You’ve Decided To Buy: 9 Insights To Help the First Time Home Buyer Posted on October 8, 2021You’ve Decided To Buy: 9 Insights To Help the First Time Home Buyer Introduction As detailed in our previous post “Your First Home: Is Buying a Home the Right Decision for You?” the affordability aspect of purchasing your home may be the first step for your first-time home purchase journey.It goes without saying that everyone’s first home buying experience and situation is different. However, there are additional first-time home buying exercises beyond affordability that are worth exploring and researching. These additional exercises and thought processes can be related to your own specific knowledge, comfort level, lifestyle fit, geography and neighbourhood preferences, just to name a few.In addition to having a thorough understanding of your own motivations, mindset, and objectives, you may need to depend on and trust external resources.Trusting External Resources – First Time Home PurchaseExternal resources and professionals such as financial and lending institutions, realtors, real estate lawyers, your insurance broker, home inspectors will need to be part of your process. You may want to start asking friends, colleagues, and family now for referrals for these resources, if possible.When you have eventually selected your external resources, it may also be beneficial to share your first-home purchase vision, plans, requirements, lifestyle etc. (including the outcome of this post insights) with these external resources. Let them know about other relevant, important, and pertinent background information and any other insights that are specific and important to you.Over the next few pages, we will try to highlight the possible steps and processes that you may encounter once you have decided that a ‘first-time’ home purchase is affordable and the right fit for you.Let’s get started. Home Selection ProcessOnce you understand the affordability part, one of the next steps is the type of home you may want to live in.The home selection process essentially comes down to personal tastes, needs and requirements, geographical and environmental preferences to name a few. However, there are a few insights we can share to help you get started with the type of home you may want to consider.First Time Home Purchase – Home Selection InsightsA simple first home purchase research exercise of driving or walking around different neighborhoods, may be beneficial. Look at different styles of homes, floor plans, locations, for example:CondoSingle Family (Detached)Two Storey (accessibility concerns, stairs, more privacy)Bungalow (accessibility friendly, limited or no stairs)TownhouseCape CodFarmhouseColonialContemporaryCottageFrench CountryMediterraneanRanchSplit-LevelTudorVictorianWhat size of home do you need or want? Square footage, # of bedrooms, bathrooms, guest quarters, extended family needs, garage etc.?The size of the lot the home is situated on (how much land do you need?).Give some consideration to the location of the home and the lot:Big lot or small lot (lots of room to play and entertain, space for a new pool, lots of maintenance, lawn mowing, leaves in the fall),Busy street (accessible, noisy, traffic)Street corner (people cutting across your lawn?)Ravine (airy, spacious, wildlife)Lots of trees and tree canopy (shade, green factor, cool in summer, lots of leaves to rake)The type of neighborhoods. Research the neighborhood, is the neighborhood community oriented, looking out for one another or do they keep to themselves and keep neighbor engagement and communication to a minimumWould you prefer your neighbour’s home be within a couple meters or do you prefer homes be much further away, or a ‘gated community’ perhaps?Proximity to schools, malls, grocery stores and other amenitiesLocation on a street, crescent, or courtHome Style Selection Next StepsIt may be beneficial to collect all the relevant data specific to your situation into an expanded ‘first draft’ list of your needs and wants. Once you have that initial list, you may want to prioritize, refine, and shorten the list based upon what your primary needs and preferences are.Having this list of insights, detailed primary needs and preferences will be helpful with your own decision process about the purchase price, type of home, location, style etc. This exercise will also help you by setting ‘budget and personal fit’ boundaries to work with regarding what you are looking for in a new home.These preliminary effort, proactive analysis and initial needs process will benefit your first-home purchase process by having many of the answers prepared in advance to the many questions that your external resources will be asking.Sharing this type of information with your real estate professional can help them improve their sort and search results for the home (and location) that will appeal the most to you. External Resources – Professionals, Experts and SpecialistsFor the most part you will be on this first time home purchase journey on your own. Most of the preference and decision making will all be ‘internal’ to you and you alone. However, there will be ‘external resources’ that you will need to assist you, those who you will need to depend on and trust throughout your entire first home purchase journey and process.You need to contact experts and specialists to help you along your first home purchase journey.These experts and specialists include:Mortgage SpecialistRealtor/Real Estate Agent/BrokerReal Estate LawyerHome InspectorHome Property Insurance AgentLife Insurance Agent Ask Your Personal and Work NetworkOne of the best sources for these external resources is from asking your network for referrals.Your colleagues, family, neighbors, people you know well, and friends are a valuable resource for these referrals. In addition to getting these referrals contact information, ask your source why they