Buying a house is one of the biggest financial decisions you will ever make. It can also be very exciting, rewarding, and stressful. As a first time home buyer, you may have many questions and concerns about the process. How do you find the right home for your needs and budget? How do you get approved for a mortgage? What are the costs and benefits of homeownership? How do you prepare for closing day and beyond?
In this blog post, we will guide you through the steps of buying a house as a first time home buyer, from saving for your down payment to moving into your new home. We will also share some tips and resources to help you along the way.
Step 1: Save for Your Down Payment
The first step to buying a house is saving for your down payment. This is the amount of money you pay upfront when you buy a home. The minimum down payment required in Canada is 5% of the purchase price for homes under $500,000, and 10% for homes over $500,000. However, if your down payment is less than 20%, you will have to pay for mortgage default insurance, which protects the lender in case you default on your loan. Mortgage default insurance can add thousands of dollars to your total cost of borrowing.
To save for your down payment, you need to make saving part of your budget. Set up automatic transfers to a savings account every time you get paid. You can also use a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP) to save or invest your money tax-free. You can withdraw money from your TFSA at any time without paying tax. You can also use up to $35,000 from your RRSP under the Home Buyers' Plan (HBP) to buy or build your first home, as long as you repay it within 15 years.
To find out how much you need to save for your down payment, use the Down Payment Calculator. To see how long it will take you to reach your savings goal, use the Financial Goal Calculator.
Step 2: Get Pre-Approved for Your Mortgage
The next step to buying a house is getting pre-approved for your mortgage. A mortgage is a loan that you use to buy a home. It has two main components: the principal, which is the amount of money you borrow; and the interest, which is the cost of borrowing. The interest rate is determined by various factors, such as your credit score, income, debt, and the type of mortgage you choose.
There are two types of mortgages: fixed and variable. A fixed mortgage has a constant interest rate and monthly payment for the entire term of the loan. A variable mortgage has an interest rate that changes with the market conditions and may affect your monthly payment. You can also choose between an open or closed mortgage. An open mortgage allows you to pay off your loan at any time without penalty. A closed mortgage has lower interest rates but charges a penalty if you break or change your loan before the end of the term.
To get pre-approved for your mortgage, you need to contact a lender or a mortgage broker. A lender is a financial institution that lends you money directly. A mortgage broker is an intermediary who shops around for the best rates and terms from different lenders on your behalf. They can also help you with the paperwork and negotiate with the lender for you.
Getting pre-approved for your mortgage means that the lender agrees to lend you a certain amount of money at a certain interest rate based on your financial situation and credit history. This gives you an idea of how much you can afford to spend on a home and shows sellers that you are serious and ready to buy. However, getting pre-approved does not guarantee that you will get final approval for your mortgage when you make an offer on a home. The lender will still need to verify your income, assets, debts, and credit score before giving you final approval.
To find out how much you can afford on a mortgage, use the Mortgage Qualifier Tool. To compare different mortgage options and rates, use the Mortgage Calculator.
Step 3: Find Your Home
The third step to buying a house is finding your home. This is where you need to do some research and homework to find the best home for your needs and budget. You can start by browsing online listings on websites like Redfin or [Realtor.ca] to get an idea of what's available in your area and price range. You can also use online tools like [Walk Score] or [Google Maps] to check out the neighbourhoods and amenities around each property.
However, nothing beats seeing homes in person. That's why you should consider hiring a real estate agent to help you with your home search. A real estate agent is a professional who represents you as a buyer and helps you find, view, and negotiate for your home. They can also provide you with valuable information and advice on the market, the neighbourhood, the property, and the legal aspects of buying a home. A real estate agent usually gets paid by the seller's agent when you buy a home, so you don't have to pay them anything out of your pocket.
When looking for a home, you should have a clear idea of what you want and need in a home. Make a list of your must-haves, nice-to-haves, and deal-breakers. Think about the size, style, layout, features, condition, location, and price of your ideal home. You should also be flexible and realistic about your expectations and preferences. You may not find a perfect home that meets all your criteria, but you can find a great home that meets most of them.
