Buying Your First Place? Here’s What You Need to Know

Buying Your First Place? Here’s What You Need to Know

Buying your first home is exciting, but it can also be very overwhelming. Where do you start and how do you even know what questions to ask?

I’ve worked with enough first time buyers to know the questions they need the answers to.

The best start for a first-time buyer is to approach a trusted and knowledgeable real estate agent. They will give them a sound path to follow in order to ensure they are following the steps to success. In truth, the real first step is meeting with a mortgage broker or lender to find out what financing options are available based your credit. You’ll find out what price range you can be approved for based on your salary and debt load. Once you have that information, you can figure out what you’re comfortable with in terms of a purchase price and carrying costs because those are two very different things.

In addition to the mortgage payment, you’ll need to budget for property taxes, gas, electricity, and maintenance. A condo will have fixed monthly maintenance fees and a house will also require regular upkeep which should be budgeted for. The current homeowner should be able to show you recent utility bills, while a home inspection will give you a good idea of the existing condition of the property and what repairs you should budget for in the future.

Deposit vs. Down Payment

Although your lender may have pre-qualified you for a mortgage, you will need some cash on hand for your deposit and down payment.

The deposit is the amount you give to the listing broker’s office when your offer has been accepted. A solid deposit shows you’re making a purchase in good faith and gets credited to the total purchase price on closing. In the Toronto market it is usually 5% of the home’s value.

The down payment is the amount of money you give to the seller through their lawyer upon closing. The difference between the cash you have in hand and the purchase price is the mortgage and it comes from your lender. Your deposit is included in calculations of your down payment.

How much do you need for a down payment?

  • If the unit you’re buying is $500,000 or less, the minimum down payment is 5%.
  • If the unit is between $500,000 and $999,999, you’ll need 5% for the first $500,000 and 10% for anything above $500K.
  • And, if the space is $1M or more, you’ll need a minimum down payment of 20%.

An important note, if your down payment is less than 20%, you have to buy mortgage loan insurance. Insurance is not available if the purchase price of the home is over $1M.

Incentives available 

RRSP Home Buyer’s Plan.

You and your spouse can borrow up to $35,000 each to put towards a down payment and repay it over the next 15 years.

First Home Savings Account (FHSA)

The FHSA is a new account that allows people to save for their first home. You can contribute up to $8,000 every year to a maximum of $40,000.

Depending on your income and the price of the home you’re buying, you may also qualify for the federal First-Time Home Buyer Incentive, but before you get too excited, it’s hard to qualify in Toronto. The maximum value of the home you’re buying can’t exceed 4.5x your qualifying income, which means even if you earn the max eligible ($150,000), the property you’re buying can’t be more than $675,000.

Other funds you have to have on hand:

Lawyers fees, which can range wildly. If you don’t have a lawyer lined up, your realtor can refer you. I always give my clients three names so they can choose.

Land Transfer tax (both municipal and provincial), click here to access a handy calculator.

The good news is that you may also be eligible for a Land Transfer Tax Refund

Keep in mind that this is a refund and you will need to have the full amount of the Land Transfer Tax on hand. It can’t be incorporated into a mortgage.

You’ll also have to budget for moving costs, either a rental van and pizza and beer for your friends or for professional movers (highly recommended).

Even if you’ve owned property in the past, you may still be eligible for these incentives. The federal government considers you a first-time home buyer if “in the four year period, you did not occupy a home that you owned, or one that your current spouse or common-law partner owned.”

Now that you understand how much money you’ll need in addition to a deposit and a down payment, you’re ready to start looking for your new home based on the neighbourhoods you like and what sort of property you can afford.

I know this amount of information can be overwhelming, but that’s really why you need an experienced realtor. If you have any questions, please get in touch.