like this ‘expert or specialist’ and prefer them to others.Once you have collected numerous names for the resources shared with you will need to do some background research on them to ensure they are a fit for you.If a referral is from someone you know, like and trust, it’s likely that they may be a fit for you and your needs, however you should still do your homework, visit their website, call (or video call) the on the phone and if possible, meet with them before making (or signing) and commitments.Your first home purchase will include legal contracts and related complexities. You should be contacting a lawyer as early as possible, and before signing any documents, which we will detail in the Real Estate Lawyer section. You and Your Mortgage Specialist Your mortgage specialist should be one of the first resources you talk to once you have decided to purchase a new home. They will most likely be a part of your ‘affordability’ process and discussions.Your mortgage specialist should be able to lay out different mortgage options and alternatives.If you’re not familiar with mortgages, you should be knowledgeable in advance of meeting with your mortgage specialist. We’ve included a list of terms which you may want to research. Your Mortgage Specialist should also be educating you on the different mortgage processes and terminology, such as:Credit score. Information to income and debt requirements, along with formal proof and documentationMortgage Application processMortgage Pre-Approval (certificate)Home value and appraisalsHome inspectionMortgage (default) insuranceBorrower qualification and financial Stress TestsHome property and contents insurance requirementsMortgage financing specific terminology, including:down paymentamortizationmortgage terminterest ratefixed rate vs. variable rate mortgagesappraised valueGross Debt Service Ratio (GDSR) and Debt to service ratioHigh ratio and low ratio mortgagesLump sum paymentInterest adjustmentClosed mortgageOpen mortgageConventional mortgageConvertible mortgageEquityDefaultMortgage Life Insurance (vs. the benefits of separate life insurance)PenaltiesMortgage renewalLand transfer taxProperty surveyClosing costs You and Your Realtor/Real Estate Agent/BrokerNow that you have an idea about the size of your home and the type of home you want, you may want to do some research about the home’s location. An experienced and knowledgeable real estate professional can be of assistance with this exercise as well.Before contacting a realtor, brokerage or real estate agent, research your preferences on a search engine, Google for example. Visit Realtor websites and look at various homes, locations and maybe drive or walk around different locations and neighborhoods.Become an expert in your own needs and wants and share that information and those insights with your agent.Understand the difference between a Realtor, Real Estate Broker, and a Real Estate agent A Realtor belongs to the Canadian Real Estate Association (CREA). A Realtor may have more professionalism, ethics, training, and experience. Realtors must continuously abide by CREA training, membership, ethics, and code of conduct.Real Estate Brokers have additional training and licensing which allows them to hire other real estate agents to work for them. They must be a licensed Real Estate agent for two years before beginning the additional licensing, training, and courses.Real Estate Agent is licensed (courses and pass exams) to help people buy, rent, and sell real estate, but doesn’t belong to CREA (unless they are a CREA member, then they would be a Realtor). A Real Estate agent must work for a real estate broker (all deals must go through a brokerage that operates a trust account).Being knowledgeable about your own needs and wants will help your real estate resource help you. They will gather necessary market and neighborhoods intelligence to help you on your first-time home buying journey. Your real estate professional should be proactively reviewing the types of homes and neighborhoods you want to visit and eventually, and if appropriate, home viewings and walk-throughs.Do your homework, it would be helpful to know (and share) your preferences for:Affordability and budgetGeography and location (What city, suburb etc.)Home style, floor plan etc. preferences. Lots size, maintenance comfort levelNeighbor type preferences (how close do you want your neighbors? What type of neighbors?Lifestyle (single, couple planning a family or not)Type of amenities or access you want to be close to (boutiques, shopping malls, transit, highways)Accessibility requirementsOther ?When you share this type of information and insights with your real estate representative, they can use that information through their own real estate ‘lens’ which will help them help you with your selection process.Be patient with all your external resources, especially your real estate resource. After sharing your preferences with them, they may also show you homes outside of the parameters you requested. They may just be trying to offer you information or alternatives that you may not be aware of, and they may also be trying to understand your boundaries, decision making process and preference levels.Sometimes the dream homes people eventually end up buying were outside of the information, preferences or details provided to the real estate agent. Be transparent and let them know if this approach is helpful or not. You and Your Real Estate LawyerOnce you have decided and confirmed that you can afford a new home, have discussed mortgage details and alternatives with a mortgage specialist, and have initiated the home purchase market activities with your real estate representative, you should be contacting a real estate lawyer that you are comfortable working with, this includes their staff as well.Your real estate lawyer will be fulfilling a critical role with your first-home purchase, so