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Your first home - Are you ready to take the leap?



I remember when I bought my first home. My husband and I had only been living in an apartment for about a year or so, but we decided we were ready to take the leap into homeownership – we noticed renting was starting to make us feel a bit stagnant. We loved the idea of owning our own space and decided to start the hunt. After a few months we eventually found “the one” and were excited to start our journey as home owners.

Big memories were made in our first home - many great parties, my husband proposing to me in our living room, and it being the place we brought our first child home to. And this is the reason I became a realtor. Because a house is so much more than four walls. It’s the place where you learn and celebrate life’s big moments. I want to help people find that place. New home. New adventure.

As I look back to the process of buying our first home I remember it being both exciting and overwhelming. So many new things, and so many questions. Now as a realtor, I want to help make your home hunt as stress free as possible.

Below are the five main steps to buying your first home. Let’s get you some keys!

1. Is home ownership right for you?

The first step to buying your first home is determining if home ownership is right for you. Buying a home is one of the biggest decisions you will make in your life. You’ll need to ask yourself if you are financially ready and prepared for the ongoing costs and responsibilities that come with owning a home. Costs with purchasing a home include:

  • Upfront costs (down payment, closing costs {lawyer fees, land transfer tax, etc.}, moving costs)

  • Ongoing costs (mortgage payments, property taxes, insurance, utility bills, routine repairs)

  • Major repairs (roof, windows, furnace)

Home ownership definitely has both pros and cons. Owning a home allows you to build equity, make changes to the home as you wish (which you can’t necessarily do when you rent) and can give you peace of mind as you control where you live. But as Peter Parker’s grandfather said “with great power, comes great responsibility” and the same goes for owning a home. Home ownership can be costly when it comes to major repairs, and additional costs that you wouldn’t incur if you rented – property taxes, home insurance, etc. It can also be time-consuming when it comes to maintaining the home – cutting the lawn, gardening, cleaning the gutters, and all those fun tasks that come with being your own landlord. You just need to determine if the pros outweigh the cons.


2. Are you financially ready to own a home?

So you’ve decided that owning a home is right for you, and now you need to determine if you are financially ready. In order to do that, you first need to understand where you currently stand financially.

To help you determine where you stand, you’ll need to calculate your gross total monthly income and your monthly expenses.

Monthly expenses can include:

  • Household (Groceries, clothing, house maintenance, child care, phone, cable/internet)

  • Entertainment (Movies, dining out, hobbies)

  • Loans/Debts (Personal loans, credit cards, car loans, line of credit, student loans)

  • Savings (RRSP, TFSA, savings, charitable gifts)

NOTE: Not sure of the amount? Include more than you think. Don’t forget to include your daily coffee trips, subscriptions to Spotify, Netflix, or even FabFitFun. You’ll want to make sure you get a full picture of your expenses.


AFFORDABILITY RULES

When determining how much you can afford, your lender will require you to pass two affordability rules.


First Rule:Your monthly housing costs should be no more than 32% of your gross monthly income. Housing costs include: monthly mortgage payment, property taxes, heating expenses and 50% of condo fees (if applicable).


Second rule:Your monthly debt load should be no more than 40% of your gross monthly income. This includes your housing costs (as mentioned above) plus loans (car, personal, etc), unsecured lines of credit and credit card payments.


These rules will help you determine where you stand, and what you can truly afford. You can calculate these numbers using the worksheet link provided below.


SAVE YOUR PENNIES


Starting filling that piggy bank. Buying a home comes with upfront costs, and you’ll need to put money aside to cover those costs. Costs can include: down payment, home inspection, appraisal, insurance costs, legal fees, moving costs, and more.


HOW DOES YOUR BUDGET LOOK AS A HOME OWNER?

You’ve calculated your monthly costs, and tested the affordability rules, where do you stand? Do you feel comfortable with the numbers? If not, you may need to make some changes to your financial situation.

