10 Common Questions from First Time Buyers
Purchasing your first home is an incredibly exciting and rewarding experience but can also be completely overwhelming. There is a lot to figure out both before you get started on your house-hunt and throughout the offer, purchase and closing process. I love working with first-timers and find it to be such an honour to be part of this wonderful milestone in someones life. I’m always happy to answer any questions and want to be a source of support and information throughout this exciting time. Here are 10 very common questions that I get asked from first-time buyers:
Q: How much down-payment do I need to buy my first home in Ontario?
A: There are a couple of options in terms of how much down payment you will need to have in order to buy your first home. If you want to receive a conventional mortgage you will be required to have a minimum down payment of 20%. The benefit of a conventional mortgage is they will have the lowest carrying costs. A conventional mortgage does not require insurance against potential default.
Because a 20% down payment is often unattainable for first-time buyers who don’t have a property to sell in order to use the equity for their next purchase, there is also the option of a low down payment insured mortgage. This option allows you to put as little as 5% down but you must pay insurance on your mortgage to protect against default. This means you’ll pay more to carry the cost of the mortgage. This insurance can be paid as a one-time premium on closing of your purchase or rolled into the principal amount of your mortgage.
Q: What type of government assistance can I get to help with the purchase of my first home?
A: There are a few options for first-time buyers available through both the federal and provincial government. The best deal going is through the federal government and is called Home Buyers’ Plan (HBP). This plan allows you to borrow up to $25,000 from your existing RRSP tax free. Your spouse can also borrow the same amount for a total of $50,000. This is a fantastic way to get tax free funds from money that you have already saved and rather than pay back a loan with interest you get to pay yourself back over a 15 year period. If you fail to pay back the amount in full over 15 years you will be taxed on the remaining balance. To qualify for HBP you need to have had the money in an RRSP for at least 90 days prior to purchase, can’t have lived in a home that you (or your spouse) owned in the last five years and you need to have a signed agreement to buy or build a home.
If you are in Ontario you can apply for the Land Transfer Tax Refund, which can get you up to $2000 back on the land transfer tax you pay on your first home purchase. Other provinces have similar grants available so if you’re outside of Ontario, do some research and see what your government or municipality has available.
Q: How much home can I actually afford?
A: This is a great question and one that you should most certainly investigate carefully before you begin a home search. The truth is, the answer varies and is individual to each buyer, however a decent rule of thumb when it comes to affording a home is that your monthly housing expenses (including mortgage payments both principal and interest, insurance, property taxes and condo fees if applicable) should be no more than 30-32% of your gross annual income. There are a number of tools out there to help you do a proper budget and calculate how much home you can afford. The Canada Mortgage and Housing Corporation has a variety of tools and calculators that you will find useful as you move through this exercise.
Q: How many houses will I need to look at before I find the one for me?
A: Oh, if only I knew the answer to this one! Fact is, no two house-hunts are the same. Sometimes you’ll fall for the very first house that you see, sometimes it takes many, many visits before the right one presents itself. You’ll often hear people say things like, “I knew it was the right house the minute I stepped inside,” or, “the house found us, we didn’t find it…”. I find some truth here, usually you will know quickly whether a house is right for you or not, but my advice is to have a solid list of requirements before you start hunting, stick to your guns, but also to keep an open mind and look for the potential in a home as well as its immediate satisfaction of your list of must-haves.
Q: Do I really need a real estate agent?
A: The truth is no, you do not have to have an agent to buy a house. BUT, and it’s a big but, even if I admit to my bias as an agent I strongly advise that any buyer and especially a first-time buyer find an agent that they like and trust to guide them through this major purchase.
A good agent will help you through every single step of your home-buying adventure, including navigating listings, open houses, looking at and pointing out anything you may miss on your own at a viewing—termites, knob and tube, clay pipes, oh my! Your agent will be your best resource when putting together a list of requirements and conditions in an offer, negotiate on your behalf and basically bring an experienced and unlimited amount of knowledge that even an experienced buyer is unlikely to have on their own. Plus, though your agent will represent you in the buying process, she will be paid by the seller. You can read more about signing a BRA and how commissions work in my article about it here.
Q: Do I really need to get a home inspection before I make an offer to buy?
A: I always recommend that buyers see a home inspection before they purchase a property. There are a few options to consider. You can have a home inspection clause added to your offer, which means your offer is conditional on a positive inspection. Some buyers are concerned that this approach will make the seller less likely to accept an offer, particularly in a situation with multiple offers, some of which may have no conditions at all. If you prefer, you can have a pre-offer inspection done instead. This means you have the home inspected before offer day. It will cost you around $300-500 but it’s a great option if you’re anticipating that a house will have multiple offers, want to go in without any conditions but don’t want to risk forgoing an inspection entirely. Finally, it’s relatively common practice these days for the seller to have an inspection available for buyers to review. A great selling tactic, but of course then you are relying on an inspection paid for by the seller. If you’re concerned about full disclosure you can pay a small amount to the inspector, usually around $100, and do a walkthrough of the inspection and property with them in person.
Q: I have found the home that I love! What in the world happens now?!
A: Once you have found THE ONE for you there are a number of steps that we’ll take together in order to make your first home purchase a reality. I’ve broken these crucial next steps into an easy to understand five step process and you can read all about it here!
Q: Do I have to pay land transfer tax even if I’m a first time buyer?
A: Sorry, the answer to this one is a resounding yes. Land transfer tax is always paid out by the buyer, not the seller. If you are purchasing property of any kind in Ontario (yes, even condos!) you will have to pay land-transfer tax. You can find out more about this in my Closing Costs article here.
Q: I want to rent out some space in my new home to a tenant to help offset my mortgage. Are there any special considerations I should know about?
A: In short, yes! While renting out space in your new home is a great way to offset costs and get yourself into an area that you love but may not be able to carry on your own, it’s VERY important to do your research before considering becoming a landlord. There will be various considerations on everything from insurance coverage to privacy laws but most importantly you need to know that finding good tenants, building and maintaining a safe and legal rental unit and navigating the legalities of landlordship is a lot of work and a real business, not just a quick and easy way to make some cash. Having said that, it can be a wonderful and fulfilling way to afford your first home. If this something that you’re interested in, a good place to start your research is on the Canada Mortgage and Housing Corporation site.
Q: How do I know if the house I like is in a safe neighbourhood? Where are the best schools in Toronto?
A: Good neighbourhoods and schools are often in the eye of the beholder. Every buyer has a unique perspective on what they want out of an area and so this is a very common question, but also a difficult one to answer on a general level. I think the best way to figure this out is by meeting with clients, discussing their interests, needs and goals for home ownership. I know the city well and can make recommendations once we’ve discussed your personal priorities. You can also do your own research into the many amazing neighbourhoods around the city before you start house hunting. Toronto Life has a fantastic breakdown of nabes in the city, ranked across a heap of criteria.