your real estate lawyer should be involved as early as possible.It’s imperative that your lawyer be a knowledgeable and competent legal specialist when it comes to helping you with your first-home purchase transaction. You will need a friendly, thorough, and detail-oriented lawyer and office staff who are client service oriented who will help you navigate through the entire process.Agreement of PurchaseAn Agreement of Purchase and Sale can deal with numerous issues and can be complex. Being proactive and transparent with your real estate lawyer is very important, in advance of signing any home purchase documents. You may wish to share the Agreement of Purchase and Sale with your lawyer, before signing. This can help avoid any disputes and lower your costs, if there are any disputes.The role of your real estate lawyer will include:Initial introductions, including understanding your needsWorking with your mortgage lender or specialist to make sure your financing is receivedReview of mortgage related agreements and documents, ensure you are aware of your legal rights and any obligationsTaking all the necessary steps to ensure your first home purchase is successfully completedAdvising you about including any conditions on the home purchase that can give you flexibility if you wish to withdraw from the deal. These conditions could include that the sale is subject to a home inspection, financing or review and approval from your lawyer. These conditions could be helpful if there is something wrong with the property and you want to withdraw from the dealReview of the builder’s purchase agreement if you are buying a newly built home. Ensure that the builder’s purchase agreement is fair to both partiesReview of the lot survey and deed to ensure there are no encroachment issuesReviewing the Agreement of Purchase and Sale from your real estate representative, ensuring the document is clear, complete, concise, and effectiveIf buying a condo, review of condo status certificates, and ensure that the condominium corporation is financially sound and stable. Examine any condo rules, regulations or provisions which would not be in your favorComplete property title searches. Your lawyer must ensure that your home and its title are free from any liens or other burdens or impedimentsEnsuring that that property taxes, utilities, are up to date. If any utility bills or taxes have been pre-paid by the previous owner, you will need to re-imburse these funds to the seller as part of closing, your lawyer will oversee this reimbursement as part of the overall transactionArranging title insuranceHome purchase ‘searches’ availability and discussionBuilding and zoning searchesNew home warranty or resale home warranty awareness and reviewEnsuring that any mortgages or lines of credit registered against the home’s property title are discharged and paid-outProperty fees collections, down payments, taxes, and disbursements paid out related to the property purchase or saleMortgage modifications (if required)If a private sale, provide transaction advice, negotiation of terms, preparing a sale or purchase agreementPreparation of closing documentsYour lawyer will:Let you know about your closing costs in advanceAlso process the mortgage funds from your lenderDeposit those funds in a trust while the deal closesDiscuss any other closing costs with you, including their fees and disbursements, and applicable title insurance You and Your Home InspectorHiring a home inspector can help save you a lot of headaches and potentially save you a great deal of money.How else would you know if the home you about to purchase has a leaking roof or basement, or the windows and home are in poor shape in need of an upgrade?If the previous owner hasn’t been properly maintaining the structural integrity of the home and the home has serious structural issues, then you may have many costly issues with the home going forward. This would not be a good experience for the ‘first-time’ homeowner.A home inspection prior to buying a home can identify significant issues with the property you are thinking about buying. These issues would need to be repaired to your satisfaction or you may want to back out of the home purchase deal altogether. Having a home inspection can help you avoid these types of issues.Home Inspectors Are Not RegulatedThe home inspection sector is not government regulated, so anyone who wants to can call themselves a ‘home inspector’. Perhaps asking your friends and family, a Realtor, broker, or real estate professional for a referral may provide the best inspector for your needs.Most credible home inspectors will have extensive background in home construction, along with expertise related to environmental or chemical sector. They often have civil engineering experience with diplomas or degrees, along with home inspection certification and training from inspection associations and colleges.You should keep in mind that a home inspection will identify only observable issues with the property. That is, issues which can be discovered by walking around and looking at the interior and exterior of the property. Issues that are hidden behind walls or buried in the ground, are likely to be missed by even the most experienced inspectors. This is why it is important to include warranties into the Agreement of Purchase and Sale, that protect you as the buyer, from any hidden defects that an inspection may miss. You and Your Home Property Insurance AgentThe primary objective of home property insurance is to protect your home, its structure and most of its contents in the event of loss or damages such as a burglary, fire, or a storm.Home property insurance ‘may’ also protect you when you are away from your home as well. It’s best to check with your home insurance provider, about coverage specific to your needs.Home property insurance can also cover your personal belongings, including