Paying my rent is the hardest part of my month.
If you’re like me, paying rent feels like a waste. It isn’t an investment, just a payment to allow me to live somewhere. And when I already pay a bunch of other bills—cable, Internet, hydro, insurance—that massive rent payment can hit me like a ton of bricks.
So, if you’re thinking like me and are sick of paying rent, maybe it’s time to buy your first home. It can be an intimidating thought, but if we break it down, it’s actually not as complicated or difficult as you might think.
Step One: Determine your affordability
Your first move, if you haven’t already, is to make a budget. Write down your bills, debts, and expenses and determine if adding mortgage payments is doable for you. Keep in mind that mortgage payments may not be more than your rent, depending on your situation; ask a real estate agent to help you predict mortgage payments.
When developing your budget, be sure that your monthly housing costs aren’t more than 32% of your gross monthly income, and your monthly debts are below 40% of your gross monthly income.
Your down payment is also a deciding factor in determining your readiness. In Canada, you must have at least 5% of the purchase price (of less than $500,000) ready as a down payment; this amount increases as your purchase price increases. You’ll also have to pay CMHC insurance, also known as mortgage default insurance, but can avoid this if you have a down payment of 20% or more.
You can also take advantage of some government resources available only to first-time homebuyers. The First-Time Homebuyer’s Tax Credit, for example, offers up to $750 in tax credits back to the buyer to pay for any closing costs. You can also withdraw up to $25,000 from your RRSP tax-free under the Home Buyers’ Plan, a program to help first-time homebuyers afford their down payments without suffering significant withdrawal penalties.
Step two: Get a mortgage
It’s important to get pre-approved for a mortgage. You might be interested in a $600,000 home, but can actually only afford a $450,000 mortgage. Knowing this information up-front will save you a lot of time in your house hunt, and because some agents won’t take clients without pre-approved mortgages, you’ll have your pick.
Some key points that lenders will consider:
- Employment consistency: If you’ve worked for your current company for at least two years, you’re more preferred than someone who jumps from job to job.
- Financial documents: Your mortgage broker will want exact numbers, so keeping all your financial documents in one place is your best idea.
- Boost your credit: Your credit will be checked, so in the year(s) before you look at buying, clear up any credit issues and pay down your debts as best as you can. Check your credit reports from Equifax or TransUnion so you’re prepared and understand your credit situation.
There are a few ways you can customize your mortgage. First of all, there’s the length of time to repay the loan—called the mortgage amortization—and it can be anywhere from 1 year to 25 or 30 years. You can schedule payments to be monthly, weekly, or other increments, depending on your preference. Your mortgage rate can be fixed, meaning the interest rate is consistent and locked, or a variable rate, which fluctuates based on the prime rate.
Your mortgage broker can explain all of this to you in detail, and together you can decide what best suits your needs.
Step three: Find your home
Shopping for a home is the fun part. Speak with your real estate agent so she knows what you want and she’ll level that out with what you can actually expect, based on price point, neighbourhood, etc. You can also use sites like Zoocasa to search real estate listings, from condos to detached houses, to help your agent out.
Be sure to view many different homes, including those in areas you weren’t considering, so you have an understanding of what’s on the market and what you can afford.
And don’t give up too early. Finding the right home can take months or it happen all at once. Try to enjoy the process as best you can and have an equal measure of waiting for your perfect home and being satisfied with the best that’s available.
Step four: Make an offer
With your agent, you can submit an offer if you’re sold on a property. She’ll be able to advise you on pricing, as well as any conditions you should include. Depending on the state of the market—if there are lots of buyers for few homes or vice-versa—you may have to compete for the home, putting you into a bidding war.
Essentially, speak with your agent at length before you submit an offer so you fully understand the market you’re in.
There are other steps that come into play either before or after you submit your offer:
- Home inspection: Absolutely crucial, the home inspection informs about problems with the home, from foundation to appliances. In competitive markets, buyers will hire a home inspector before putting in a bid.
- Home appraisal: When putting down a down payment over 20% or on very expensive homes, an appraisal of the value of the home is typically required.
- Conditions: There are a number of common conditions buyers can ask for in their offer, from fixing damages to selling their current property. In competitive markets, buyers likely won’t have conditions—the simpler the offer, the better for sellers with multiple bids.
Step five: Closing day
The day you take possession of your home is called your closing day. Your lawyer will give you your keys and have you sign the paperwork, explaining everything so you’re ready for homeownership.
So, really, it’s five steps between you renting and you buying your own home. While there’s nothing wrong with renting—lots of people do it—if you’re feeling weighed down by your rental payments, buying your first home could be right for you!
Zoocasa is the premier search platform for Canadian residential real estate search, supported by a full-service team of top-producing, in-house real estate agents.