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Complete Buying Guide for First-Time Home Buyers

Welcome to this complete guide to buying your first home.

This guide aims to help you get started in real estate investing. It will not cover every single aspect of real estate investing, but it gives a comprehensive overview of the journey. It will help you get started on your path to financial freedom and building generational wealth through real estate.

1. The Benefits of Buying

Many people struggle with the question of renting vs. buying a property. Here are something to consider between the two:

Buying PROs

  • An investment that appreciates in value overtime
  • Complete control over the house
  • Provides ownership satisfaction 
  • Provides long term security vs. renting

Buying CONs

  • Requires higher investment up front
  • Requires regular upkeep and maintenance

Renting PROs

  • Costs less vs buying
  • Don’t have to pay to maintain the major appliances

Renting CONs

  • No control over the home; the landlord does
  • House value increase overtime, you end up with nothing at the end of the lease term

The decision to buy is a personal one. Your personal finances and family situation will dictate the right time to buy. 

If you choose aright home you can afford, the payoff can be rewarding.

Decide on What You Want

There are many types of home available: condo, townhouse, semi-detach and single detached homes. Each will have its own pros and cons and the lifestyle associated with it.

Condo owner can often be closer to bustling city centers. While single home owners can live further out in the suburb and enjoy a more quiet setting.

It will be best to have an idea in mind of what type of lifestyle you prefer before choosing a home.

2. Prepare Your Financials

You need to know how much you can afford before set out to buy. 

Home purchase price consists of 2 parts: Down Payment & Mortgage

Together, they makes up the purchase price of a home.

Down Payment + Mortgage = Purchase Price

Down Payment + Mortgage = Purchase Price

A down payment amount of 20% of the purchase price is recommended.

This will ensure that you do not incur any additional mortgage insurance costs.

A mortgage of the remaining amount (80%) is often provided by banks and lending institutions. They will assess your income, debts and liabilities before making the decision to offer you amortgage.

Other closing costs include lawyer fees, land transfer tax, moving, furnitures, etc…; make sure you budget another 3-5% for these costs.

3. Understand Mortgage

Below are some mortgage basics you need to know as first time home buyers:

1. You can get a mortgage pre-approval before starting to look at houses.

Banks will provide pre-approval up to acertain amount. Coupled with your down-payment, you’ll know exactly how much you can afford. This make house hunting much easier.

As an example:

You and your partner’s combined income is $100,000, and you have $150, 000 in saving. Banks often offer a mortgage somewhere in the range of 5-6x multiple of your income depending on the program. Which means you can borrow up to $500-600,000. Coupled with your saving of $150,000, you can afford a home up to $750,000.

2. Fixed rate mortgage means the interest rate you pay across your mortgage term is fixed. 

Eg. Fixed 2% on a 5 years term. 

3. Variable rate mortage means that the interest rate fluctuates based on the prime rate that the Bank of Canada sets out. 

This can change over the term of your mortage. 

Eg. 1.5% variable rate can increase to 2% in the next year, and again to 2.5% the year after, but decrease to 2.15% in the final 2 years.

4. Amortization period is the total time that it will take topay off your whole mortgage in full. 

Often set at 25 or 30 years. With a 30 years amortization, your monthly amount can be smaller.

5. Mortgage appraisal happens after you signed an agreement of purchase and sale. The bank will appraise the property to ensure that the loan they give out match a property value. Anything higher is your responsibility to pay.

It is worth while to speak with a mortgage professional to understand your finances and prepare for this major purchase.

The difference between a mortgage broker vs. a mortgage specialist

Mortgage broker often works for third party agency and can work with multiple banks to get you a mortgage.

A mortgage specialist is a dedicated specialist of a certain bank (think TD, Scotiabank, BMO, CIBC, etc…). They can only offer mortgage programs from that bank.

Both are good professionals to engage to understand your finances and discover programs that work for you.

4. Looking for Homes

The next important step within your home purchase journey is looking for houses and visiting/touring them.  This is where your realtor comes in.

Working with your Realtor

After having the initial consultation to share your financials, real estate needs and timeline. Your realtor can share with you listings to review before booking them for showing.

Alternative Apps to find Properties

You can look up properties online at aggregator sites like Realtor.ca, HouseSigma or Zolo.ca to find home on your spare time. Alternatively, your realtor will be sending you potential listings to review. You can work with your realtor to select the home to tour.

By touring different houses with your realtor, he/she can point out the various features of the home. You can then internalize and determine what you like (or don’t like) before finalizing your decision.

Things to Keep in Mind when Touring Properties

A few things to keep in mind when touring properties:

  • Check the status of the roof, windows, doors and heating/AC system. As older items can require additional budget to fix in a couple years.
  • Check the neighbourhood, surrounding shops, schools, transits, etc… with Google Map afterward. These features can increase the value of the home in the future.
Touring Houses

Have Realistic Expectation

Keep in mind that there is never a perfect home, unless you build it your self. So set reasonable expectations. A home that has 8/10 features you desired might be the best choice.

Have a check list of “must have” and “nice to have” before viewing can help you make the correct decision. Some examples of “must haves” include number of bedrooms, number of washrooms, backyard, etc… “Nice to haves” include things like sun room, high ceiling heights, backyard patio etc…

If you think it is a good fit and can forgo some “nice to haves”, work with your realtor to put in an offer.

5. The Offer Process

During the offer process, your realtor will ask you about a few important things to include in the offers:

1. Purchase Price

What would be the offer price for the property you would like to buy. Your realtor can help advice you on comparable pricing in the area and what would be an appropriate price point to offer.

2. Deposit Amount

Most often 5% of the purchase price is the standard amount for deposit. However, this can vary. Deposit amount can be used as a negotiating tool because a higher amount means your financial is better off and it signal to the buyer that you are serious.

3. Closing Date

Closing date is the date that you’ll officially take over the ownership of the home; pending full transfer of payment. 

4. Conditions

The two most common conditions are financing and inspection. With these conditions, you ask the Seller to give you a set time period to carry out due dilligence on the home before committing to a firm deal.

6. Closing

After submitting an offer, and if accepted, the next stage in the process is closing. There are a few steps involved before you can takeover the home:

1. You’ll have to prepare a deposit within 24 hours. Most often 5% of thepurchase price, to give to the seller.

2. Next, you’ll have to work with your mortgage professional to finalize the details on the mortgage.

3. A lawyer is also needed to start the closing process. He/she will work with you to ensure all neccessary legal procedures are carried out when transfering ownership of the home to you.

4. If an inspection condition is included, you can visit and inspect the home with a professional before the expiry date. 

Service Team

5. Next, call your insurance provider to obtain a home insurance starting from the closing date. This is legally requiredbefore you can move in.

6. During the final weeks, you’ll also have to consider registering for hydro, gas, internet and mailing service providers.

7. Consider looking up moving services, local doctor, dentist, vets and daycare in advance before you move in.

On closing date, your lawyer will transfer the balance of the purchase price to the Sellers’ lawyer. Upon receipt of payment, the Sellers’ lawyer will transfer the title of the home to you. 

Within 24hr of moving in on closing date, make sure to check all appliances and electronics to ensure that they are working as intended. 

7. Move In

That’s it. Once you get the key, the home is now yours to enjoy.

Beyond enjoying your home, you can also check out more ways to leverage your current home to build wealth. 

Learn about the Mortgage Process,  BRRR Investment strategy, or check out the “Make $1M in 5 Years Masterplan”.

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