your furniture, appliances and living expenses should a loss or damage event arise.If you have expensive items, you may need additional coverage also known as ‘endorsements or riders’.The Importance of Maintaining Your HomeHome property insurance will not cover neglect, so keep your home’s infrastructure up to date, including:RoofWindows and doorsHeating and air conditioningBasement (leaks)PoolOther ?Another component of home property insurance is personal liability. Home property insurance usually covers people who may be injured on your property or in your home, liability limits vary.Different types of homes and dwellings need different types of home insurance coverage:HouseCondoRentalAt some point in your first-home purchase process you will be asked for some type of proof of insurance. Home property insurance is a critical component of a home purchase and is required for one or more of your external resource’s stakeholders, especially your financial institution who is lending you the funds for the home. In fact, most financial institutions and lenders will not release mortgage funds until you have provided proof of proper and adequate insurance for your new home, to your lawyer.Be Thorough With Your Property Insurance Research and SelectionSelecting property insurance is not a detail you want to leave for the last minute. Property insurance should also be included in your affordability and budgeting process.Researching and selecting property insurance should be near the top of your list once you have decided to make your first-home purchase.Much of the planning and organization details we are discussing in this document will be helpful to have when speaking with a property insurance agent, they may ask many questions, including:Type of insurance needed. Home, condo, or rental (tenant)Home address and homeowner(s). Whose name is on the deed.You may be asked your age, gender, marital status, dependent children, and ages of people living at the homeOccupationType of dwelling and square footageGaragePlumping typeWiring typeExterior materials (brick, stone, siding etc.)Coverage start dateWhen was the home built?Finished basementOperate a business from homeRent any part of the home or propertyProvide a list of expensive items, such as bikes, watercraft, artwork, jewelry, wine, or spirits, otherHome alarm, covering water, fire, or theftClaims historyContact details, such as phone number, email, and addressesAlumni (preferred rates)When to Buy Home Property InsuranceIf you are in the process of bidding or making an offer on a home, if you haven’t already, be proactive and contact your preferred home property insurance company about your first-home purchase plans and activities.Once you have a bid on a home and have a ‘close and move-in’ date, you will need insurance when you assume ownership. Life Insurance Agent – Mortgage Protection InsuranceAt some point during your mortgage discussions, you will be asked about ‘optional’ life insurance for your mortgage also known as mortgage protection insurance. You can purchase this type of insurance through your financial institution, or you can purchase it separately.Ultimately, the decision is yours to make regarding the type of insurance you need, we will try to outline a selection of pros and cons, and alternatives.Not to be confused with mortgage default insurance (less than 20% down payment), like the type we detailed in “Your First Home: Is Buying a Home the Right Decision for You?” that is available from CMHC.Mortgage protection insurance covers you if you die or become disabled. Some financial institutions offer a ‘death only’ component. The premiums are added to your mortgage payment.Advantages and DisadvantagesThere are advantages (convenience) and disadvantages (cost and eligibility when you need it) of purchasing from your financial institution.You have a few options and questions to think about:Do I need life insurance for the new home’s value? What liabilities do I have should I die or become disabled?Do I already have life insurance separately that already covers the house value? Can I increase that coverage with my current life insurance broker?Is the cost of adding insurance coverage from the financial institution greater than purchasing life insurance separately from an agent? Mortgage insurance purchased from a financial institution shrinks as your mortgage decreases, yet the premium often stays the same, is this good value?Can I purchase life insurance from an agent or be refused insurance? Is the life insurance being offered only available from the financial institution?Will the financial institution honor the coverage? Insurance from financial institutions is often provided without a medical examination requirement, yet when a claim is made the coverage may find an issue or violation of the insurance and leave you exposed with no insurance when you need it.When you purchase life insurance through your financial institution and you renew your mortgage, the premiums could go up.If a claim is made from a financial institution’s life insurance, the bank or financial institution usually receives the insurance funds directly, those insurance funds do not go to the homeowner. From a financial planning perspective, this may or may not be the best option at the time for your beneficiaries.If you need additional life insurance coverage for your home value, speak to a financial planner. Or speak to a qualified and knowledgeable life insurance agent and provide your situation and particulars. There may be some longer-term advantages and benefits to purchasing your own life insurance on your own. Decision Making – Making an Offer and Closing Date ActivitiesAt this point in your first-home purchase journey, you have decided you can afford a home, have performed all the activities leading to the selection of the home you desire, and now you and your real estate representative are