If you think you’ll have trouble meeting the requirements or don’t feel comfortable with the numbers:

  • Meet with a credit counselor to improve your financial standing

  • Look at your current budget and see where you can save money (drop that daily coffee at Starbucks, or plan for a movie night in, instead of going out)

  • Pay off some of your loans and debts

  • Save for a few more years to increase the size of your down payment

  • Lower your price range

3. Get pre-approved

Meeting with a lender (bank, mortgage broker, etc) and getting pre-approved will help you determine how much you can afford, what your interest rate will be and the amount of your monthly payments. Knowing this information will help narrow your home search and put you on the right track.

Just remember, pre-approval is not a guarantee or final approval. Once you find a home, the property still has to be evaluated to ensure the price and home are acceptable to your lender.

4. Finding the right home

Choosing your first home can be overwhelming. So many decisions about what you want in a home, but remember to keep five things in mind:

  • Location– Where do you want to live? City or country? Downtown or suburbs? Close to work, school, shopping, rec centres and more? Note: The location is one thing you can’t change about the home you buy, so ensure this carefully considered

  • Size – How many bedrooms and bathrooms do you need? Do you need space for an office, or finished basement? Do you need a garage?

  • Special features– Do you want a pool, or air conditioning?

  • Lifestyle– Do you want to live the city life, or do you plan to settle down in the suburbs?

  • Type of home– New build, previously owned, or build your own – Each type has different features, and you’ll have to determine which one works best for you

Make a list of your “must haves” and your “nice to haves”. You may find that this will change as you work your way through your home search. After visiting a variety of homes, you may learn that some things are more important to you, and that there are other things you can live without. And your first home doesn’t have to be your dream home. You’ll have plenty of time to build up to that.


THE HUNT IS ON!

Once you know what type of home you are looking for it’s time to start your search.

A realtor can help you with your hunt. They have the knowledge and experience to help you navigate the process of buying a home, provide guidance on price, and complete the necessary paperwork for the sale.

You may also want to include the following people on your home buying team: insurance broker, home inspector, appraiser, contractor, lender and lawyer. Your realtor can guide you on which of these people you’ll need to be successful in your buying process.

5. Making an offer and closing the deal

You’ve found a home you love, a mortgage that works for you and put together your home buying team. Now it’s time to make an offer and close the deal.

MAKE AN OFFER

Once you’ve found the home you want, you need to give the seller an offer to purchase. This will be prepared by your real estate agent and will include things such as the purchase price, the amount of your deposit, the closing date (the date you want to take possession), any extra items you want included (appliances, window coverings, etc) and conditions like inspection and financing.

Your real estate agent can discuss all the terms of the offer with you to ensure you fully understand them. Once the offer is created, your realtor will present it to the seller(s) and their realtor. The seller then has three options: accept, counter (reject the offer and provide a counteroffer with changes to the original offer) or reject.

Once your offer is accepted, your real estate agent will provide you with the necessary paperwork and send everything over to your lawyer. At this time you’ll provide a deposit, and have the opportunity to complete any conditions you placed in your offer (home inspection, confirming financing, etc). If all the conditions are met, the sale will move forward. If not all conditions are not met, you and your realtor will work with the seller and their realtor to see if changes can be made to rectify the issue.


When your offer is accepted, you might panic a little. It’s a big step, and it’s normal to question if you’ve made the right choice, but trust me, home ownership is a wonderful thing.

CLOSING DAY! GOODBYE RENTING, HELLO MORTGAGE!

Your offer has been accepted, all conditions are filled, and closing day is finally here! You’ll sign the final papers, your lender will provide the funds, and you will provide your down payment along with the closing costs (typically 1.5 to 4% of the purchase price) to cover legal fees, land transfer taxes and costs. Your lawyer then pays the seller, registers the home in your name, and gives you the keys to your new home! Woohoo!

YOU’RE OFFICIALLY A HOME OWNER! NOW WHAT?

You’ve got the keys and you’re officially a home owner. Be sure to take care of your home and protect your investment. Make your mortgage payments on time, live within your budget, save for emergencies and most of all enjoy being a home owner!

New home. New adventure.

Download my full First Time Home Buyers’ Guide and worksheets to help determine your financial readiness here.

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