Eight Tips for First-Time Home Buyers in the GTA
Updated: Aug 7, 2021
One of the most exciting milestones in life is buying your first home. While buying isn’t for everyone, most Canadians dream of one day owning their own house. When you decide you are ready, you should be prepared for the home buying process.
First-time buyers in the Greater Toronto Area will have a lot to consider. In what town and what neighbourhood are you interested in living? Can you qualify for a traditional mortgage? How much down payment is required? What types of houses are available? What follows are eight tips for first-time buyers to help make the process less daunting.
1. Take Your Time
This is likely the largest financial investment you will make in your lifetime. It is important to get it right. The housing market can be frenzied and it is easy to get carried away with the whole house hunting thing. Take a breath. Slow down. Make sure you are financially ready for this commitment. Look at your finances. Add up all of your expenses and then compare them to your income. Use a mortgage calculator to get an idea of how a mortgage will impact your budget and be sure you can afford a home without becoming cash poor. You want to have peace of mind when you invest in a home and not end up dealing with financial strain. When you take your time, you can be certain homeownership is the right choice for you now. You also reduce the risk of making hasty decisions once your house hunting begins.
2. Get Pre-approved for a Mortgage
Next, when you think you can afford a home, let the banks confirm that. Getting pre-approved for a mortgage is more important than ever. The new stress test can make it difficult to qualify even if your budget says a home should be affordable.
The government’s restrictions don’t just look at whether you can afford current mortgage rates but also if you can afford your mortgage should those rates rise. That can make it challenging to find a mortgage, so pre-approval is always a good idea. You can avoid disappointment, understand your options, and work towards improving your finances should you not qualify. Although there are other lenders who can help if you don’t qualify at the bank, the bank should be your first stop for pre-approval.
On the other hand, if you do qualify, you can set a budget so you can hunt for homes in that price range. Also, your pre-approval will lock you into current interest rates, so should they rise, you keep the better rate, whereas if they decrease, you still get the lower rate.
3. Start Saving
Homeownership requires money smarts, so you know you can make those mortgage payments. Now is the time to set a budget based on the numbers provided by your lender. Your new budget should be based on your mortgage costs in hand with estimated property taxes. You won’t know all your other expenses until you’re in your home, so you want to start setting aside an additional 10% in savings, at least so you have an emergency fund started. That will go towards unexpected costs when you move in. Your goal should also be to save at least three months’ income just in case your employment situation changes.
4. Find a Realtor
With your mortgage pre-approval in place, it’s time to find a real estate agent. Ask around for a referral, as the agents who come with recommendations tend to be more trustworthy. If you can’t find a referral, do your homework, and look for agents whose names pop up often in your local real estate listings. Make a shortlist of agent names and stick to the ones who have excellent reviews. Interview the agents who top your list and then choose the person who makes you feel the most comfortable.
5. Be Location Smart
Make sure the location you choose suits not only your budget but also your lifestyle. For example, do you want a home or a condominium? If you are a couple who enjoys the nightlife, that hip Queen West condo might sound ideal now but consider a few years down the road and whether you plan to have kids. Buying a home in Tottenham might sound like a great idea, but do you have time for yard work, snow removal and maintenance? If you are looking at Pickering, consider the commute times if you have to regularly head to Toronto. Does a semi-detached house or townhome suit you or are you concerned about noise and smells traveling?
Consider the personality of the area in which you are looking. If you want children, look at school selection and kid-friendly amenities in the areas you are considering. Is the area safe? Is it close to work or transportation? Where can you buy groceries? All of these things must be considered before committing to a home purchase.
6. Don’t Be Afraid of Bidding Wars
Although bidding wars are not the ideal scenario for buyers, they tend to be a fact of life right now. So during the offer process, be prepared to get into a bidding war. Your real estate agent will advise you of the ideal offer to go in with, and together you can come up with the absolute highest price and the concessions you are willing to make on the terms. They will negotiate on your behalf and advise you when it’s time to call it quits.
7. Never Agree to Waive the Home Inspection
In a seller’s market where you face bidding, it can be tempting to agree to waive the home inspection to get an edge over the competition. However, this could lead to an absolute nightmare when you move in to find the plumbing is shot, the electrical poses a fire risk, and the roof leaks. Unless you are getting the house at a greatly reduced price that can go towards repairs, don’t let the fear of missing out on the home pressure you into making a mistake. There are plenty of houses that will come up…and remember tip #1: You should never be in a mad rush to buy your first home.
8. Understand Your First-Time Buyer Incentives
In Canada, first-time buyers have several government-supported programs and incentives available, including:
Home Buyers’ Amount tax credit: A $5,000 non-refundable income tax credit amount on a qualifying home.
Home Buyers’ Plan (HBP): This allows you to withdraw up to a $35,000 tax-deferred amount from your RRSP towards the purchase of a home.
First-Time Home Buyer Incentive: For those who earn less than $150,000 and a few other requirements, buyers can access funding towards the home with the government owning part equity. This amount is repayable at the time the house is sold or after 25 years.
Land transfer tax refunds: Available up to $4,000, depending on if the home is resale or newly constructed.
You can discuss incentives in detail with your real estate agent.
Hopefully these tips will help make your first-time home purchase a good one. As we said, one of the most exciting milestones in life is buying your first home. Home ownership is a proven method of building wealth and creating a comfortable life for yourself. Best of luck!