ready to make an offer to buyer or their real estate representative.This is your first home purchase, so you’re going to be exposed to many new terms, complexities, acronyms, processes, and information that will be foreign to you.Talk to a Lawyer Sooner Than LaterWhen it comes to signing any contracts, agreements, or documentation, it would be prudent and best advised to talk to your lawyer prior to engaging in any signing of documents. At least initially, and even for the more harmless looking documents that your real estate representative will ask you to sign before you begin your first home purchase journey.Inform your lawyer or legal representative that this is your first home purchase. They should guide you through the process, and let you know which documents you will need their help with and when. There may be documents that appear harmless to sign, however having a discussion with your real estate lawyer beforehand will give you some peace of mind for your first-time home purchase transactions.There is only one legal expert who is qualified from a legal perspective, that is your lawyer. That doesn’t mean that real estate representatives are not familiar or have knowledge about the Agreement of Purchase and Sale, however they are not experts on the legal conditions, clauses, or their ramifications, to name a few reasons.When you hire a lawyer to assist you with the purchase of real estate, the lawyer should perform a number of searches to ensure that the possibility of problems with the real estate is minimized. You, as a buyer, should discuss with your lawyer what searches are available to you and which are appropriate for your purchase transaction.Get Comfortable With Paperwork and ContractsThere are many documents and paperwork involved with buying or selling a home in Ontario.The Ontario Real Estate Association (OREA) has developed a set of standardized forms that are most commonly use for the resale of residential or commercial property. These forms are generally very good and complete, but they deal with a lot of issues and can be complex.Most agreements to buy and sell real estate are created on pre-printed forms which have been created by the real estate industry or by lawyers.Understanding your obligations and entitlements of your Agreement of Purchase and Sale before you sign it can avoid disputes and lower your costs. Having your lawyer review the Agreement of Purchase and Sale with you before you sign it can ensure that understanding.These documents may include:Agreement of Purchase and SaleAgreement of Purchase and Sale CondominiumBuyer Representation AgreementBuyer Customer Service AgreementConfirmation of Cooperation and RepresentationListing Agreement – Authority To Offer for SaleSeller Customer Service AgreementWarrantiesSome properties are bought as new homes, and some are bought as resale homes. New homepurchases are covered by Ontario’s Tarion Warranty. Resale homes are not covered by any warranty other than what is given by the seller and agreed to in the Agreement of Purchase and Sale.It is therefore imperative that buyers negotiate for warranties to be given by Sellers to protect themselves from any issues which arise after closing.The Sales Agreement ProcessNot sure how the home purchase process work? The primary document at this point would be the Agreement of Purchase and Sale (Agreement). Every home purchase is different; however, this is a typical home purchase sale process:The first-home buyer will have their real estate representative assisting them with the finding, locating, and selecting the home they wish to purchase. They will also be involved in negotiating the first-home purchase.The Buyer’s agent will prepare an offer to purchase and submit it to the Seller or his or her representative.Once both parties have executed the Agreement, the signed agreement is then sent to a lawyer who is requested to complete the purchase.Once signed by both parties, an agreement of purchase and sale cannot be amended without the consent of all parties.Once the Agreement is signed, the final closing processes begin. All legal documents must be signed, and all payments must be paid out. In most cases, once all the closing details and transactions are completed, you will receive the keys to your first home before the end of the closing day. However, there could be factors that impact whether you get your keys at the end of closing day, these factors include mortgage funding, courier delivery of keys, online registrations completed.Don’t forget to bring your identification when you are signing documents with your lawyer. They usually need to make two copies of your ID. One must be photo ID (not Health card), your passport can be your other ID.Picking Up the Keys to Your New HomeOnce you have picked up your keys, you can start the process of moving in, or in some cases some first-time home buyers take some time to do some renovations, painting, cleaning, upgrades before they move in, providing they have a place to stay. Conclusion – Next Steps Congratulations! You’ve made it to the end of this article, and perhaps you’ve already started your first-home purchase journey.In our previous first-home purchase post “Your First Home: Is Buying a Home the Right Decision for You?” we provided insightful details about the most important part of your first-home purchase process, Affordability. You will learn about the critical next steps once you have decided that you can afford your first home.In addition, if you’d like to read more about purchasing your first home, we have linked several articles below discussing similar topics. In addition, please visit our Real Estate Law and Buying A Property sections on the Nichols Law Professional Corporation website. Sources and Additional InformationDisclaimerSources and links are provided for source credit and attribution, and for additional information purposes only. Nichols