Tips for First-Time Home Buyers
Buying your first home and not quite sure where to start? You’re not alone.
To help you move forward, we’ve put together this handy checklist. We hope this information helps you buy your first house, condo or townhome.
Did you know that there are 3 stages to buying a home? First comes planning, followed by finding your dream home and finally, the closing.
When you’re a first-time home buyer, the process can feel exciting and a little scary. But if you do a little homework beforehand, buying your first home can be fun and rewarding. Here’s how you can make sure you’re prepared:
Find out what you can comfortably afford
It’s very easy to get emotionally invested in a home. But before you do, it’s important to see if you are financially ready. When calculating how much money you will need, think about the other costs associated with home ownership – insurance, taxes, utility bills etc. The TD Mortgage Affordability Calculator can help you understand whether you can afford to purchase your dream home.
Deal with existing debt
The amount of existing debt you carry will have an impact on how much money you are able to save towards your down payment. Use TD’s Mortgage Payment Calculator to help you better understand what your payments may look like when you borrow to buy a home. Besides the down payment, you will need funds for closing costs as well as move-in expenses such as urgent home repairs. As a future homeowner, it’s important to live within your budget and not be burdened by too much additional debt. Getting your debt under control will then give you space to save more for your down payment.
Determine your down payment
A down payment is the money, usually from savings, that you pay up-front towards the purchase of your home. Your down payment amount is usually described as a percentage of the total cost of your home.
If your down payment is less than 20% of the cost of your home, you will have to pay for mortgage default insurance. This helps protect your bank if you fail to make your mortgage payments.
Minimum down payment
Minimum down payment required
$500,000 or less
5% of the purchase price*
$500,000 to $999,999
5% of the first $500,000*
10% of the portion above $500,000*
$1 million or more
20% of the purchase price
*Mortgage default insurance required.
Know what you are looking for in your first home
During the home buying process, it’s natural to get excited. But it’s important to not get carried away by emotions. You can arrive at a rational decision by asking yourself a few questions:
- How long will you live in this house?
- Can you comfortably afford it?
- Is this where you would like to live?
- Does it offer room to grow?
- Is transit easily accessible?
- How long would your commute be?
- What’s the school district like?
Use First-Time Home Buyer Incentives to your benefit1:
The federal government has several beneficial measures to help Canadians purchase their first homes.
- The Home Buyer’s Plan allows first-time homebuyers to withdraw funds from their Retirement Savings Plan (RSP) to use towards their first home.
- The Home Buyer’s Amount is a $5000 non-refundable income tax credit that can be applied to certain qualifying homes.
- The First-Time Home Buyer Incentive enables first-time homebuyers to reduce their monthly mortgage payment without increasing their down payment. Borrowers who meet the criteria can apply for a 5% or 10% shared equity mortgage with the Government of Canada.
- The GST/HST New Housing Rebate offers qualifying homebuyers a GST/HST rebate on the purchase price of a home.
Apply for a mortgage pre-approval
Try to follow a systematic approach to buying your home. While contacting a realtor and looking at homes, consider applying for a mortgage pre-approval. This will help you get an understanding of how much a lender could approve you for. It will also help you make a purchase decision with more confidence once you find a home you like. Apply for a TD mortgage pre-approval online, and we will hold your interest rate for up to 120 days once you’re approved.
Finding your dream home
It’s time for the fun part. This is where you go on a journey of discovery to find a home that’s just right for you. Here’s what you can do to help avoid pitfalls:
Get help as you hunt for a house
A realtor can often help you with various aspects of the home buying process. Before choosing a real estate agent, meet with as many as possible and try to pick someone with excellent credentials and references. Remember, the agent is usually paid by the seller so it may not cost you anything to use one. If you find a home that has potential, consider hiring a home inspector in order to make sure there are no hidden problems.
Plan for all Home Buying Costs
Besides saving for your down payment, you should set aside some money for closing costs. These additional expenses may eventually add up to 4% of the purchase price of the home. Closing costs can include home inspection fees, title insurance, adjustment costs, legal fees and more.
Find a mortgage that works for you
It’s important to explore all your options when financing a home. There are various kinds of mortgages:
Open/Closed: These two types of mortgages offer different prepayment options. An open mortgage gives you the flexibility to make occasional or full prepayments with no charge. A closed mortgage cannot be prepaid, renegotiated or refinanced before maturity, except according to its terms.
Conventional/High-ratio: A conventional mortgage is one where your down payment is more than 20% of the purchase price of the home. If you do not have 20% of the down payment and need to borrow more than 80% of the money you need, you will be applying for what is known as a high-ratio mortgage.
Fixed Rate/Variable Rate: With a TD fixed rate mortgage, your interest rate will stay constant for the term of your mortgage loan. With a TD variable rate mortgage, the interest rate will change when the TD Mortgage Prime Rate changes. If the interest rate goes down, more of your payment will go towards the principal. And if it goes up, more of your payment will go towards interest.
Take a look at the latest TD Mortgage Rates.
Put in an offer
Once you’ve found a home that meets your criteria, it’s time to get your real estate lawyer/notary to review the offer before handing it in. The offer must include your legal name, the amount you’re offering, the date the offer expires and any other conditions that need to be met before closing.
The closing and beyond.
Get coverage for your home
Your lender will require you to buy homeowners insurance before you move in. It’s time to start looking for a home insurance plan that’s right for you. It will also have to meet your lender’s requirements and be comprehensive enough to cover the cost of repairing or rebuilding your home. Look for a customizable home insurance plan that will let you fine tune your coverage.
There’s a lot of paperwork to deal with when you close on a purchase of a home. Your real estate lawyer/notary can help you understand the complex legal terms. Make sure you ask questions if you have any concerns. On closing day, your lawyer will proceed with final delivery of the closing funds to the seller’s lawyer. The last step is receiving the keys to your new home.
Think about tomorrow.
Start planning for the future. Consider discussing your mortgage protection options with your lender. TD Mortgage Protection can pay towards the outstanding balance on your mortgage if you experience an unexpected covered event. This could help protect your loved ones from financial burden.
Now is also a good time to start saving for emergencies. Try to put away a small portion of your salary every month so you’re prepared for any additional expense.
1 First-Time Home Buyer Incentives: https://www.cmhc-schl.gc.ca/en/buying/financial-information-and-calculators/government-of-canada-programs-to-support-homebuyers
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