A 7-Step First-Time Home Buyer’s Guide That’ll Make You Feel Like a Pro
There’s a first time for everything. But there is nothing quite like buying your first property.
Buying a home is typically one of the largest purchases you will ever make and a great investment in your future. If you are ready to begin your homeownership journey, this step-by-step First Time Home Buyer’s Guide is exactly what you need. You’ll get tips on determining your budget, choosing a REALTOR®, finding a property, offers to purchase, mortgage loans and insurance, and more!
It will help you familiarize yourself with the home-buying process and provide you with the knowledge to buy your home with conﬁdence.
- How Much do You Need for a Down Payment?
- The Home Buyer’s Plan (HBP)
- 5 Ws of the New First-Time Home Buyer Incentive
- The Right Questions to Ask When Selecting a REALTOR®
- The Perks of Working with a FairSquare Group Realty Home Buying REALTOR®
- How to Choose the Perfect Property
- Tools to Help with Your Search
- Breakdown of Offers to Purchase
- Offer and Counteroffer Process
- Mortgage Types
- Loan Insurance
- Property Title and Documentation
Establishing your budget is one of the first and most important steps towards setting your expectations and limits for purchasing a home. You can save yourself a lot of stress by evaluating your current financing needs and priorities. To help you achieve a peaceful purchase, let’s look at some tips around payment options, the Home Buyer’s Plan, and the Canadian Government’s First-Time Home Buyer incentive.
Appling for a mortgage loan requires you to invest a portion of money from your personal assets. The total sum can come from a variety of sources. Registered Retirement Savings Plans (RRSPs), deposit certificates, savings accounts, or the Home Buyer’s Plan can all contribute to your down payment.
Don’t forget gifts from Grandma! Under the right condition cash gifts can be applied to your total as well. However, this sometimes has limitations from the lender. Today, the funds need to have 90 days of history in the purchasers account to be utilized.
How much do you need for a down payment?
It’s simple when it comes to down payment. Bigger is better. But it’s not actually needed to purchase a property. For first-time home buyers, the minimum down payment is 5% of the value of your property. If you put more money down, your loan size will decrease, and you will pay less interest. However, if your down payment is less than 20% you must pay for mortgage loan insurance. The most common insurer is the Canadian Mortgage and Housing Corporation,1 but there are others to choose from as well.
We understand that for many first-time home buyers, it can be challenging to save up a 20% down payment. So, each buyer must assess their needs individually and decide if it’s the right time to enter the market. Sometimes, it may not be best to wait until you have 20% saved when you can make money off the value of your property in the meantime.
The Home Buyer’s Plan (HBP)
The Home Buyers’ Plan (HBP) allows first-time home buyers or those who have not owned a home for at least 5 years to use funds from their RRSPs as a down payment for their primary residence.
“The HBP allows you to withdraw up to $35,000 per calendar year from your RRSP ($70,000 per couple) without paying any tax. You then have a maximum of 15 years to repay the amount (without interest) back into the RRSP. Each year, you must pay back a minimum of 1/15 of the amount withdrawn from the RRSP. For example, if you withdrew $12,000, you would have to pay back $800 per year for 15 years. If you do not pay back the annual minimum, you are required to add the amount to your income and pay the applicable taxes.” – Desjardins, 2021
First-Time Home Buyer Incentive – Five Ws
The First-Time Home Buyer Incentive 2 is for first-time home buyers who need financial help breaking into the real estate market. The buyer must have an annual household income of less than $120,000 (before tax and deductions) and meet one of these requirements:
- Have never purchased a home
- Have recently experienced the breakdown of a marriage or common-law partnership
- Have not occupied a home that themselves or their current spouse/common-law partner have owned in the last four years
The Government of Canada’s Eligibility and Savings Calculator 3 can help you determine if you’re eligible and how much you can save.
The First-Time Home Buyer Incentive is a shared equity mortgage offered by the Government of Canada through the Canadian Mortgage and Housing Corporation. It applies to first-time home buyers who are interested in purchasing resale homes, new construction homes, or mobile homes (new or resale). Any of these homes can include up to four units.
