Buying Your First
New Home

Buying your first new home can feel like an overwhelming task when you first begin to look. But with a few simple tips, what felt like too much at first can become an exciting and liberating time in your life.

Begin by making a list of everything that is important to you in a new home, whether it will be a new house, new townhouse, new condominium or even studio; from amenities and recreation to lot size and proximity of neighbours. By having a written list of what you want, it will be easier to stay on track and not be distracted by other features which may be nice, but aren’t integral to your happiness. Be sure to include interior requirements as well as exterior. Think about parking spaces, bedrooms and bathrooms, as well as how much living space you need to be comfortable in your daily life. Update and modify your list as you see various homes to keep your needs and wants clear in your mind, and always remember to be flexible.

Getting as much information as possible is one key to making the home-buying process go smoothly. Talking to a real estate agent about the buying process can clear up many questions and concerns you may have before you begin the looking process. Doing this does not obligate you to allow the agent to represent you, this meeting is purely for information purposes. Important questions to ask include home inspection standards and costs for the area, who is responsible for completing a title search and the fees associated with this process, the average costs for closing fees other than loan cost and also, find out who acts as a settlement agent. By attending open houses, you will give yourself a chance to see the actual condition of the house before being asked to make any sort of offer. Seeing the neighbourhood and community first hand will give you a feel for the place; try to picture yourself living there and pay close attention to the amenities available. Also, keep an eye on what similar homes in comparable communities are selling for. There can be significant inflation in the prices of homes and being aware of this may help you to get the home you want for a price you can afford. Getting an appraisal is another way of assessing the actual value of the property, just be sure that the results won’t be shared with anyone else and also, be conscious of the fact that different appraisers’ opinions can often vary. Also, be sure to look into zoning bylaws that may affect you in terms of home offices or businesses, find out the potential value increases for your property and see how the municipal taxes compare to other areas.

When you understand the housing and mortgage market, you will have an easier time understanding the best times and locations to buy in. If it’s a Buyer’s Market, there will be more homes available than the demand requires. Prices will be lower as homes will be on the market longer, this is a good time to negotiate and will also give you more time to make a decision. When it’s a Seller’s Market, there are too few homes on the market to satisfy the demand, making prices higher and creating greater competition for buyers. Quick decisions may be necessary and offers with conditions may be turned down. A Balanced Market means that there are as many homes as buyers. The prices are generally stable and sellers will normally accept reasonable offers. This type of market creates a more relaxed market and there will be a reasonable number of homes to choose from. To discover the current market conditions, consult your home buying team.

Another important decision to think about is whether you are looking to buy a new home or resale. A resale home will most likely be in a neighbourhood that is already established, there will be no GST (unless major renovations have been done), and landscaping and upgrades may have been done such as fenced in yards, pools, or finished basements. Also, keep in mind that maintenance costs of an older home will be higher than a new one, you may need to redecorate or renovate, and a building inspection may be necessary to ensure the safety of your potential home. Be sure to look at the condition of other houses in the area and ask about things such as electrical work or roofing that has been done recently. Check for energy efficiency namely the type of heating and insulation, and also, turn on taps and flush toilets to test the water pressure. Uneven floors or doors and windows that stick can be a sign of structural problems and may be something to check into before making a decision.

If you are buying a new home, you may have a say in the internal and external features in the home, your house will be up to all of the latest building safety standards and codes, and builder warranty may apply. If the neighbourhood is new, there may be traffic and construction noise, amenities may not be finished and in place, and landscaping work may not be completed. Also, make sure you ask for you Homeowner’s Manual which will provide tips and instructions for the upkeep of your home as well as warranty information and a maintenance calendar.

