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First-Time Homebuyer’s Guide

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Are you concerned about making mistakes as a first-time homebuyer? Take a look at our blog and get to know all the essential things you need to know as a first-time homebuyer.

First time home buying

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Have you started shopping for a home? Are you financially prepared because it is going to be a BIG investment for you and your family? Wouldn’t it be better if you already knew about the potential risk? Having a ready checklist sounds great, isn’t it? Do not worry, we have your back. Here’s our home buyer’s guide that walks you through your first home buying experience, listing out its dos and don’ts.  

Is Buying Home First Time an Investment Opportunity? 

All first-time homebuyers need to keep in mind that buying a home is an investment. Investing in the real estate market is a wonderful way to secure significant money growth. It is one of the safest investment options and, if done right, can yield a significant return on investment. You can add real estate to your existing asset class to diversify your investment portfolio. Remember, real estate investments rarely turn into losses. 

Factors to look out for when buying a home for the first time 

A. Saving up for the Minimum down payment 

Before you save to pay for your first home’s down payment, you will need to know how much you need to save for it. Banks express the down payment as a percentage of the overall property cost. 

For example, if the purchase price of a house is $400,000, then the minimum down payment to be done is 5% i.e. $20,000. The percentage of down payment varies depending on the cost of the property. It could be somewhere between 5%-20%. If the purchase price of a house is more than $500,000, consider $600,000, and you can calculate the minimum down payment by adding two amounts – 5% of $500,000 for property cost up to $500,000 and 10% of the remaining $100,000 if the total cost is $600,000. 

B. Mortgage Pre-approval 

Mortgage pre-approval is a process in which the lender looks over your finances to determine the maximum amount they may loan you. It is their work to find out the amount they can safely lend you while keeping the risk low. 

All banks offer mortgage pre-approval for customers with sound financials. Different mortgage lenders have different interest rates and conditions. It is important to be acquainted with the terms and conditions of the loan right from the beginning. You need to apply for pre-approval from the lender that offers the best mortgage rate. 

C. Organize Required Documents

It is important to get all your documents and financial papers organized. File them properly to produce at the lender’s office. The best way to begin is to consult the mortgage broker and then move towards arranging documents as per requirement. Here is a basic list of documents usually required when you are buying property: 

  • Identification proof 
  • Bank account and other investment statements 
  • Evidence of the assets 
  • Proof of income and financial statements 
  • Database of the existing debts 
First-time homebuyer
Source: Pixabay

D. First-Time Home Buyer’s Advantage: 

There are several first-time homebuyer’s programs, introduced by the Government of Canada, to help people in their home buying endeavors. You must conduct thorough research to take advantage of the various programs that apply to your condition.  

Leverage these programs before buying a home:  

  1. Home Buyers’ Amount  
  2. Home Buyers’ Plan (HBP)
  3. First-Time Home Buyer Incentive
  4. Mortgage loan insurance  
  5. Land transfer tax refunds 

1. Home Buyers’ Amount  

The Home Buyers’ Amount provides a non-refundable income tax credit amount of $5,000 to first-time homebuyers. You will get the amount on a qualified home obtained during the year.   

2. Home Buyers’ Plan (HBP) 

To qualify for this plan, you must have not purchased a home within the last four years. Get the benefit of the RRSP Home Buyer’s Plan. You can also borrow up to $35,000 tax-free from your RRSP for funding your down payment. 

3. First-Time Home Buyer Incentive  

First-Time Home Buyer Incentive is a shared-equity loan, shared with the Government of Canada. To put it in simple words, a shared equity loan is an agreement, a contract in which the lender and the borrower share the ownership of a property. First-Time Home Buyer Incentive offers the share percentage as mentioned below: 

  • Either 5% or 10% for a first-time buyer’s buying of a newly built house 
  • 5% for a first-time buyer’s buying of an existing house  
  • 5% for a first-time buyer’s buying of a new or resale produced house. 

Here, the government of Canada holds a shared investment of the above percentage in your home. By availing of the incentive, the home buyers’ down payment reduces. 

4. Mortgage loan insurance 

When the down payment on the new home is between 5% (the minimum amount it can be) to 20% of the purchase price, the mortgage loan insurance can be purchased. This insurance protects the lender against the risk of lending if the borrower defaults or cannot repay the loan. 

5. Land transfer tax refunds 

First-time home buyers are even qualified for a land-transfer tax refund of up to $4,000, depending on the time when you buy the home. It also depends on whether it is a resale or a new construction property. 

E. Start Searching for the House: 

Once you have the documents and money ready, and pre-approval by your side, you can begin searching for your ideal house, as per your preferred location, area, amenities, and price. Research recent sales of comparative homes and make an informed decision by consulting your agent. 

F. Make the Offer 

And finally make an offer, with certain conditions that would allow you to make a thorough home inspection. Once you decide the final amount, present the offer amount in a written document. On the last day, your agent will inform you that the seller is finally ready to hand over the house to you. 

Sourcing finances, pre-approved mortgage, hiring a real estate agent, etc. are some of the major responsibilities that one would have to take to buy a home.  

Mentioned above are the significant and most substantial aspects that would assist you to get accustomed to the real estate investment market. 

But you need to avoid certain things while purchasing a home. To know them, do read ‘Things not to do before preparing to buy a house’. 

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