It’s time. Time for you to pack your bags and move out of the place you’ve been renting. Time for you to buy your very first home. Maybe you spent years watching Property Virgin, Love it or List it or Holmes on Homes with your eyes glued to the TV, making plans of how ‘your future house will look’. Maybe you dream of buying a brand new home with the granite counter tops and bamboo flooring you love. Maybe you love the look of the older character homes and think you would enjoy working on an older fixer-upper.
Or, maybe that’s not you at all. Perhaps you need to up-size because your first home is getting too small with your kids and family growing. Or maybe your kids have grown up and moved away and you are looking to downsize.
Whether you are just starting out in the wonderful world of home buying as a first-time home buyer or whether you a next-time home buyer, you need to factor in some costs and considerations.
As a first-time home buyer, the steps to buying a home will likely be new and may seem complex at times. But the process can be fun if you know what to expect. Let’s take a look at the cost and considerations you will need to know as a first-time home buyer:
1. Deposit
You’ve found that perfect home and are ready to put in an offer. The deposit you pay shows you are serious about buying the home and this will become part of your down payment. In the contract, be sure to include ‘subject to’ conditions – such as subject to financing, subject to satisfactory home inspection or even something as silly as subject to spouse approval. Including ‘subject to’ conditions means you can place a deposit on a home, say no to a deal and still get your money back. If you do not include ‘subject to’ conditions in the contract and you back out of the contract, you will not get your money back.
2. Down Payment
The down payment for your new home is a certain percentage of the total cost of your home. Within a conventional mortgage, the down payment is 20% of the total cost. For some, a 20% down payment is a lot of money. In these cases, you may be able to qualify for a mortgage with a 5% down payment if you have loan insurance based on the amount you are looking to borrow through the
Canada Mortgage and Housing Corporation (CMHC).
Funds for your down payment will come from your savings or through the Home Buyers’ Plan, a plan allowing you to borrow funds from your RRSP to finance your down payment. This amount needs to be paid back into your RRSP within 15 years. There may also be other sources or programs for your down payment your lender may have you consider.
3. Insurance Premiums
The loan insurance through CMHC covers financial institutions in the event of a default and is included in the total amount of your mortgage payment. According to the CMHC, the premium is calculated as a percentage of the loan and is based on the size of your down payment, which means the more you borrow, the more you pay in insurance premiums.
Effective May 1, 2014, CMHC will be increasing premiums by about 15 per cent. What does this mean for you? Under the current system you would be charged $9,625 on a $350,000 mortgage (based on a 5-year term at 3.49% and a 25-year amortization). Within the new system, this amount would increase to $11,025, which is an increase of about $6.99 per month. You can calculate the new premiums on the CMHC website.
4. Professional Fees
As you buy a new home, you should also anticipate the additional expense of professional fees. These can include: an appraisal (the estimated value of a home) and a home inspection (an inspection to assess the condition of your home).
A home inspection may be a wise decision even in the case of a newer home so you can assess the full situation and condition of the home.
5. Closing Costs
Before you receive the keys to your new home, you will also be required to pay closing costs, which are fees associated with finalizing the contract on closing day. Some of these fees include property insurance (to cover the amount of replacing your home) or title insurance (to cover loss in case there are any defects to the title of the property). You will also be required to pay legal fees and any other associated costs – such as land transfer tax – to your lawyer on this day. If you are purchasing a condominium, you will likely also have to pay an estoppel fee.
6. Other fees
You may also encounter additional costs, such as appliances, renovations and repairs, moving expenses and service connection fees. It’s important to plan a contingency fund to cover any additional costs that arise.
Perhaps you have already gone through the process of buying a home, but now you are either looking to purchase your new home - you are a next-time home buyer – and we can likely just call you a pro. You have already been through the process of finding the house you want to call home, making an offer and making a deposit and down payment. Loan insurance, professional fees and closing costs are also already in your vocabulary. As you make plans to purchase your next home, there are some questions you should ask yourself, such as:
- Should you sell your current home before you buy your new home OR should you buy your new home and then sell your old home? It may seem like a good idea to buy your next home before you sell, but what happens if you are unable to sell your old home? You may be left trying to carry two mortgages, and this is usually not allowed unless you have a construction mortgage. One option may be to put your current house on the market and begin the process of looking for your new home. If you put in an offer for a new house, include conditions in the contract that you will need to sell your current home before closing the contract. The seller may or may not accept your offer.
- In contrast, you may not want to sell your home too quickly and live in an RV for an extended period of time. You may be taking a gamble if sell your home too quickly if you are constructing a new home and it is not ready on time as promised.
- In some cases, you may not qualify to buy your new home until the other one is sold, which is another factor you should consider while planning for the purchase of your new home.
- Should you keep your current home and use it as rental property? If you are able to carry two mortgages and have the time to deal with a rental property or potential repairs, this may work for you. In essence, you will have your tenants paying for this mortgage. That’s pretty sweet.
- If you do decide to sell, how can you make this process go quickly and smoothly?
- Get your house ready for sale by removing the clutter – put away bikes, make sure the leaves are raked and the shrubs are pruned. Within the house, make sure it’s clean, tidy and presented in the best way possible. Have you thought about making chocolate chip cookies just before a showing so the wonderful smell fills your kitchen?
- Decide how to price your home – look at other homes in your area. What are they selling for? Have an appraisal done to determine the value of your home. Your real estate agent should be able to help you determine these things.
- What and how long will it take to get your home ready for sale?
Buying a home can be a fun process, but it is also a lot of work. At Synergy, we want to help make the process easy for you. Come see us today for a pre-approval. We’re here to help make your house hunting trip easy and fun.
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