Law is not affiliated, associated, authorized, endorsed by, or in any way officially connected with any of the sources or links provided.CMHC: Home buying Step by Step: Your guide to buying a home in CanadaYour First Home; A Buyer’s Kit for Condos and Houses book, by Kimberley Marr, CAAP, ABROttawa Sun, When To Contact a Real Estate LawyerGovernment of Canada, Before You Sign Any Contract: 10 Things You Need To KnowGovernment of Canada, How Much You Need for a Down PaymentCanada Mortgage and Housing Corporation (CMHC), Debt Service CalculatorTD Bank, Mortgage AffordabilityGlobal News, Banks Sell Mortgage Insurance, but Independent Experts Say You Shouldn’t Buy ItCanada Mortgage and Housing Corporation, CMHC mortgage loan insurance costsGovernment of Canada. RRSP. How To Participate in the Home Buyers’ Plan (HBP)Financial Services Commission of Ontario, Understanding Home InsuranceMitchel and Whale Insurance Brokers, What Questions Do I Need To Answer To Get Home Insurance?Ottawa Sun, Four Closing Day Questions Answeredca , How To Buy Homeowners Insurance in 2020Desjardins Homebuyers GuideCanada Mortgage and Housing Corporation (CMHC), The first-time home buyer incentiveGovernment of Canada Homebuyer Incentives and RebatesMoneySense, 6 smart strategies for first-time home buyersGenworth Canada/SAGEN, A step-by-step guide for first-time homebuyersca, First Time Home Buyer GuideToronto Star, First-time homebuyers see new opportunities, challenges in pandemic economynesto, Closing Costs: What are They And How Much Will You Pay?Toronto Star, ‘An unexpected prize for young Canadians’: How the pandemic helped a wave of first-time home buyers get into the marketFivewalls, Toronto Real Estate – Prices and StatsRocket Mortgage, 20 Popular Home Styles And Types Of HousesRoyal Homes, Comparing Bungalow Floor Plans Over Two-Storey HomesRoyal Lepage, 4 Important Things to Know About the Difference Between a REALTOR and Real Estate AgentRE/Max, Ontario Real Estate FormsBRELteam, Real Estate Paperwork Explained: For Ontario BuyersYoung&Thrifty, Buying a House in Canada: A Guide to Buying Your First HomeGovernment of Canada, CRA Principal Residence Capital Gains Exemption?Storeys, What’s the Difference Between Realtors, Agents and Brokers? Your First Home: Is Buying a Home the Right Decision for You? Posted on October 8, 2021Your First Home: Is Buying a Home the Right Decision for You? Introduction A home purchase is most likely the largest financial decision a person, couple or family will make in their lifetime.A home has an important purpose, it provides you with shelter. In addition to shelter, your home can be a place to rest and relax, provide opportunities to entertain your family and friends, and perhaps raise your own family.There could be numerous reasons why purchasing a new home could compel you to venture into the real estate market. If you’re renting, you may have driven or walked past a ‘dream’ home that was for sale and wondered “what if”? Perhaps a home of a friend or acquaintance came up for sale, a home you could see yourself living in, which compelled you to look at or visit the home’s ‘open house’.Can I Really Afford To Purchase a New HomeRegardless of the reason for looking at first time home possibilities, at some point during your ‘thinking about it’ home purchase exercise, you ask yourself “Can I really afford to purchase a new home” The primary information within this post is intended to guide the first-time home buyer who is thinking about buying their first home and is comparing home ownership with renting. The first-time homeowner may need answers about whether they can afford to purchase their first home or not.Although this post is written for first-time home buyers, there may be insights within the post which may help some buyers who have previously purchased a home.Let’s get started. Taking Your First Home Buying Steps Deciding to finally purchase your first home can be somewhat overwhelming. Where exactly do you start?Before you get started with your ‘First Time Home Purchase’ research on Google and visiting realtor websites, take some time and reflect about whether buying your first home is the right decision for you. The answer to this question is based primarily on an individual or family’s financial resources and whether buying vs. renting is a better investment or decision.AffordabilityMost prospective homeowners start with affordability, which we will expand upon in the following pages. Do you have the financial means to save enough for a down payment, pay realtor and legal fees, and sustain the ongoing costs of owning a home?Most first home buyers start with comparing the costs of owning a home vs. renting. In addition to a mortgage payment, home ownership costs also include many other factors such as on-going municipal taxes, home insurance, maintenance and upkeep, furnishings, day-to-day items, among others. In most cases, renters don’t have to worry about most, if not, all of these ownership related costs.These home ownership costs and financial responsibilities should be ‘top-of-mind’ when you are deciding whether you should continue to rent or purchase your first home.Home Ownership Vs. RentingWe’ll be going into a bit more detail in the next section, however it’s critical that you reflect on your own situation and whether home ownership is a fit for you. Perhaps you’re better off renting and continue building a first home down payment nest egg or investing elsewhere?Home Ownership Investment Advantages From an investment perspective, home ownership may have an advantage over renting, although your specific situation may differ.On average, the Toronto real estate market has increased 5% year-over-year, for the last 50 years. This type of growth can fluctuate and vary, meaning there are peaks and valleys and highs and lows. While this growth hasbeen the average, there are never any certainties. With