Tips for First Time Home Buyers
Buying your first home can be a very daunting process. There are a lot of things to consider, such as style, location, and home features, and a lot of money will be changing hands. You’ll be making payments on this home for years to come, so you naturally want everything to go smoothly.
As a first-time homebuyer, you need all the help you can get. That’s why we’ve put together this selection of helpful tips for first-time home buyers to make your purchase as stress-free as possible.
Take Stock of Your Financial Health
In order to buy your home, you need to be financially stable. There are several pieces to this puzzle, and you should be aware of all of them:
- Credit score: If you have a low credit score, you may not be approved for a mortgage, or you’ll be paying a higher interest rate if you do qualify. Those who are careful spenders who pay cash for everything may have a surprisingly low credit score. That’s because lenders just won’t know whether you are risky or not. To build your credit score, get a credit card and pay off the balance in full each month.
- Down payment: You’ll need at least 5 percent of the cost of the home saved up for your down payment. It’s better to have 20 percent, but that can be difficult for a first-time homebuyer. Thus, if the homes you’re looking at are around $300,000, you’ll need anywhere from $15,000 – $60,000 for the down payment. While there are some great benefits to making a larger down payment, you don’t want it to hold you back from getting into your new home.
- Emergency savings: Your home purchase shouldn’t completely wipe out your savings. Make sure that you have a few months in the bank after you’ve paid all costs associated with moving just in case something comes up.
For most first-time homebuyers, the key to getting ready for the home purchase is to cut back on spending in order to save up the money you need. If you have debts, be sure to pay them off as well, starting with the ones that have the highest interest rate first.
Research Available Help
Buying your first home can put a big stress on your finances. First-time homebuyers often struggle to come up with the down payment for their home, and there can be unexpected expenses that come up after the purchase.
People don’t always realize just how much help is out there for first-time homebuyers. Check out the following programs:
- Home Buyer’s Plan: The Home Buyer’s Plan is a government-sponsored program that allows you to borrow money from your Registered Retirement Savings Plan (RRSP) in order to put a down payment down on your first home. Individuals can borrow up to $35,000 (couples can each take out that amount, for a total of $70,000). You do need to repay this money — and that factors into affordability determinations during the mortgage qualification process — but this is a great way to get you into your new home so that you can start building equity.
- First-Time Home Buyers’ Tax Credit: You may qualify for a $5,000 tax credit when you file taxes after buying your first home. That can help you get your finances back on track if you’ve dipped into savings to make that home purchase.
- GST/HST new housing rebate: Those who fit certain qualifications may be able to get a rebate on some or all of the taxes they paid during the purchase of their home.
Know Exactly What You Want From Your First Home
Once your finances are in order, it’s time to start shopping for your new home! An important first step is understanding exactly what you want from your first home. When you’re purchasing a brand-new home, the sky’s the limit, but you do need to make sure that you’re focused on sticking to your budget.
For instance, it’s easy to get caught up in the excitement of including new features in your home, but you want to make sure you actually need the features you’re paying for. If you don’t plan to entertain often and you don’t plan to rent to a tenant, you may not need a completely finished basement. If you’re not that into cooking, you probably don’t need an updated kitchen. Every little feature and upgrade could cost you extra money, so make sure you’re only spending on the things you really need.
At the same time, you don’t want to be too frugal about your purchase. Even if you’re thinking about this as a “starter home”, you’ll still be staying in the home for several years before you have enough equity to get your next home. For instance, many young couples don’t have children yet, but they plan to have some in the future. If you buy a home that’s too small for your growing family, you’ll soon be disappointed with the lack of space. With proper planning, you may find that your first home is the home that you stay in for life.
It’s fine to browse home models to get a sense of what’s out there and what you might want – in fact, we highly recommend it! But before you actually make your purchase, you’ll want to sit down and carefully think about what features are on your must-have list, versus the ones on your want list.
