Tip-sheet: Buying your first home
Buying a home is a smart move. In most markets, you can own a home for the same price as renting. And once you own, you’re building equity in your home. It’s like paying yourself, rather than paying a landlord.
You may have already done your homework and feel you have the answers you need. But if you still have questions, this tip sheet can help you feel prepared to take this big step.
Tip 1: Get help crunching the numbers
Check out the Rent vs. buy calculator on our website. It will save you a lot of number crunching AND will take into account some costs you may not have thought of yet.
Tip 2: Build your down-payment in more ways than one
You may have thought your savings are the only way to build your down-payment. While your savings are important, if you’re short, consider other ways to make up a shortfall:
- Gifted funds - If a family member is helping you out, get a gift letter, signed by the receiver(s) and giver(s) who have agreed to gift you money for your purchase. Lenders will consider this part of your down-payment if the paperwork is in order.
- RRSP Home Buyers Savings Program - Each buyer can borrow up to $25,000 from an RRSP in the tax year you buy or build your first home. There are terms and conditions and the money must be paid back to your RRSP over 15 years. Read more at www.cra-arc.gc.ca.
Tip 3: Take a look at what the lenders will see, before they do
Checked your credit score? Lenders will, and so should you, once a year. You can contact Equifax or Trans Union for a credit report. The best ways to keep your credit score high are to:
- Always make payments on time
- Use, at most, 70% of your available credit
- Limit credit inquiries
Tip 4: Mortgage pre-approval is a bargaining tool
Get pre-approved for a mortgage so sellers know you’re serious. It also saves scrambling for financing at the last minute – which is never a good bargaining tool. Pre-approval is a no-cost service and will help you understand how much you can spend.
Tip 5: Don’t spend it all in one place
Let’s say you’re pre-approved for a $400,000 mortgage, and you have an $80,000 down-payment. You can buy a $480,000 house, right?
Not quite. There are a lot of other costs to consider when you’re buying a house. Costs that will deplete that $480,000 quickly. Count on budgeting for most of these costs:
- A home inspection to detect any hidden issues before you buy (usually $300 to $500)
- A home appraisal, if the lender requires one (usually $300 to $500)
- Legal fees (usually $1,000 to $1,200, but this can vary, so you’ll need a quote)
- Closing adjustments:
- On an existing home, you’ll have to pay the seller back for pre-paid property taxes or legal fees.
- On a new home, you’ll owe the builder for costs like meter installation, the Ontario New Home Warranty and a hydro and water enrolment fee.
- Any interest that accrues between the mortgage closing date and the first payment date (even if it’s just a few days’ difference).
- Land transfer tax (although first-time homebuyers may be eligible for a refund of part or all of the tax, up to $2,000).
- Property taxes. You can pay your property taxes with your mortgage payments, though.
- Municipal levies, depending which town or city you’ve bought in.
- Registration fees, which are paid to the provincial government for recording transfer of the title and registering the mortgage.
- Insurance. At a minimum, you must have fire insurance in place for a house. For a condominium, you’ll need at least contents and public liability coverage to purchase. But you should also consider mortgage life and disability insurance and possibly title insurance too.
Get to know two new types of insurance
There are two types of insurance that you should consider as a homeowner that you may not have heard of before:
Mortgage life and disability insurance – This insurance pays off the mortgage in the event of a homeowner’s death, terminal illness or permanent disability. The insurance is inexpensive, and can be paid with your mortgage payments.
Title insurance – This is an important protection from fraud. Let’s say your identity is stolen. The thief could sell your home without your knowledge. Title insurance protects you if purchased prior to your home purchase.
Tip 6: Start being paperwork-savvy
As soon as you start looking into home ownership, start a good filing system for your paperwork. You’ll be thankful you did, for years to come. You’ll need to lay your hands on lots of paperwork the day of the purchase of your home. The lender will want:
- Agreement of purchase and sale.
- MLS listing, containing property details and a photo (if the house was listed on MLS, the real estate listing service).
- Your lawyer or notary’s contact information and address.
- Confirmation of income, which could be a pay stub or signed letter from your employer showing length of employment, income and job status (full- or part-time) and possibly a T4.
- For those who are self-employed or on commission, financial statements for 2 to 3 years or Notice of Assessment for commission, and possibly a business registration for those who are self-employed.
- Confirmation of your down-payment (bank statements, RRSP statement, gift letter).
- Void cheque to set up pre-authorized payments.
A Mortgage Centre-Durham agent can help you navigate all of the steps and help smooth the path to your first home purchase – fee-free.
Need help with any of these steps? A Mortgage Centre-Durham agent can help.