available.
First Time Home Buyers Program
If you’re a first time home buyer, you may qualify for a variety of tax credits rebates which Canada offers to encourage home ownership and assist first time buyers with their purchase.
Some of the tax rebates to explore include:
- Home Buyers Plan: The Home Buyer’s Plan is a program offered by the Canada Revenue Agency which allows individuals a tax free withdrawal of up to $35,000 from their Registered Retirement Savings Plan (RRSP) to put that money towards the purchase of a home.
- Home Buyers Tax Credit: The Home Buyers Tax Credit offers first time or disabled home buyers a $5,000 income tax credit for the year in which they purchase a property.
- Land Transfer Tax Rebate: First time home buyers may qualify for a land transfer tax rebate of up to $4,475 on their Municipal Land Transfer Tax and up to $4,000 on their Provincial Land Transfer Tax.
- GST/HST New Housing Rebate: When purchasing or renovating a property used as a primary place of residence, you may be eligible for rebates on Goods and Services Tax (GST) and Harmonized Sales Tax (HST) paid when purchasing or renovating the home.
You may qualify for other rebates and programs when purchasing a home. Your real estate lawyer or accountant/financial advisor may be able to advise you on additional programs for which you may qualify.
Pick A Good Real Estate Agent
Your real estate agent is the gateway to your future home. They are scouts on the frontline of your future. Their work can help you find the home of your dreams, or deliver you a massive headache and all sorts of problems.
With that in mind, it’s vital to find the right real estate agent. You want someone capable, knowledgeable, experienced, and well integrated into the local area. Someone who knows the ins and outs of every home on the market and willing to go to great lengths to find the property which suits you.
But perhaps more important than your real estate agent’s credentials is your ability to establish a strong rapport with your real estate agent. You should be able to work with your real estate agent like a close teammate.
While the wrong real estate agent will rush you through the process hoping to make a sale, an honest and competent real estate agent will be your ally and your advocate throughout the selection and purchasing process.
Don’t just default to the first real estate agent who comes along. See what is available. Give potential real estate agents a call and interview them a bit. Go ahead and get in touch with every agent in your area if that’s what it takes to find one you can trust and work with.
Choose The Right Kind Of House For Your Needs
The dream of home ownership is finally having a place designed and reserved just for you. Somewhere that suits all of your needs and caters to your unique tastes.
But what is it that you need in a home, exactly? Some of us require many rooms to house our large families, some of us just need a simple place to unwind and get some alone time. Other people couldn’t imagine living somewhere that can’t host a party, and some of us just need a dedicated space to work or practice our art.
It’s a good idea to create a detailed list of what your requirements for a home are. Although one of the most exciting aspects of home ownership is the prospect of changing or adding to your home, you may find it much more affordable to look for a space which already suits your needs instead of planning extensive renovations.
Pick The Kind Of Neighborhood That Suits Your Needs
As a homeowner, you have a lot of control over your home and your property. But one thing you have little or no control over is your neighborhood.
It can be difficult to get an accurate idea of what a neighborhood is like before you live there. However, there are a few important things to look for no matter the neighborhood:
- Homeowners Association Requirements: If your neighborhood has an HOA, it may come with certain requirements which dictate what you can do with your property and regulate its appearance.
- Utilities: Your neighborhood will dictate access and pricing to utilities including electricity, gas, phone, internet, cable TV, and other services. It’s a good idea to make sure the utilities you rely on are available in the capacity you expect before buying a home.
- Transit: Consider how you’ll be getting around your new neighborhood. How is access to public transportation such as buses and subways? Are the roads safe and easily navigable? Is the neighborhood walkable? Is it friendly for cyclists, rollerbladers, or other alternative forms of transportation? How long will your commute be? How is traffic in the area?
- Essential Services: How is the area’s reputation and access to essential services such as mail delivery, health care, schooling, emergency responders, etc?
- Risks: Look for any risks which may be heightened within the local area. This might include high crime rates, high numbers of traffic accidents, high risk of natural disasters or environmental damage, proximity to sources of pollution, etc.
Consider If Your Home Will Meet Your Needs Both Now And In The Future
When purchasing a home, you want to find something which can both suit your immediate needs while also being capable of serving you as your needs evolve over the years.