the understanding that home ownership will likely cost more than renting, you may wish to compare whether you are able to save/earn on investments, at an equal to or better rate, than the average increase in home prices. You may be surprised by the comparison.If you are purchasing your first home strictly for investment purposes, perhaps having a discussion with a financial planner may be beneficial. There may be other investment alternatives that may be best suited for you from a strictly investment perspective, depending on whether the investment is short-term or long-term based. Home Ownership ResponsibilitiesHome ownership has many responsibilities, including the on-going repair and upkeep of your home and its structure.Structural repairs such as plumbing, electrical, heating and air conditioning and the roof for example, are critical home components which need to be kept in working order and functional. These repairs need to be performed by qualified and or licensed professionals.If you’re not sure about a repair, call a qualified professional first. Most maintenance, and minor home repairs like painting or cosmetic changes, or lawn mowing for example don’t necessarily need a qualified or licensed expert. Many homeowners do the simple stuff on their own, with varying levels of quality and success.If you’re not familiar or comfortable with minor home repairs, your maintenance costs may be higher if you have someone else do it.In most cases, working on your own home, such as gardening, painting, minor repairs etc., can be very enjoyable and rewarding. Ultimately, the decision is yours to decide whether home ownership is a fit for you or to continue renting without the benefits of home ownership. These are only a few examples of additional costs that you should be considering if home ownership is a serious consideration. The ‘Pros and Cons’ of Renting vs. Home OwnershipAs we mentioned in the previous section, it’s imperative you explore the benefits and risks associated with renting and home ownership specific to your financial affordability and lifestyle, for example.Home Ownership ResearchHome Ownership Research includes (but is not limited to) understanding the following:Realtor contracts and their rolesThe role of your real estate lawyerHome inspection and other possible stakeholdersUnderstanding how mortgages work, along with the role of financial institutions, including financing and lending optionsYour credit history and debtHome ownership insuranceHome contractors for any renovation needsMoving expenses and closing costsHome Ownership Benefits and DisadvantagesIn addition to providing shelter, home ownership is an investment. You are building equity. A home is in a general sense, a forced savings planFinancial loss. Your home value is not a liquid asset. If you need to sell during a low real estate market, you may lose money (lower property value, mortgage penalties, realtor fees, legal fees)Eventually your home will be paid off, with the benefits of increased property growth and equityYour first home can be your entry point into the real estate market and allow you to upgrade your home based upon your family, lifestyle, or geographic needsYou can renovate or upgrade your home and its property based upon your personal preferences and tastes, and have the benefit of potential increased property valuesRental income. Homes can be a flexible asset. If you want to move on from your current home, but don’t want to sell, you can always rent itStability, control over your living space and the pride of ownershipRenting Benefits and DisadvantagesIf you are currently renting, you are already aware that it usually costs less to rent, here are a few advantages and disadvantages of renting:AdvantagesLower costs. Aside from your rent, and perhaps a couple utility bills (e.g., electricity, cable), your total monthly costs are much lower than they would be with a mortgage payment. However, your monthly rental payments can increase each year, as is permitted under the Residential Tenancies Act.Less worry about repairs and maintenance. In most rental situations, it is up to the landlord to look after any major repairs to the propertyA shorter commitment with renting. Which makes it much easier to move to a new premises, home, or geographyThe difference between what you would be paying for a mortgage and other home ownership costs and your rent, can be saved and is readily accessible, or used for other investment purposes or to save up for a new homeIf you’re renting, you don’t have to worry about municipal taxes, repair, maintenance, and upkeep of the unit you are renting, those fees and costs are usually the responsibility of the ownerIf the property value of the rental decreases, it’s of no concern to the renterDisadvantagesRenting is not an investment. As the rental unit’s real estate value increases, you do not share in that investment value. Your rent continues to be due every month, without any ownership benefits and your rent may be increased from time to timeIf the property owner decides to terminate your rental (within the terms of the rental agreement), you will have the burden of finding a new place to liveHome Ownership AffordabilityIf you don’t have the financial means of:Saving for a minimum down payment (usually 5% of the home purchase price)A sustainable income and savings to make your mortgage payments and weather any future income or employments gapsPaying to keep your home maintained and structurally sound… then perhaps home ownership may not be for you.If you don’t have the funds for a down payment, however you have the financial means to save for a down payment, then now is the time to start.Home Purchase Down PaymentIn most cases you will need a minimum of (not including closing costs, which we will get to) *:Home Purchase ValueMinimum amount of the down payment$500,000 or less– 5% of the purchase price$500,000 