These first-time buyers can receive 5% or 10% toward their home value. For resale homes and mobile homes, the Government is offering a 5% incentive towards the buyer’s purchase and 5% or 10% for new construction purchases.
The incentive must be paid back within 25 years or when the property is sold, whichever happens first. There is no penalty to paying back the incentive early.
Shared equity means the government shares in the upside and downside of the property value. If your property has increased in value from the time, you purchased it, you are required to pay the Government the percentage on the current value. Example: Your initial purchase price was $500,000 and you received a 5% Incentive of $25,000. Years later your home is worth $600,000. You now owe the Government 5% on the new value, which is $30,000.
On the flip side, if your property goes down in value, the same rule applies. Example: Your initial purchase price was $500,000 and you received a 5% incentive of $25,000. Years later your home is worth $400,000. You now owe the Government 5% on the new value, which is $20,000.
Regarding down payment requirements, a minimum down payment of 5% is required on the first $500,000 of the lending value and 10% on the lending value of over $500,000. Any properties with three-four units must provide a minimum down payment of 10%. Down payments can only come from a traditional source, which includes savings, withdrawal or collapse of a RRSP, and financial gift from a relative (non-repayable).
The incentive came into effect on September 2, 2019.
The incentive is available to all Canadians. However, with the mortgage loan amount being capped at four times the household income of $120,000, the price of the home would likely be capped at under $600,000, depending on the amount of down payment provided by the buyer. This cap might limit the regions in Canada you can buy in due to the cost of homes in hot markets.
For young Canadians, it can be challenging to enter the real estate market. Depending on the location, rental markets are competitive, or housing prices are high compared to income levels. The intentions of the First-Time Home Buyers Incentive are to ease the financial strain for buyers in an affordable way.
Getting pre-approved for a mortgage is imperative to begin your house hunting process. Quick 60 second preapprovals don’t usually cut it, a “real preapproval” involves pay stubs, tax returns, a credit check and more. Having one will give you a clear picture of what you can afford when you begin shopping. It will also greatly reduce the risk of being denied a mortgage after an offer is accepted. Seller’s and their agents will usually inquire if a buyer is preapproved at the time of an offer and may outright reject the offer if the purchaser is not preapproved.
Though a pre-approval won’t guarantee that you’ll get a mortgage when you’re ready to buy, having one will give you a clearer picture of what you can afford and help guide your house hunt. A pre-approval will also limit the chances of being rejected for financing when it comes time to finalize your home purchase. Another notable benefit of a pre-approval? If you decide to make an offer on a home, sellers are more likely to take it seriously because you've come prepared.
The Right Questions to Ask When Selecting a REALTOR®
Selecting a REALTOR® should not be a decision taken lightly. Many people are tempted to or feel an obligation to use a friend or friend-of-a-friend, when really the decision should be based on these main criteria: experience, track record and reviews.
Here are some questions you can ask to help you determine the right REALTOR® for you!
- How many homes have you helped people purchase?
- Do you typically focus on helping people sell a home or helping people find a home?
- What regions are you most familiar with?
- How informed are you about X, Y and Z? (Depending on your needs for the home, e.g. a good school district)
Track Record and Reviews:
- How much of your business is repeat clients?
- Where can I find client reviews?
The Perks of Working with a FairSquare Group Realty Home Buying REALTOR®
What can you expect working with a FairSquare Group Realty REALTOR® to find your dream home? The same full-service experience you’d expect with other agents. However, FairSquare Group Realty uses a team-based approach where our agents specialize in the area of the transaction they excel in, which means your FairSquare Group Realty Home Buying REALTOR® is solely focused on helping home buyers find their dream home.
Here’s how we’ll support you along your journey:
- Planning your buying journey
We’ll pair you up a with a local REALTOR® who specializes in home buying and who’ll be with you every step of the way.
