First Time Home Buyers Guide + Financial Tips
Buying your first home is an exciting time, and joy for many people. However, it can become an overwhelming experience for many individuals who want to purchase their first home. There are many factors to consider and to be aware of in the process of making the right decision. Here is a Simple Guide with tips and step by step process, that will assist you in the process of buying your home.
1. Financing and Qualification
It is important to fully consider your financial qualification before making the decision to buy a home. In today's economy, not many people are eligible to buy a home. They must be fully approved and qualified by many institutions before taking the first step in buying. If you are getting a mortgage, you must have some savings or down payment, and certain financial conditions met. You should also know, what price point or budget that you are comfortable spending on your home every month. Along with mortgage payments, there are also other costs to consider when owning a home, such as Property Taxes and Insurance prices in a specific geographic location, Utility and Hydro Costs, Hidden costs, moving costs, condo fees, repair and maintenance costs, etc.
The Pre-approval process lets potential mortgage lenders look at your finances, to find out the maximum amount they may lend to you, and at what interest rate. This can also be an advantage when buying your home, in a competitive market, where everyone is bidding for a specific home. If you are buying all cash, obviously this step will not have to be considered so much.
Credit Scores and Report
It is evident that most Canadians who are making a decision to buy a home, are already aware of their credit report and scores. Before shopping for a mortgage, knowing how well your score/report is, and the amount of outstanding loans, that you have is a wise decision. The risks of not having a good or excellent rated report may result in; Refusal of Mortgage Approval, Low Mortgage amount, High Interest Rates, a Co-signer may be Required, or you may have to pay a larger sum of a downpayment.
Where to Get a mortgage?
There are several sources for mortgages, such as Lenders, brokers, or private institutions. Mortgage lenders may include, Banks, Mortgage Companies, Insurance Companies, Trust Companies, Loan Companies, Credit Units, Caisses Populaires, etc. Mortgage Brokers on the other hand, arrange transactions by finding a lender for you, by having access to several lenders and a wide range of mortgage products.
A potential Lender will look at your credit report, income, assets, proof of down payment and closing costs, liabilities, financial obligations, before approving you for a mortgage. Debts and Financial Obligation may include, Credit Card Balances and Limits, Car loans or Leases, Lines of Credits, child and spousal support amounts, student loans, etc.
To Qualify, you will have to prove to lenders that you are able to afford the amount you are asking to borrow. Lenders and Brokers will use your financial information to calculate monthly housing costs and total debt load to determine what you are able afford. Some banks may require you to prove that you can afford payments at a qualifying interest rate which is typically higher than the actual rate in your contract. It is recommend to buy a home in a lower or affordable price range, save for a larger down payment, or reduce your debts, to be on the safer side.
Questions to Ask when Shopping for a Mortgage:
Comparing the packages offered by each lender will assist you in choosing the right mortgage product. It is recommended to ask your mortgage brokers or financial institutions about: The interest Rate, Term, Amortization Period, Fees, Payment Options, Prepayment options, Interest saved, penalties if you sell before end of term, transferring mortgage amounts, etc. These points will help you consider the better package, along side the recommendations of the lender.
Government Assistance for First Time Buyers
Home Buyers Plan (HBP)
The Home Buyers' Plan (HBP) is a program that allows you to withdraw up to $25,000 in a calendar year from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability.
Qualifying for the HBP – You must not have lived in a home owned by you or your spouse in the last 5 years. You must have entered into a written agreement to buy or build a home that you intend to occupy as your principal residence.
Repaying your RRSP – You have up to 15 years to repay the amount you borrowed from your RRSP. You must start to make repayments in the second year after the year in which you made your withdrawal(s). In general, you have to repay 1/15 of the total amount you withdrew each year. After 15 years, any amount you have not paid back to your RRSP will be taxed. You will owe this tax when you file your income tax return in the following year.
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Land Transfer Tax (LTT) Refund
You may receive a refund from the Ontario government of up to $4,000 of the land transfer tax you paid on your first home. Other provinces have similar programs. Here’s how it works:
You must be at least 18 years old.
You cannot have previously owned a home, or an interest in a home, anywhere in the world.
Your spouse cannot have owned a home, or an interest in a home anywhere while they were your spouse.
You may receive the refund at the time you register your home purchase. If not, you must apply for it no later than 18 months after the registration date.
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First-time Home Buyers’ Tax Credit (HBTC)
You or your spouse can claim this tax credit on your annual income taxreturn. The credit is based on an amount of $5,000. To calculate, multiply the lowest personal income tax rate for the year (15% in 2011 and 2012) by $5,000. For these years, the maximum credit is $750. Here’s how it works:
You or your spouse must have acquired a qualifying home acquired after January 27, 2009. You cannot have lived in another home owned by you or your spouse in the year you buy your first home – or in any of the 4 preceding years.
