Tips for first-time home buyers

Reviewed by Mike Kelly

For many Canadians, purchasing a home represents the realization of a dream. Investing in property is a milestone achievement, but one that brings complications that may be overwhelming to anyone accustomed to renting. Buying a home is exciting but daunting, and the more you know, the better equipped you’ll be to find the perfect property.

So, here’s everything you need to know about buying your first home.


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Finding your first home

Once the idea of purchasing your first home takes hold, the immediate response for many potential owners is to visit as many open houses as possible. At this stage, it’s important to curtail your imagination, and instead ask yourself some difficult questions: Why do you want to buy a home? Do you have enough money? Are there properties available within your budget? If so, what kind? Is purchasing a home now really the right choice for you?

Determining your budget

If this sounds overwhelming, start with this simple question- is buying a home a realistic? Use a mortgage affordability calculator to determine how much you can realistically afford based on your earnings. Homeowners are responsible for significantly more expenses than renters, so don’t forget to factor in expenses such as property tax, monthly condo fees, maintenance costs and home insurance.

Talk to a mortgage provider

The next step is to talk to a mortgage provider. It’s a good idea to get pre-approved before you start visiting homes. That way, you’ll be better equipped to place an offer if you find one you like. It’s important to note, though, that getting pre-approved is not the same as getting pre-qualified. Pre-qualification is usually a quick and simple process. Simply provide your financial institution with your personal finance information (debt, assets, income, etc.) and they’ll give you a rough idea of how much they’d be willing to lend you. (Think of this as pre-pre-approval.) Pre-approval itself is a more rigorous assessment of your potential credit. It’s a significant step towards securing a mortgage as the lender is essentially committing to the loan, providing you meet their requirements.

Get pre-approved for your mortgage

There are several advantages to getting pre-approved for your mortgage. First, you’ll save time by only viewing homes you can realistically afford. Second, once you find a property you like, you won’t need to wait to secure a loan before making an offer. (Most pre-approvals last from 60-120 days, so try to time your viewings accordingly.) Finally, getting pre-approved is free and you’re under no obligation to accept the loan if you can’t find a property you’re interested in.

When researching the type of mortgage to apply for, it’s also important to consider the size of your down payment. Buyers with a down payment of less than 20% of the total value of the property may require mortgage loan insurance. Be sure to take this expense into account when budgeting for the purchase.

Finding properties to view

When researching properties to view, it’s important to maintain realistic expectations. While it’s a good idea to list your ideal property’s location and features, remember that this property may not exist. Or, if it does, it may be out of your budget. It’s easy to waste time or overspend on a home, so try to remain focused and disciplined in the search process. You should seriously consider all homes that meet 75% of your dream home’s criteria and aim to make the finishing touches yourself over a number of years.

Start your search online with one or more online property search tools. Once you’ve found a few you like, provide this list to a real estate agent. If there’s no open house, they’ll be able to arrange a viewing and recommend similar homes within your budget. When selecting a real estate agent, search for a licensed professional with experience in your specific market of choice (detached homes, condos, etc.).

Get a realtor involved

While it is possible to purchase a home without using a real estate agent, it’s not recommended. Not only does the process involve a lot of complicated legalese, but a professional will be able to negotiate the best deal for you. Consider this: a difference of just 1% in the price of a $500,000 home is $5,000.

Once you’ve secured funds, identified a few properties and found a great real estate agent, it’s time to hit the road. Visit as many open houses as you can; just try to restrict yourself to those within your budget.

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Making an offer

Once you’ve found the perfect property, the next step is to make an offer. Here’s how it works:

First, determine your starting offer. Your figure should take into account the local market, the seller’s situation, the condition of the home (and surrounding homes) and, of course, the opinion of your real estate agent. Once you land on a figure, make a strong offer and act quickly. Don’t forget to include a list of conditions. For most people, this includes a home inspection and an appraisal of the home’s value. To learn more about the importance of a home inspection, check out this article. To stand out from the crowd, you might also try including a letter with your offer detailing your personal connection with the home.

Finally, when considering your starting offer, be sure to factor in other expenses associated with owning a property. Experts recommend 1% of the total value of the property for yearly maintenance. You’ll also need to consider property tax, monthly condo fees and closing costs.

As the buyer, you generally won’t interact with the owners directly. Once you decide on your offer, your agent will submit it to the seller. They then have three options: (1) accept your offer; (2) decline your offer, or; (3) respond with a counter-offer. In the case of a counter-offer, you’ll then be presented with the same three options. Negotiations continue until both parties are happy, or until you decide to continue your search elsewhere.

Closing a purchase

Once your offer has been accepted, a number of processes will occur before you take ownership of the property. This is commonly referred to as “closing” the purchase. “Closing costs” represent the expenses associated with these transactions. Typically, these include mortgage application fees, land transfer taxes, appraisals, home inspections, home insurance and property taxes, so remember to take these costs into consideration when outlining the budget for your home.