Accurately calculating your costs will help you to stay on budget and  also let you know if you have money left over for renovations or repairs. To find the approximate amount you can afford to set aside for a monthly payment, determine your gross annual household income and multiply by 32%. This amount will be what you can reasonably apply to your mortgage payment, taxes, and mortgage life insurance. The approximate purchase price you can afford is around three times your gross annual household income. This figure is general and does not count your down payment, assets or personal net worth. The amount of your down payment will determine the type of mortgage you have. A conventional mortgage means that your down payment is greater or equal to 25% of the purchase price, while a high-ratio mortgage applies when your down payment is less than 25% of the purchase price. A high-ratio mortgage must be insured by CMHC or Genworth Financial Canada and will have an insurance premium. Mortgage insurance protects the lender and is required by most lenders in high-ratio mortgage conditions. The average premium is 1.25% - 3.75% of the total mortgage amount can  be added to the principal balance and paid off as part of your mortgage, or can be paid off in a lump sum at the time of your purchase. It is also important to note that any part of the down payment that is from your own resources must be in your bank account for a minimum of 90 days prior to use.

Part of calculating your costs accurately is preparing for possible extra one-time costs such as an appraisal fee or requesting a home inspection, or ongoing monthly costs such as condominium maintenance fees and property insurance. Other possible costs include a property survey to indicate the boundaries and measurements of the land, positions of major structures, as well as any other visible elements, Home/Fire Insurance Protection for your home and contents, and the possibility of land-transfer tax. Property taxes, legal fees, sales tax, and moving costs are also important to include in your budget so you have an accurate representation of what you can reasonable afford.

Family, friends and colleagues can be excellent resources when it comes to picking your home buying team. You will need the combination of a real estate agent to assist you in finding your perfect home, a mortgage specialist or broker to arrange your financing and ensure that it meets your financial goals, and a home inspector to examine every detail of your potential home and ensure that it meets all safety requirements as well as give you an accurate idea of the condition of the home and it’s systems. Also included in your home buying team will be a lawyer to protect your legal interests throughout the purchase of your home, and an insurance broker as home and fire insurance is required to obtain mortgage financing as well as the possibility of mortgage life insurance.

Once you are ready to make an offer on your desired new home, it is important to decide how high or low of an offer you are prepared to make. While making a higher offer may speed up the home buying process, you may never find the seller’s low point, but if you really want the place and the competition is fierce, making an offer near the asking price may be the best choice. Too low of an offer may offend the seller and make them not want to deal with you. If low is all you can offer, or if you believe the property is truly over-priced, offer what you think is reasonable and you may be pleasantly surprised. Your offer agreement commits you to the conditions of the sale so be sure that your interests are protected by having a lawyer look over the agreement before you sign. Included in this document should be your proposed purchase price, the amount of your deposit and other financial details, a list of chattels (items in the house to be included in the price such as appliances, window coverings etc.), the closing date and time period that your offer is valid for, and any conditions included in your offer such as arranging for financing, or a building inspection. Remember that your offer can always be cancelled if any of your conditions are not met and always be sure to include a time limit on the conditions. A deposit is required at the time of your offer and is usually no more than 10% of the purchase price. This deposit will be returned if the offer is unaccepted, but if you cancel an accepted offer, you may lose your deposit.

There are many different types of mortgages and payment structures. Be sure to contact your mortgage specialist or broker for a detailed description of the options available to you so you may find the mortgage to best suit your needs and financial situation. During the closing is when all of your legal and financial obligations outlined in your Offer to Purchase will be realized. A copy of the Offer to Purchase will be sent to your lawyer and you will advise your lawyer of how the property should be titled. A search of the current title will also be done by your lawyer to ensure that the seller is indeed the owner and the lawyer will also make sure that all property taxes on the house are up to date. A land survey must be done, and all conditions outlined in your offer must be met before the close can take place. Mortgage details will be finalized and you will need to arrange to make the final payments of utilities and outstanding bills at your old home. A certified cheque should be made out to your lawyer in the total amount of the closing, including legal fees, closing costs and disbursements once the Statement of Adjustment detailing the selling price, the amount you have to pay to the vendor, and the balance of your down payment and adjustments has been submitted by your lawyer.

Remember to always remain calm and no matter how well you plan and prepare, unseen obstacles can always pop up when they are least expected. Buying your first home is an exciting time, so roll with the punches and enjoy the experience.

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