We’ll set you up with email alerts for homes that match your criteria, send the house listings to your inbox, and gather information on any property you’re interested in.
- Take care of offers and negotiations
With our market insights, we’ll help you decide on the best offer amount, handle the negotiations, navigate multiple offer situations, and of course, seal the deal.
- Receive cash back
In addition to our elite-level customer support, we give you $2,000** cash back! It’s our way of saying thank you for using FairSquare Group Realty.
For more information visit, FairSquare Group Realty.ca/buy.
How to Choose the Perfect Property
Now that you’ve got a handle on your budget and know how to find the right REALTOR®, it’s time to start the fun part … house hunting! Before you do, making a list of your must-haves, nice-to-haves and deal breakers is a great way to keep you on track and not let emotional responses to a home get the better of you. In addition to lifestyle requirements like schools and proximity to amenities, key points to consider are location and property type.
Location is an important factor, if not the most important factor. Help narrow down your search area by asking yourself these questions:
- How long would it take you to get to work?
- What are your public transit options?
- Are there daycares, hospitals, parks, or stores nearby?
- How much have other homes in the area sold for?
- Is the area full of rowdy students or nosey neighbours?
Extra question: Is this a starter neighbourhood you can see yourself moving away from in less than five years or is this an area you’d like to plant long-term roots in?
Type of Home
Take the time to choose a home that fits your budget and style. Remember, it’s not always about having more space if you don’t need it.
Here are just some of the common types of homes you can choose from:
- Detached (bungalow, 2-storey)
- Freehold townhouse
- Duplex, triplex, multi-unit
- Condominium or condominium townhouse
Here are some questions to ask yourself when you are deciding what type of home to live in:
- Do you need a lot of privacy?
- Could you see yourself sharing part of your space with neighbours or renters?
- Are energy efficiency and environmental quality (insulation, heating, air quality, ventilation, lighting, type of materials, etc.) important to you?
- How much time will you have to spend on upkeep?
- Do you need large rooms?
- Do you want a big backyard?
Don’t hesitate to ask any questions you may have about the properties you visit—the age of the roof, heating costs, whether the fireplace or woodstove meets insurance company requirements, the age of the windows and water heater, what’s included in the selling price, the neighbourhood, what renovations need to be done, and more!
Tools to Help with Your Search
Your REALTOR® is here to help and will keep you updated with any homes that hit the market that meet your criteria. You could also sign up for alerts to get notifications directly to your email with new listings—you select the type of homes you want to see, the regions and how often you want to receive notifications!
You’ve found the house of your dreams. It’s got everything and more! It meets all your criteria and is within your budget. The butterflies start to turn in your stomach. Now it’s time to make an offer to purchase.
Breakdown of Purchase Offers
Purchase Offers legally binding. They are contracts in which one party offers to buy another party’s property under certain conditions. Purchase Offers include all the information required to identify the property, plus the conditions of the transaction:
- Address and lot number
- Deposit amount
- Possession date
- Tax adjustment and land transfer tax
- Length of time the offer is valid (usually between 24 and 48 hours)
- What’s included in or excluded from the selling price (e.g., curtains, household appliances)
- Approval of mortgage loan (condition on the purchase)
- Satisfactory inspection of the premises by an expert (condition on the purchase)
- Note: these can be optional conditions as a buyer may choose to waive them in competition. They can be included with the offer but are not a foregone conclusion that they will be utilized.)
Offer to purchase forms are easily available through our homebuying service or from your REALTOR®.
Offer and Counteroffer Process
You may be thinking, but what happens once an offer has been made? The seller can either accept it or turn it down. If they reject it, they can make a counteroffer (on the price, closing date and so on) that you can either accept or turn down. If you reject the counteroffer, you can then make a counteroffer of your own. When an offer is accepted by a seller, it creates an agreement to sell. Once a purchase offer has been accepted and the conditions it contains are met, neither party can refuse to carry it out. Otherwise, the seller or buyer could be sued for damages. The buyer could even lose their deposit, which is usually around 5% of the total purchase price.
