Purchasing your first home is an exciting and rewarding experience! While a mortgage may not be part of your childhood dreams, many of us grow up envisioning our perfect home—whether that’s a cozy space or a sprawling mansion. No matter where your journey starts, this section for first-time homebuyers will walk you through the essential steps and factors to consider when buying your first home, including:
Let’s get started.
Before diving in, it’s important to pause and ask yourself a few key questions. While becoming a first-time homebuyer is exciting, it’s essential to remember that this is probably one of the biggest financial decisions you'll ever make. By reflecting on these questions, you can ensure you're prepared to take this significant step!
There are two major costs associated with home ownership – let’s make sure you’re ready to take it on!
Upfront Costs: The initial amount of money you need to buy a home, including down payment, closing costs and any applicable taxes.
Ongoing Costs: The ongoing expenses of owning a home extend beyond just mortgage payments. You'll also need to account for property taxes, insurance, utilities, and possibly condo fees if applicable, as well as regular upkeep and repairs. Additionally, it's important to plan for major repairs, like replacing a roof or fixing the foundation, whether now or in the future. If your home isn’t connected to municipal services like water or sewage, you may also face extra maintenance costs to manage those systems.
In Canada, the minimum down payment for a mortgage is 5 percent. While contributing more is advantageous as it reduces the total amount you need to borrow, it's perfectly fine if you can only afford the minimum. Keep in mind, though, that if your down payment is less than 20 percent, default insurance will be required to safeguard the lender’s investment.
RRSP'S: In addition to being an essential retirement savings tool, RRSPs can also be a valuable resource for first-time homebuyers, allowing individuals to withdraw up to $60,000 tax-free towards their down payment. Many mortgage professionals report that nearly half of first-time buyers use their RRSPs for this purpose. Those who choose this option have up to 15 years to repay the amount, with the flexibility to defer payments for the first two years if needed.
GIFT: Another way to secure your down payment is through a gift from a close family member, often a parent. To do this, you’ll need a signed Gift Letter from the family member providing the funds, confirming that the money is a gift and does not need to be repaid. You’ll also need to provide documentation, such as a snapshot of the account showing the transfer of the gifted funds.
Pre-approval involves submitting and verifying your financial details to provide a more precise budget tailored to your needs. By getting pre-approved, you can determine:
Pre-approval not only simplifies your home search but also helps your real estate agent find properties that fit within your budget. While it can be tempting to look at homes at the top of your price range, it's important to remember additional expenses, like closing costs, which typically range from 1 to 4% of the purchase price. Factoring these into your budget ensures that you find a home that is both affordable and financially secure in the long term.
Pre-approval doesn't lock you into a specific lender, but it does guarantee that your offered interest rate will be held for 90 to 120 days. This protects you if rates rise while you're still house hunting. If rates drop, you can still take advantage of the lower rate. Another advantage is that pre-approval signals to sellers that your financing is solid, which is particularly helpful in competitive markets where multiple offers may be in play.
PROTECTING YOUR PRE-APPROVAL
You're almost there! The final step before buying your first home is securing full financial approval for your mortgage. Keep in mind that being pre-approved doesn't guarantee your final mortgage will be approved. It's crucial to be completely transparent with your home-buying team throughout the process, as undisclosed debts or making large purchases during your 90-120 day pre-approval period can impact your borrowing power. To avoid complications, it’s wise to hold off on any major purchases (like a new car) or significant life changes (such as switching jobs) until after your mortgage has closed and you have the keys to your new home!
You made it!! Closing day is one of the most thrilling moments in your home-buying journey, where all the house hunting and paperwork come together! On this day, you'll need to involve your lawyer or a notary to finalize the sale. Your lender will transfer the mortgage funds to your lawyer, and you will then pay the down payment (minus the deposit) along with the closing costs, which usually range from 1 to 4% of the purchase price. This payment is typically made using a bank draft, so it’s best to arrange this about 10 days before closing to ensure you can deliver it to your lawyer on closing day. Once everything is in order, your lawyer or notary will pay the seller, register the home in your name, and provide you with the deed and keys. Congratulations— The home is yours!
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