10 tips for first-time home buyers

Here are ten tips from home buying professionals, as well as consumers, that will get you started on the path to home ownership.

1. Decide what type of home fits your lifestyle
According to Re/Max Realtor Amit Paul, it’s important for first-time buyers to take some time to think about what factors are most important to them.

“Make a list of what you ‘want’, ‘need’, and ‘don’t want’ in a home,” he says. “Rate your desired home attributes on a scale of 1 to 10 (10 being an absolute ‘must have’ and 1 being a ‘nice to have, but not a necessity’). This checklist will allow you to objectively assess different homes according to your needs and will save you invaluable time when you go out to see various building developments.”

2. Pick your neighbourhood
Paul also recommends checking out the neighbourhood and making yourself a ‘home value expert’.

“Investigate the areas and price ranges for the type of home you’re looking for. If you find yourself becoming interested in a particular neighbourhood, familiarize yourself with the local amenities, schools, property taxes, crime rates, and other neighhourhood features.

“Talk with different people in the area and visit at different times during the day. The characteristics of the area may change dramatically during different hours of the day.”

3. Use the resources available to you

“I tried to be as informed as possible,” says Donna Goddard, who recently bought her first home. “I went on the CMHC website and had them forward a bunch of information to me. One of their booklets basically takes you through from beginning to end and was a tremendous reference guide in terms of determining what stage I was at in the whole process, what would be coming up next, and what questions I should ask to make informed decisions.”

4. Know your credit history
Once you’ve decided on the type of home you want, it’s time to find out what you can afford. Knowing your credit history is an important first step.

“First-time buyers should access their personal credit bureau’s score, including their Fico(Beacon) score and then, with record in hand, ask a mortgage broker or bank representative to explain the many options open for a mortgage given their specific credit worthiness,” says Anthony Harte, a senior mortgage professional with Mortgage Alliance of Canada.

“Credit is very important,” agrees Jeff Hui, a mortgage consultant with Mercury Mortgages, “as the lenders use this to assess your loan repayment ability.”

Hui suggests running a credit check on yourself and verifying that the information is correct. Contact any creditors who haven’t updated your record in terms of cancelled cards or balances that have been paid off. Paying off high interest credit cards as soon as possible will help make it easier for mortgage approval.

5. Know how much you can afford
Buying a house essentially comes down to two key questions – how much down payment can you afford and what type of mortgage payments can you comfortably carry?

“The general rule for calculating how much of your household income should go to household expenses, including mortgage payments, is that household expenses shouldn’t exceed 32% of your gross income,” says Harte. “First-time buyers should talk to a mortgage professional about how much home they can afford and get pre-approved before they start looking.”

6. Be a pre-approved buyer
Becoming pre-approved is easy. Contact your mortgage professional to arrange a mortgage consultation and they’ll work with you to complete your mortgage application with a credit check prior to beginning your search for a home. Pre-approval means that you’ve actually been approved for the purchase by a lender, which gives you the edge in home purchase negotiating. The pre-approval guarantees you – up to a period of 120 days – that if the rate increases during that time, you’ll still get the original rate.

“A pre-approved mortgage puts incredible power in your hands,” says Hui. “You’ll know how much home you can afford and how much your payments will be, so you won’t waste time looking at homes that are out of your reach.”

Armed with this information, Goddard headed to her computer. “I went to the Multiple Listing Service (MLS) to see what was available in each of the desired areas in regards to pricing, size of property, land tax, etc. I spent many nights on the MLS so by the time I made contact with the real estate agent I was referred to, I managed to reduce the amount of time spent wandering in and out of homes that didn't really suit me.”

7. Assemble your team
So now you’ve decided where you want to live, determined how much you can afford, and been pre-approved for a mortgage. Since buying a home is a time-consuming, expensive and legally complex process, now is the time to seek out knowledgeable professionals.

The first person you’ll want on your team is a qualified mortgage broker who will guide you throughout the home buying process. Their job is to answer all of your mortgage questions, advise you of market and interest rate trends, research competitive information, create the right financial package to suit your needs, and prepare and approve your mortgage application.

A knowledgeable real estate agent should be your next pick.

“When you’re buying a home, the services of your real estate agent are priceless – and they’re yours at no charge, because a seller pays your agent’s commission,” says Paul. “Your real estate agent will research available properties that suit your needs and budget, arrange visits to properties you want to view, negotiate on your behalf with the seller and/or seller’s agent, present your offer and counter-offers, and advise you on your legal and financial responsibilities.”

You’ll need to hire a lawyer before you sign any documents relating to your home purchase. These documents are typically legally binding and you’re never required to sign them ‘as is’. So it’s in your best interest to have a legal professional review them first (your real estate agent can insert a clause into the contract making it contingent on obtaining the services of a real estate lawyer). The role of your lawyer is to represent your interests, explain any warranty provided on your home (if new), limit any risks to you by ensuring contracts are clearly and understandably written, review the certificate of location (property survey) to ensure no encroachments or easements exist, and research any restrictions on the property title. They’ll also arrange the property title transfer, manage and account for all disbursements, and arrange for title insurance, which protects you against challenges to the ownership of your home or from problems related to the title to your home  

8. Take the time for a home inspection

If you make an offer based on the completion of a home inspection, you then need to arrange an inspection of the property. A good home inspector will perform a comprehensive visual inspection, examine the home’s foundation and roof, examine all the main mechanisms and systems in a house (such as heating, plumbing, electrical, ventilation, etc), and check the condition of the windows and doors. They should also identify areas that need replacement or repair, areas that have been repaired in the past, estimate the remaining life span of specific components in the home, and provide a written report of the inspection’s findings.

9. Uncover hidden costs

On top of the cost of your home, there are several other fees, charges, taxes and other sums to complete the purchase. These ‘closing costs’ add up and there’s no getting around them so make sure you get an itemized list (see sidebar) of your closing costs well in advance of your closing date. These can include deposit on the purchase price (at time of Agreement of Purchase & Sale), land transfer tax, appraisal fees, legal fees, and land survey or title insurance. Don’t forget to consider general expenses such as moving, upgrades, and home decorating costs as well.

10. Keep your cool
The home buying process is full of challenges and the best way to deal with them is to be prepared.

One thing that is happening quite often in today’s seller’s market is the ‘bidding war’. According to agent Amit Paul, if a bidding war happens, buyers must put in their best offer possible.

“They should predetermine what their bottom-line price is and write it down, so if they’re tempted to go over at least they're not doing it blindly.”

For first-time home buyer Donna Goddard, the biggest shock came when the perfect home turned out to be the exact opposite of what she had set out to find.

“When I did find my home it was almost the opposite of what I thought I wanted, but it was love at first sight. This house wasn't even in the area that I had chosen; I had just come across it on the MLS and then later that day, my agent sent me the same listing, saying ‘I know this isn’t in your choice area, but…’ Well to cut a long story short, I saw it, I liked it, and I put in an offer immediately.”

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