Your real estate agent will guide you through the process of closing the purchase, but for an idea of what to expect, check out this simple guide.

Finally, a word on commission: Your real estate agent and the agent of the seller typically split a commission fee—usually around 5-6% of the value of the home. Standard practice is for the seller to pay for both commissions, though it’s a good idea to hire a contract lawyer to look over the fine print, as this could be yet another unexpected cost.

5 tips for insuring your first home

Before you take ownership of the property, your mortgage provider will likely want to see proof that the home is insured. This protects their interest in the building in case of damage or loss. Here are 5 tips for insuring your first home:

  1. Be honest during your application

    Buying insurance is not like buying a candy bar. It’s a contract with requirements from both parties. The most important thing to remember when purchasing insurance for your first home is to answer the application questions honestly. This will help to ensure that the policy you purchase will be valid in the event you need to make a claim.

    It’s worth doing some research on your home at this stage so that you’re prepared to answer any questions that may arise during a quote. For example, you may need to know about your home’s construction or the age of key systems, like the roof or furnace. Also, be clear about who’s living at the property and in what capacity. Any tenants occupying rental suites should be disclosed upfront.

  2. Consider if you’d like to make renovations

    Similarly, if you’re thinking about making changes to your home, be sure to let your insurance provider know before you start renovating. For most renovations, Square One will simply update your policy to cover the renovations, and follow up every now and then to check on your progress. There’s typically no need to buy a new policy to ensure your home remains protected. Just be sure to update the value of your home to include the renovations. That way, you won’t be forced to pay for them twice in the event of a total loss.

  3. Check for lender-specific requirements

    Most mortgage providers require confirmation of insurance before they’re willing to release the funds for your purchase. The terms of requirements differ with each lender, so be sure to identify what’s needed before you sign the dotted line.

    For example, your mortgage providers will need to be listed as a “mortgagee” on your policy. This means you can’t simply cancel the coverage without the mortgage provider finding out. Most will also require an appraisal of the home’s value. Some mortgage providers will require a home inspection, or might have specific coverage requirements, such as Guaranteed Building Replacement coverage. This coverage guarantees that your home will be rebuilt in the event of a total loss, even if the cost to do so exceeds the limit of your coverage.

  4. Pay attention to your home’s systems

    Your home inspector should identify the type, age and condition of your home’s systems. If your home contains older or less reliable systems such knob + tube wiring or Kitec plumbing, you may want to consider upgrading to a more modern alternative. Not only will this provide some leverage for you to re-negotiate the purchase price, but upgrading to copper wire and pipes (considered the gold-standard) could help safeguard your home. Many providers, including Square One, offer a reduction in your home insurance premium if you’re willing to upgrade your home’s systems. However, not all providers do—if this is part of your decision-making process, check with your provider to be sure.

  5. Qualify for discounts to your premium

    Homeowners with a history of continuous, claims-free coverage will often qualify for discounts on their premium—even if they’ve only previously held a policy for tenant insurance. Your insurance provider wants to see that you’re responsible and proactive about managing the risks associated with your home. And, because tenant insurance policies are typically cheaper than homeowner’s policies, the discount that’s applied to your future homeowner’s insurance premium may help to offset the cost of your tenant insurance today.

    For more information on buying a home, visit our detailed guide for homeowner’s buying home insurance.

Commonly asked questions

What is a first-time home buyers program?

Many consider mortgages to be the backbone of an economy, but the global financial crisis resulted in a sharp decline in the number of first-time mortgage applications. To counter this, governments and mortgage providers introduced a number of schemes to encourage the next generation of homeowners. For more information on first-time home buyers programs, click here.

How much down payment is required for first-time home buyers?

This depends on your specific situation. While some mortgage providers will require as little as 5% down, 20% is considered average and the size of your down payment should be considered in conjunction with the length of your loan. Lower down payments can significantly increase the cost of borrowing over time, so consider consulting with a mortgage advisor to explore your options. Many mortgage experts recommend a 15-year fixed rate loan with repayments that are no more than 25% of your post-tax income.

What are the benefits of buying vs. renting?

In most markets, renting a home is cheaper than owning. This allows renters to direct spare funds that may otherwise have been spent on a down payment into other investments in the hopes of seeing better returns. On the other hand, owning a property provides greater security and freedom to personalize your home, and is generally considered a safe investment.

How can I secure a larger mortgage?

The simplest (albeit hardest) way to increase the amount of money a mortgage provider will lend you is to earn more money. If this isn’t realistic, save up as much as you can for a down payment. This will ensure you get the best interest rate possible, saving you money in the long run. Or, try improving your credit score by using your credit card for everyday purchases and paying off your debt on time each month using automatic payments.

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