Buying a new home can be an exciting time. After all, you can finally move into a place you can call your own — whether you’re leaving that long-term rental property, an apartment, or your family’s home.
Although there are plenty of potential pitfalls for first-time homebuyers, you can avoid many of the issues with a little planning and practical guidance. This step-by-step guide will put you on the right path.
Step 1: Set a budget
Knowing how much you can afford is essential before you even start looking at homes. Start by doing some research on your own and try online mortgage calculators (most financial institutions have one available on their public websites) to get an idea about a monthly, bi-weekly or weekly mortgage amount that fits in with your budget — and that you’re comfortable with.
Connect with your financial advisor who can help you further define the right budget. By starting with the budget and involving your advisor early, you’ll have a leg up in the buying process. There are a lot of things you can DIY in life, but buying a home shouldn’t be one of them.
Step 2: Get your pre-approved financials in order
Next, your financial advisor can provide you with a mortgage pre-approval. Being pre-approved for an affordable price range is very important — and you don’t want to look for a home without first completing this step.
Make sure you have enough saved for a down payment along with your closing costs, which your advisor can help you estimate. (For savings tips, click here.) For example, to buy a house with a value under $500,000, the minimum you can put down is 5% of the purchase price — and closing costs can be anywhere from 2% to 2.5% of the purchase price.
Step 3: Find a realtor
Too often, homebuyers will start at this step — but don’t rush ahead. Do your homework to select the right real estate agent. You can start by learning more about the benefits of MLS® Systems at realtor.ca — and if you need a hand finding trusted professionals, your financial advisor can make recommendations.
It’s possible that an agent may ask you to sign an agreement to work with them exclusively, so don’t be afraid to interview several before you commit. Work with someone who knows your desired area to live, and ask them questions about their experience, service offerings and their approach to working with buyers. Make sure you’ll enjoy the buying process with the agent — after all, finding a new home should also be fun!
Step 4: Match your present and future lifestyle with your home
It pays to think about your future wants as well as your current needs. If you’re considering starting or growing a family, how many bedrooms will you need? Do you have elderly parents who may move in at some point? Does the home have enough bathrooms and outdoor space?
Also look at the surrounding area. Is it close to schools and transit? Are other facilities close by, such as hospitals, stores, restaurants, entertainment and recreational activities? Discuss these items with your real estate agent so they have the right criteria when helping you on the search.
Step 5: Get a home inspection
When you’ve found a home that ticks all of the boxes, your next move is to consider doing a home inspection. (That’s a very good idea.) You can do that inspection now, but many buyers put in an offer that is conditional upon the property passing a home inspection — which saves you having to complete this step until the offer is accepted.
Either way, a home inspection will tell you if the property has any hidden issues that could cost thousands of dollars. It can prevent you from buying a lemon or be the basis for renegotiating the purchase price. Inspectors typically review hundreds of items including electrical systems, HVAC, plumbing and the internal/external structure. They will also look at any outside space, the attic and the basement.
When looking for a home inspector, first ask your financial advisor who can put you in touch with trusted professionals. Likewise, your friends or realtor may recommend someone they’ve used in the past who has done a great job. Either way, make sure to review their references and how long they’ve been in business.
Don’t forget to add this step to your budget, as inspections typically cost between $400 to $700.
Step 6: Make an offer
When it’s time to buy, your realtor will prepare your Offer to Purchase. This includes your offer price and any conditions, such as the offer being subject to you securing financing or the property passing a home inspection. The offer also includes details of inclusions/exclusions (what you get with the house such as appliances, curtains, etc.) as well as the proposed possession date.
You’ll also need to include a deposit in your offer to the seller, which is held by the seller’s real estate agent or lawyer until the sale is final. This deposit is a way of showing that you genuinely intend to purchase the property. The size of the deposit may also strengthen your offer, especially if you’re up against competition. But don’t worry if the offer isn’t accepted or the deal falls through, as you will get your full deposit back in that situation.
Step 7: Negotiate
Once the seller receives your offer, they may accept it, reject it or provide a counteroffer — at which point your realtor will negotiate until completion or cancellation. Offers could go back and forth a bit, so be prepared to review the full offer details with your agent and determine in advance how much you would be willing to budge on budget and other aspects of the property.
After your offer is accepted, you’ll need to notify your real estate lawyer since they will be the one finalizing the purchase of the home transaction. Once again, if you do not have a real estate lawyer, your real estate agent or financial advisor can recommend one.
Step 8: Factor in closing costs and other expenses
Aside from the minimum down payment of at least 5% of the selling price of the property, there are a number of other costs you should plan to pay.
In Canada, if the down payment is below 20% of the purchase price, you are required to pay a mortgage loan insurance premium either through CMHC or Genworth. The smaller the down payment, the larger the premium.
(Calculated as $300,000 purchase price – $15,000 down payment x 4% CMHC/Genworth Premium = $11,400). This amount is typically added to your mortgage. Also remember that in Manitoba you are required to pay PST on the loan insurance premium.
Part of your savings should also be allocated for closing costs. Closing costs include charges such as land transfer tax, a survey certificate, a zoning memorandum, title insurance and so on. The industry’s rule of thumb is that 2% to 2.5% of the purchase price should be set aside to cover these costs. The land transfer tax is the biggest of these costs, which is calculated based on the value of the home. For a $300,000 home in Manitoba, that would be approximately $3,650.
In addition, another part of closing cost is legal fees, meaning you will have to pay your lawyer for their services — usually around $1,000 to $1,500. Once again, it’s important to find a lawyer experienced in real estate who has a good track record, and your financial advisor can point you in the right direction. Don’t skimp on these types of expenses as the lawyer will check property titles, verify zoning and review many other aspects of the sale.
Step 9: Budget for the first year and beyond
Once the sale is complete, take into account the ongoing costs such as property taxes, home insurance, utilities and other home services. As a good rule of thumb, factor these expenses into your
first-year budget now to get a better sense of the money you need to save even before you put in your offer.
Step 10: Celebrate!
Don’t forget to celebrate your new purchase. Buying your first home is a great milestone achievement, and you’ve worked hard to find a place to call your own. It will most likely be one of your largest and most important purchases in your lifetime!
Yes, there are multiple steps and costs that go into making it happen, but when you take that first step in the front door, you’ll know it was all worth it.
Navigating the finances of first-time home buying can be tricky. Your ACU financial advisor can help you to work out how much you can afford to borrow and ensure your home buying adventure is smooth sailing. Call or email us today to set up an appointment.