Free Resource – Your New Home: A Needs Versus Wants Checklist
Getting A Mortgage
As you get serious about shopping for your new home, you need to get a mortgage approval. This is the loan that you’ll need to pay for your home.
Initially, you’ll want to start with a pre-approval from your bank or a mortgage broker. They’ll take a look at your credit score and verify your income. Then, they’ll tell you how much they’re willing to lend you. From there, you can shop for a home in your price range.
Note: this is not a mortgage pre-qualification, which is when the bank gives you an idea of how much they’ll approve you for based on your stated income and credit. The pre-approval is more formal. This is the one you want.
There are a couple of different types of mortgages, but there are two things you really want to pay attention to:
Fixed mortgages have an interest rate that remains the same for the duration of the loan. The rate on a variable mortgage can change over time. The fixed-rate mortgages tend to be “safer” because you always know what your payment is going to be, but the variable interest rate mortgages tend to start with lower interest rates. Each has their pros and cons, so figure out which is best for you by discussing it with your bank or mortgage broker.
In an open mortgage, you can make extra payments or pay off the loan early, but in a closed mortgage, there are penalties for paying early. This doesn’t matter if you are planning to live in your home for a long time, but if you need to sell in a few years, a closed mortgage is not for you.
Don’t be afraid to shop around for your mortgage. You may get different interest rates from different lenders, and even a small change in the interest rate can add up to a lot of money over time.
Related Article – 5 Reasons to Use Your Builder’s Preferred Lender
Find the Right Real Estate Agent
Working with a good real estate agent can make the home-buying process much easier, especially if you’re going to purchase a resale home. They know the area well, and they can help you find a home that’s within your budget. They’ll also help arrange viewings of homes that fit your needs, help you write the offer letter and all the other things that you may not know how to do.
Perhaps most importantly, they can help you negotiate with the seller. Using their knowledge and experience, they can tell you if you’re making a fair offer or if you need to accept the seller’s conditions. This can be a big help.
Your Realtor® will also help you with the closing process. With all of the tiny details that come up during this time, it’s nice to have someone on your side.
If you’re going to be a brand-new home, you don’t need to have an agent but you can if you would like. The Area Manager will act as your point of contact, and this person can help guide you through the buying process, including finding a home that meets your needs and budget.
Free Resource – A New Home Versus a Resale Home: The Pros and Cons
Be Prepared for Closing Costs
Everyone knows you need to have money saved up for the down payment, but be prepared to have some extra funds set aside for the closing costs. These are several fees you have to pay on the day that you finalize your mortgage, and you need to have cash on hand for them. In addition to the down payment, you may need to have money for:
- Home inspection fee (on resale houses)
- Mortgage insurance (if you have less than 20% for your down payment)
- Property taxes (one full year upfront)
- Homeowners insurance (one full year upfront)
- Legal fees
- Appraisal fees
The actual costs for this can vary for each transaction. Generally, though, you’ll want to have 1 to 4 percent of the cost of the home to cover these fees. As you get closer to the date of your mortgage closing, your lender, agent, or Area Manager will be able to give you a better idea of how much money you’ll need.
Buying your first home can seem intimidating at first, but with the right knowledge, you’ll go through the entire process smoothly. Don’t be afraid to ask for help or advice, and be sure to make use of the experts and assistance that’s available. Speak to one of our Area Managers today to find out how you can get started, and in no time you’ll be sitting back and enjoying your first home!
About the Author:
At Sterling Homes, our mission is to provide the opportunity for affordable homeownership without compromise. Over the last 70 years, Sterling Edmonton has quickly become one of Edmonton’s most popular builders. We bring more than seven decades worth of exceptional customer service, superior design and unparalleled craftsmanship to the greater Edmonton area. As a member of the Qualico Group, Sterling Homes focuses on greater Edmonton’s finest family communities, while being able to offer some of the region’s most family friendly prices thanks to volume purchasing power for materials, trades and land. This has not only made Sterling one of Edmonton’s bestselling, move-up builders, but also one of the industry’s most respected home providers.
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