Unlike renting, buying a house is a financial investment that can appreciate substantially over time.
Special to QMI Agency
Thanks to historically low interest rates, now may be a prudent time for first-time homebuyers to get a foot on the property ladder. But do your homework before taking the leap to that first rung.
“Generally speaking, buying a house has historically been a good investment,” says David Stafford, managing director of real estate secured lending of Scotiabank. Here are some tips every first-time homebuyer should know:
- Determine what you can afford: Sure it’s obvious, but the more you can put towards a down payment, the less you’ll need to borrow and the more you’ll save in interest over the years. By law, Canadian banks can only provide mortgage financing if you have a minimum of 20 percent down payment unless the mortgage is insured against default. “You need to contemplate all of the pieces before you figure out what you can really afford,” says Stafford. The true cost of a home is much more than its sticker price – it also includes closing costs like land transfer taz in some provinces and utility connections. Determine monthly expenses, including mortgage payments, maintenance and property taxes. On-line calculators can help you figure out how much you can comfortably afford.
- Apply for a pre-approved mortgage: There are many benefits to getting pre-approved for a mortgage. For starters, you’ll define your price range so you can focus on affordable homes. It will also give you the power to make an immediate offer when you find the home you want, which can be a significant advantage if several buyers are interested in the same property. You’ll need to provide a mortgage professional with information about your employment history, gross annual income, assets and liabilities, and an estimated down payment. Under a pre-approved mortgage, a lender will guarantee financing for a set period of time (typically 90 to 120 days) under no obligation.
- Build your home-buying team: Before signing on the dotted line, make sure you have the right team of experts, which should include a real estate agent who specializes in the area and type of property you are looking at, lender or mortgage broker, lawyer, home inspector, insurance broker, appraiser and land survey if the seller does not have a current survey or certificate of location.
- Select a home right for you: The house that;s right for you will depend on a number of factors, including your current lifestyle and future goals. “If you’re a young, single professional, the kind of property you’re looking at could be quite different than a young couple about to have kids and considering things like schools,” says Stafford.
- Heed the example of second-time homebuyers: Many fire-time homebuyers are wooed by stainless steel appliances, granite counter tops, hardwood floors and open concepts, while second-time homebuyers are more apt to check the furnace, air conditioner, plumbing and roof because they’ve learned structural integrity trumps wells and whistles.”In the mortgage business, first-time homebuyers are generally focused on interest rates and payment schedules,” says Stafford. “Second-time homebuyers want to know about the pre-payment schedules, interest rate penalties and if the mortgage is portable if they choose to move.”
Using RRSPs for a down payment: Under the Home Buyers’ Plan (HBP) first-time buyers can use up to $25,000 in registered retirement savings plan (RRSP) savings ($50,000 for a couple) for a down payment. Generally, you have to repay all your withdrawals to your RRSPs within 15 years. You have to repay an amount to your RRSPs each year until your HBP balance is zero. If you don’t repay the amount due for a year, it must be included in your income for that year. – Source: Canada Revenue Agency
Who you need on your team: The Canada Mortgage and Housing Corporation recommends your home buying team includes the following professionals:
- Real Estate Agent: This professional will help you find a home, provide information about the community, write an offer of purchase and negotiate a purchase.
- Lender or Mortgage Broker: Many different institutions lend money for mortgages. An independent mortgage broker can find the lender with terms and rates that best meet your needs.
- Lawyer: A lawyer ensures the property is clear of liens, charges or clean-up orders, and reviews all contracts and your offer to purchase.
- Home Inspector: A home inspector informs you about the property’s condition, including what repairs need to be done and any past problems.
- Insurance Broker: An insurance broker helps you find property and mortgage life insurance. Lenders also offer mortgage life insurance.
- Appraiser: An appraiser assesses your property’s worth and helps protect you from paying too much.
- Land Surveyor: You may want a land surveyor if the seller doesn’t have a current survey or certificate of location.