Tips for Buying Your First Home in Canada
Owning a place to call your own is understandably a top priority for many Canadians. Buying that first or only home is also likely to be the biggest financial decision many of us will ever make.
Like any decision that involves large amounts of money, there are good choices and bad choices that can be made that will have huge impacts on your finances decades down the track, possibly resulting in differences of tens or hundreds of thousands of dollars. Navigating the maze of choices can be exhausting, but spending that time to do your research will pay off.
Here are some tips and resources for those setting foot in the market for the very first time:
CHOOSING A HOME
- Try to avoid emotional decisions and always look at the facts and do the math.
- Research the neighbourhood well. Visit the area at different times of day, walk the streets, have a coffee, sit in the park, talk to locals, look at crime rates, and pick up a copy of the local newspaper. The house or condo you have your eye on may seem tranquil during the day, but your potential neighbours could be the party animals from hell come nightfall.
- Have a professional check that the building is structurally sound.
- Pay close attention to additional costs. There are one off expenses such as appraisal fees, legal fees, inspection fees, and property insurance as well as ongoing costs such as property tax for houses and strata fees for condos. Extras like swimming pools and gyms in a condo will generally come with higher strata fees.
- Consider starting small, especially if buying in an expensive city market. A smaller loan can be paid off faster, meaning a cheaper purchase. Smaller properties or condos also generally have lower associated fees and taxes. After a few years you can use the equity in this home to upgrade to a larger place while you rent it out, or sell it and put the value toward a larger home.
MORTGAGES AND INTEREST
- Possibly one of the best tips for buying that first home is to save, save, save. A minimum 5 per cent deposit is required to obtain a mortgage, but the bigger your deposit, the better. If you can, aim for 20 per cent. Put simply, the more you pay upfront means a smaller loan and less interest. Play around with mortgage calculators to see the difference in total interest payable over the term of the loan. You'll find you'll likely save tens of thousands of dollars.
- Always shop around for the best interest rate and don't be scared to try and negotiate a lower rate with your lender.
- Pay close attention to the fine print because not all mortgages are the same. Some come with painful exit fees or penalties for paying off the loan before the term expires. Talk to a few mortgage brokers to get a feeling for different mortgages -- their services are free.
- Don't assume that a 30 year mortgage is the obvious choice to keeping your repayments low. This is because a mortgage with a 15 year term includes significantly less interest in the repayment cost than a mortgage with a 30 year term. Once again, play around with a mortgage calculator to get a feeling for how much of a difference a shorter term will make to your repayments and total interest repayable.
- Stick to what you can afford. Mortgage repayments should not account for any more than 40 per cent of your monthly income, preferably less. Anything more is considered "mortgage stress" because it leaves your with little, if any, leftover once other home ownership cost and living expenses are accounted for.
- There are a number of great resources on the internet to help you on your way. Websites such as RE/MAX Western Canada and CMHC have comprehensive step-by-step guides, while Your First Home magazine has useful information about current market conditions. All the major banks also have websites targeted at first home buyers.
- Two handy websites for researching mortgages are Bankrate.ca and Ratehub.ca. These sites allow you to compare mortgages side by side.