To help you find the best home for your needs and budget, use the [Home Buyers' Checklist].
Step 4: Make an Offer
The fourth step to buying a house is making an offer. This is where you express your interest and intention to buy a home by presenting a written document to the seller. Your offer should include the following information:
- The purchase price: This is the amount of money you are willing to pay for the home. You can base your offer on the listing price, the market value, or your budget. You can also use comparable sales or recent sold prices of similar homes in the area to justify your offer.
- The deposit: This is the amount of money you put down as a sign of good faith when you make an offer. It shows the seller that you are serious and committed to buying the home. The deposit is usually around 5% of the purchase price and is held in trust by the seller's agent or lawyer until closing. The deposit is part of your down payment and will be deducted from the final amount you pay for the home.
- The conditions: These are the terms or requirements that must be met before the deal becomes final and binding. Common conditions include financing, inspection, appraisal, title search, insurance, and legal review. Conditions protect you as a buyer by giving you time to secure your mortgage, inspect the property, verify the value and ownership of the home, and review the contract before committing to buy. If any of the conditions are not met or waived by a certain date, you can walk away from the deal without losing your deposit.
- The inclusions and exclusions: These are the items that are included or excluded from the sale of the home. Inclusions are things that stay with the home when you buy it, such as appliances, fixtures, window coverings, or furniture. Exclusions are things that are removed from the home when you sell it, such as personal belongings, artwork, or sentimental items. You should specify what you want to include or exclude in your offer to avoid any confusion or disputes later on.
- The closing date: This is the date when you take legal possession and ownership of the home. It is usually 30 to 90 days after you make an offer, depending on your preference and availability. On closing day, you will pay the remaining balance of the purchase price plus any fees and taxes to the seller and receive the keys to your new home.
When making an offer, you should consult with your real estate agent and lawyer to make sure that your offer is complete, accurate, and legally binding. You should also be prepared to negotiate with the seller if they counter or reject your offer. Negotiation is a normal part of buying a home and involves finding a mutually acceptable agreement between you and the seller on the price and terms of the sale.
To learn more about making an offer on a home, read this [article].
Step 5: Close on Your Home
The fifth and final step to buying a house is closing on your home. This is where you finalize all the details and paperwork involved in buying a home and transfer ownership from the seller to you. Closing on your home involves several steps:
- Fulfilling your conditions: Before closing day, you need to fulfill or waive all the conditions in your offer. This means getting final approval for your mortgage, conducting a home inspection, getting an appraisal done, doing a title search, arranging for insurance coverage, and reviewing all legal documents with your lawyer.
- Doing a final walkthrough: Before closing day, you should do a final walkthrough of the property with your real estate agent to make sure that everything is in order and as agreed upon in your offer. You should check that all repairs have been done, all inclusions are present, all exclusions are removed, and no damages have occurred since you made an offer.
- Signing documents: On closing day or shortly before it, you will need to sign several documents with your lawyer or notary public to finalize the purchase of your home. These documents include the mortgage agreement, the property transfer, the statement of adjustments, and the closing statement. You will also need to pay any fees and taxes associated with the transaction, such as land transfer tax, legal fees, title insurance, and registration fees.
- Getting the keys: On closing day, your lawyer or notary public will exchange documents and funds with the seller's lawyer or notary public and register the property in your name. Once this is done, you will receive the keys to your new home and can move in.
Congratulations! You have successfully bought your first home. Now you can enjoy the benefits and responsibilities of homeownership. You can also take advantage of some programs and incentives for first time home buyers, such as the First-Time Home Buyer Incentive, the First-Time Home Buyer Tax Credit, and the Home Buyers' Amount.
I hope this blog post has been helpful and informative for you. If you have any questions or comments, please feel free to leave them below. Thank you for reading and happy house hunting! 😊