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Closing costs are mistakenly overlooked by many buyers in the market. Inexperienced buyers run into problems at closing if they have forgotten to consider closing costs in their budget or financial obligations when purchasing their home.
Here is a list of some closing costs that you must consider, before placing an offer on any home. Make sure, you are aware of these costs and have the savings for them.
A Deposit must be paid (minimum 5%), usually within 24 hours after acceptance of Agreement of Purchase and Sale (Your Offer)
Property Aprraisal Costs. (sometimes it is done by lending company)
Home Inspection costs. (Paid to Home Inspector or Company)
Legal Fees or Title Search/Insurance Fees to Lawyer
Balance of Purchase Price (after paying initial deposit, usually covered by lender)
A Property Survery Costs, if required
Mortgage Broker commission (if required)
Ontario Land Transfer Tax or Toronto Land Transfer Tax and Provincial Sales Tax
Property Tax Adjustment
HST (mostly added into agreement with New Constructon Homes or Condos)
Tarion Warranty Fees
CMHC Insurance Premium (charged if you have less than 20% down payment)
Utility connection charges
Renovation or redecorating costs, Immediate repair and maintenance costs.
Furniture Costs, appliances, etc.
2. Time for House Hunting
At this point, you are knowledgeable and aware of how your finances are, and also may have been pre-approved for a mortgage. You may also have a team ready, that consists of a Real Estate Agent (brokerage), Lawyer, Mortgage Broker, Property Inspector, Designer, Renovator, etc. It is your chance to find the home you want.
Finding the right home for you
There are many factors to consider, when choosing the right home for you. For instance, the Type of Home and Style, Exposure, Approximate Age, Approximate Square Footage, Property and Land Features/Influences, Building Amenities, Future Value etc. Look below for some factors, home owners consider, before choosing the right home.
Type or Style: Condo Apartment, Condo Townhouse, Bachelor/Studio, Loft, Detached, Town/Row, Semi-Detached, Farm, Multiplex, trailer, vacant land, etc, 2 stories, bungalow, 3 stories, back split, side-split, custom home, etc.
Interior and Exterior Features: Bedrooms, washrooms, Outdoor Space, Appliances, Materials used, Flooring, Countertops, Basement features, paint,
Property Features/ Area Location Influences: Lake Access, Parks, Shopping Malls, Banks, Restaurants, Library, Arts Centre, Beach, Campground, Golf, Island, Fenced Yard, Rec. Community Centre, Clear View, School Boundaries, Bus Routes/ Public Transit, churches/religious centres, Doctors/Dentists, Hospital, GreenBelt/ conservation, wooded area, waterfront access, marina docking, power sources. etc.
Garage Type/ Parking: Parking Spot included, Underground, Visitor Parking, rented Parking, built-in, carport, etc.
Building Amenities (mostly condos have): Exercise Rooms, Gym, Indoor/Outdoor Pool, Party rooms, meeting rooms, Sauna, Recreational rooms, security system, Tennis court, visitor parking, Rooftop Deck/Garden Parking Spaces, , Property Features and Influences, Building Amenities, Heating and Air Conditioning, Allowance of Pets, etc.
Other Structures: Barn, Garden Shed, Green House, Workshop, farming and agricultural structures, water supply types, boathouse etc.
A Real Estate Agent (Brokerage) will help you narrow down your search for the right home and will assist you with your decision. Since almost every listing is digital now, Agents can now send out customized listings to buyers, based on their criteria. Buyers also may visit many open houses, held by listing agents. HomeLife Miracle Realty is a Platinum Developer Approved Brokerage, who has access to the newest Developments in Ontario. Therefore, you may also choose to book a brand new home, pre-construction.
Choosing the right home can be a very emotional decision. Sometimes having the right feelings, when stepping inside the home, is enough for you to make a decision. It does not necessarily have to be a complete rational analysis, of what you want, in your home.
3. Making an Offer & Closing the Deal
submitting an offer
The Offer Process is when you have chosen the home you want or need. The Agreement of Purchase and Sale is an important document that a Realtor will assist you in filling out. This will include Price you want to Pay, ideal closing date (possession date), inclusions you want, lawyer info, and mortgage conditions.
Once you have submitted your offer, the seller can accept it, reject it or give a counter offer. There are certain conditions that you have to meet for an offer to be firm, such as financing conditions, home inspection, letting a lawyer to review legal details of the property, and an initial deposit. During these back-and-forth negotiations, you may have to compromise on some things, but the realtor will do its best to protect your interests, work hard to get what you need with negotiating. Once the conditions have been met, all you have to do is wait for the closing date to receive your keys, and start packing for your new place.
Closing the Deal
Ownership and the property will be transferred to you, once the legal and financial obligations have been settled. Your lawyer and lender will be involved in the closing process and closing costs.
We hope that this Blog Post has enlightened you on the step by step process of purchasing a Home. We encourage you to seek out and ask our team more questions, and receive assistance.
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