Do you plan to expand your new home over the years as your needs expand? Or do you plan to purchase a large home and allow your family to grow into the space?
No matter if you have no plans for expansion or know for sure you’ll need room to grow, it’s important to try to picture how your home will serve your needs in ten, twenty, even thirty or forty years down the road.
Avoid costly mistakes when purchasing your first home. Put in the effort to do your due diligence and avoid all of the pitfalls of first time purchasers.
Make An Offer
Once you’ve found a home which meets your requirements and falls within your budget, you can start to think about making an offer.
Making an offer is often opening up a process of negotiation. If the seller is not satisfied with the offer but still wants to pursue the sale, they may submit a counter offer. This process of offer and counter offer can continue back and forth until a deal is agreed upon.
It’s a good idea to keep the potential for negotiation in mind when deciding on an amount to offer. Avoid choosing the maximum amount you’re willing to pay or the lowest you hope it will go for. Instead choose a value from which you can comfortably negotiate in either direction.
Your real estate agent will help you determine how much to offer on a property, based on the property’s valuation and market factors. If you decide to make an offer, your real estate agent will write an offer letter and submit it to the seller’s real estate agents.
Don’t Be Afraid To Negotiate Closing Costs
There are a variety of fees associated with any real estate deal. These so called “Closing Costs” include things like appraiser’s fees, lender’s fees, document filing fees, and a variety of other costs that are incurred in the process of closing the deal.
Typically, certain closing costs are covered by the buyer and certain costs by the seller. However, the details of who pays which fees are not strictly set in stone or mandated by law.
As such, you are free to negotiate with the seller for who covers a particular closing cost or how the costs should be divided. If the seller is highly motivated to sell, they may be willing to pay the closing fees and absorb the cost as part of the sale.
In addition to the seller, you may also be able to negotiate with your lender to lower certain closing costs. Expenses such as origination fees and application fees can sometimes be discounted or waived entirely as part of a negotiation.
Seal The Deal
If you’ve submitted an offer on a home and had that offer accepted, you might think congratulations are in order. But don’t pop the champagne just yet.
Having your offer accepted is a great step, but there is still a complex road ahead towards sealing the deal.
After the offer is accepted, the home is taken off the open market and placed into escrow. The buyer places a pre-agreed upon amount of money into escrow as a sign of good faith.
To finalize the deal, a series of criteria agreed upon by both parties in the offer contract must be met. While every deal can have different criteria, the most common criteria for the deal to go through include:
- Financing: To purchase the home, the buyer must secure financing from a lender. In some cases a buyer will be qualified for a loan prior to making an offer, but in other cases the buyer must seek a loan after the offer is accepted.
- Appraisal and Inspection: The value of the home must be appraised by a qualified professional as part of the mortgage approval process. Separate from the appraisal, the home must be inspected by a licensed property inspector. If the appraisal finds the property is not valued as expected or advertised, or if the property inspector finds serious defects in the home or property, the deal may fall through.
- Title: To transfer the property, it must have a so-called “clean” title. This is a title with clear undisputed ownership of the property and no liens or legal problems which would prevent the transfer of the title. Understanding the title history of a property is a complex task which is best handled by your trusted real estate attorney.
Hire A Home Inspector
Your home inspector is your first line of defense when it comes to making a sound investment in a property.
It’s vital to find an experienced and highly knowledgeable home inspector. Someone you can trust completely.
The right home inspector will be able to provide you with a complete and detailed report on every issue both major and minor with the property you’re looking at. They’ll be able to advise you about what is likely to go wrong in the immediate or distant future. They can point out problems which could cost you big down the road.
Your home inspector doesn’t have to be nothing but the bearer of bad news, either. They can also have an eye for a well built home or an exceptional piece of property.
Find one you can trust and listen to their wisdom!
Consult With A Real Estate Lawyer To Make Sure Real Estate Agreements Are In Order
Completing the purchase of your new property will mean signing a lot of papers, filing a lot of documents, and making sure everything is properly transferred.
The best way to leave no doubts that you’ve covered all of your bases is to enlist the help of a capable real estate lawyer. Your real estate lawyer will be able to perform important research on the title and it’s property, help you complete and file all relevant documents, and look over the transaction to catch any issues before they become major problems.
Don’t take a chance. Make sure you have a real estate lawyer review your real estate agreements!