You might want to consider if your property is in good condition by having it checked over by a building inspector. This is something that is not always necessary, but an inspection report may be included as one of the conditions on the purchase. A negative inspection report may be a negotiating tool for you or could even render the purchase offer null and void. Building inspectors provide reports that assess the condition of a house, including the foundation, roof, structure, windows, insulation, plumbing, electrical, etc.
Once you have an accepted offer, it’s time to work on fulfilling the conditions of the offer that pertain to you. In addition to scheduling an inspection (if included as a condition in your offer), you will need to secure your financing.
Not all buyers are in the same financial situation. The rate is important, but it’s not necessarily the top selection criteria for mortgage loans. To help you make an informed decision, you need to determine your objectives for paying back the loan.
Do you want to:
- Make lower payments so you can have more money to spend elsewhere?
- Pay the least possible interest?
- Have the option to pay off your loan in 15 years instead of 25? Or 30 instead of 15?
- Secure a fixed-rate mortgage? Variable-rate mortgage? Fixed yearly rate resetter mortgage? Hybrid mortgage? Accelerated payments? Speak to a REALTOR® for more info.
Here are some common options available:
The interest rate stays the same until the end of the term.
Variable rate loans:
The interest rate varies according to the prime rate. Yearly rate resetter loans include a pre-established rate discount and the rate is revised annually.
This option allows you to make an early, penalty-free repayment of up to 15% of your initial loan amount every year (or term if the term is less than one year) in one or more instalments. You can also increase your regular payments up to double the initial payment once per year (or once a term if the term is less than one year).
Depending on the type of mortgage loan you get, the term may vary from a few months to many years. If you are this stage of the journey, it may be time to contact a mortgage professional. Desjardins offers a variety of mortgages for each individual borrower’s needs.
Many people think that if they already have salary insurance, they don’t have to worry about protecting their loans. However, in some cases, salary insurance only covers two-thirds of your current income. When you’re deciding whether to get insurance on your mortgage loan, consider your ability to make your mortgage payments if an accident or illness were to prevent you from working for a while. When you do the math, don’t forget that in addition to paying for your house, your financial cushion also must cover your other costs (groceries, clothes, taxes, electricity, children’s education, medication, travel to the hospital, other loans, etc.)
Property Title and Documentation
If you are satisfied with the result(s) of the offer conditions, you can make the deal firm. At this time, your REALTOR® will forward all necessary documents to your lawyer, including the property title.
Your lawyer will take care of the legal aspects involved in transferring property titles and mortgage financing. They provide the mortgage deed (contract outlining the loan conditions) and the deeds of purchase and sale, which are drafted from the purchase offer and transfer the property title to the buyer. They also perform a title search, examine documents published in the land register, review documents provided by the seller (tax receipts, location certificate, marriage contract or divorce papers) and ensure properties are free and clear of any encumbrances. Your lawyer will pay the seller on your behalf with the funds you transfer to them. The funds include your down payment, taxes, and other costs. Once all the documents have been verified and both parties have signed the deed of conveyance, you are officially a homeowner!
Congratulations, you’ve purchased your first home! And if you’ve used a FairSquare Group Realty REALTOR®, you’re also $2,000 richer. It’s time to celebrate!
If this seems like a lot, it’s because it is. There are a ton of little things to think about before securing your first property. But that’s why the first time is special. Everything is new and you learn along the way. With the help of this guide and these 7 steps, you can prepare yourself for the emotions that come with this experience.
More importantly, you’ll have the information to make the right decisions along the way.
Ready to buy your first home? FairSquare Group Realty can help.
A local FairSquare Group Realty Agent will help you find the ideal home for you and you’ll get $2,000* cash back! We pair you up with a Home Buying REALTOR® in your neighbourhood whose only job is to find the perfect home for your needs. If you’re ready to take the next step and find a REALTOR® to help with your house hunt, visit FairSquareGroupRealty.ca today or give us a call at 1-855-348-1820.