September 5, 2012
Home Buying 101 – A First Time Buyers Guide to Home Buying
by Farhaneh Haque
A recent poll published by TD Canada Trust found First Time Buyers (FTHB) regretful of some of the mistakes they made when buying their first home. According to this report, the top three lessons learned from new home buyers are:
- Be more thorough when budgeting and accounting for all of the costs of home ownership
- Make a bigger down payment
- Buy a home sooner
The findings from this report surprised me; with all the tools and resources available online, why are buyers (especially first time buyers) feeling underprepared when buying a home? I suppose it is the rarity of the occurrence; lets face it, most of us will go through this process at most two or three times over our lives. In light of this, I thought it would be important to review some of the crucial steps a buyer needs to take as they prepare to buy a home.
Consider if buying a home is for you – learn about the responsibilities of home ownership. The difference between renting and owning is vast. To start, compare the cost of rent to what it would cost if you owned your home and aim to spend only a portion of your gross monthly income on rent to leave a cushion to put away money each month. CMHC guidelines state your monthly housing costs should not exceed 39% of your pre-tax monthly household income, so if you are trying to save for a down payment, your rent should be far less than this so as to allow you a cushion to put away money each month.
Get your finances in order – create your household budget; consider how much you have saved for a down payment, and learn about the additional costs involved when buying a home. In addition to the down payment, you’ll also need to have saved a sizable cushion (approximately 2% -3% of your purchase price) to cover the hidden costs of home ownership. These upfront costs include: legal fees, land transfer taxes, inspection costs, high ratio mortgage insurance, moving expenses, etc. Also, once you are a homeowner, on top of your regular mortgage payments, some on-going costs you should also factor into your monthly budget are: property tax, maintenance costs, property insurance, etc.
Get pre-approved – Before you go shopping for your home, you should know what you can afford and what amount you may be qualified for. To obtain a pre-approval, have a look at this Home Finance checklist, and enlist the help of a mortgage specialist or your trusted bank adviser who will help you navigate through the many mortgage options available.
Work with a Realtor – Ask your family, friends or colleagues for a referral to a realtor whom they have dealt with and would be comfortable referring to you. With their help, start the search for your dream home, and use this check list to make notes and rate the properties you visit and take your time to look at and re-look at properties of interest.
Retain a Real Estate Lawyer – As you firm up your purchase agreement you will need to retain the services of a real estate lawyer, who will review your purchase agreement and will also process the legal title transfer from the vendor to yourself on closing day. If you don’t have a lawyer in mind, ask your real estate agent as he/she will likely have someone to refer you to, and if you’re still unsure visit the Law Society of Upper Canada website to obtain a list of practicing lawyers.
Arrange Home Insurance – You will need to arrange for home insurance and your lawyer will need a copy of the “insurance binder” on or before closing day. If you don’t have an insurance broker you can contact the Insurance Bureau of Canada to obtain a list of approved insurance providers to choose from. Buying a home is likely the biggest investment you will ever make, and taking the time to plan and prepare will help you navigate through the process with some ease and comfort.
About the Author
Farhaneh Haque is the Director of Mortgage Advice with TD Canada Trust, a leader in residential real estate mortgages and home equity lines of credit. With over 18 years of lending experience, she is entrusted with the responsibility of offering mortgage advice to help Canadians make informed decisions about home financing and ownership.
Farhaneh and her team draw upon research commissioned by TD Canada Trust, which reveals consumer attitudes and behavior related to home ownership such as choosing and buying a first home, renovating and greening a home, as well as understanding gender, regional and other demographic preferences. They also have access to proprietary research from TD Economics on topics such as Canadian interest rate forecasts and Canadian housing market insights
In her personal time, Farhaneh is an active member of community groups promoting youth education; in particular helping high school students in securing funding to pursue post secondary education.