to $999,999– 5% of the first $500,000 of the purchase price – 10% for the portion of the purchase price above $500,000$1 million or more– 20% of the purchase price*Government of Canada According to the Canadian Real Estate Association, the average home value in Canada is $538,831, a 5% down payment for this average home would be $30,826. Obviously, that home value may be much higher in major Canadian cities.Home values in the suburbs of major cities may offer a lower home value and subsequently a lower threshold for a down payment. The average home value in the Greater Toronto Area in April 2021 was $1,090,992, which would represent a down payment of at least $54,550.Home values on the border of the GTA may be even lower. Whitby, Ontario for example, may have average home values which are slightly lower than the GTA, which would mean a lower down payment.Whether you need to save $25,000, $35,000 or $55,000 or more, saving up for a down payment will need focus, discipline, sacrifice and hard work.There are a variety of ways to start, and grow your first home down payment, including:Focusing on your career. Putting in longer hours, along with promotions and raises in salaryFreelance or gig work as an extra incomeNot upgrading your car, or buying a less expensive oneLimiting your discretionary spending. For example, less restaurant meals and take out, and more home cooked mealsReducing your entertainment expensesPerhaps putting those vacations on hold until you have saved for your down paymentFinding a rental that costs lessContribute to your RRSP. The Canadian government will allow first-time home buyers to use up to $35,000 (no withholding tax) of their RRSP for a qualifying home purchase, provided they pay it back over 15 years ($35,000/180 months = $195 per month). For those that have used this plan previously, there may be exception, if you haven’t owned a home for a minimum period.Government Assistance and ProgramsHome Buyer’s Plan (HBP)First-Time Home Buyer IncentiveHome Buyers’ AmountGST/HST New Housing RebateCanada Greener HomesMortgage Loan InsuranceMortgage loan insurance must be purchased if you are obtaining a mortgage from a regulated bank and your down-payment is less than 20% of the price of your home. Obtaining a mortgage from a private lender does not carry with it the same requirements to obtain mortgage insurance, but does carry with it increased closing costs. You may wish to read our post on private mortgages ‘Six Factors To Consider Before Contacting a Private Lender’.Mortgage insurance protects the mortgage lender in the event you fail to make your mortgage payments and are in default. The premium can be added to your mortgage; however, you will pay interest on it and in some cases provincial tax will be applicable.If the home value is $1 million or higher and if the loan doesn’t meet mortgage insurance standards, mortgage loan insurance will not be available.The fee for mortgage loan insurance ranges from 0.6% to 4.50%, the rate depends on how much your down payment is, the larger the down payment, the less the mortgage insurance rate will be.Mortgage loan insurance providers:Canada Mortgage and Housing Corporation (CMHC)SagenCanada Guaranty Mortgage Insurance CompanyClosing CostsClosing costs are ‘all’ the fees that will need to be paid to finalize the closing and sale of your home. Approximate closing fees range up to 3 to 5% or more of your home’s value.Closing Cost FeesThese fees may include:Appraisal feesLegal fees, including disbursements, title, mortgage, adjustments, and administrative feesTitle InsuranceLand Transfer taxHome inspection feesInterest adjustments if there is a gap between the closing date and first paymentH.S.T on new homes or commercial propertiesRebatesAs a first-time home buyer, there may be rebates available to help with some of these closing costs, which should be investigated. Of note is the first-time home buyer land transfer tax rebate, which provides a rebate of up-to $4,000.00 on Provincial Land Transfer Tax and a rebate of up to $4,475.00 on Toronto (Municipal) Land Transfer Tax. Qualifications for the rebate are subject to a number of factors, so it is best to speak with your lawyer to determine whether you qualify or not.Conclusion – Next Steps Congratulations! You’ve made it to the end of this article, and perhaps you’ve already started your first-home purchase journey.In our next article “You’ve Decided To Buy: 9 Insights To Help the First Time Home Buyer” we provide insightful details about the first-home purchase process. You will learn about the critical next steps once you have decided that you can afford your first home.In addition, if you’d like to read more about purchasing your first home, we have linked several articles below discussing similar topics. In addition, please visit our Real Estate Law and Buying A Property sections on the Nichols Law Professional Corporation website. Sources and Additional InformationDisclaimerSources and links are provided for source credit and attribution, and for additional information purposes only. Nichols Law is not affiliated, associated, authorized, endorsed by, or in any way officially connected with any of the sources or links provided.CMHC: Home buying Step by Step: Your guide to buying a home in CanadaYour First Home; A Buyer’s Kit for Condos and Houses book, by Kimberley Marr, CAAP, ABROttawa Sun, When To Contact a Real Estate LawyerGovernment of Canada, Before You Sign Any Contract: 10 Things You Need To KnowGovernment of Canada, How Much You Need for a Down PaymentCanada Mortgage and Housing Corporation (CMHC), Debt Service CalculatorTD Bank, Mortgage AffordabilityGlobal News, Banks Sell Mortgage Insurance, but Independent Experts Say You Shouldn’t Buy ItCanada Mortgage and Housing Corporation, CMHC mortgage loan insurance costsGovernment of Canada. RRSP. 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