First time home buying advice

[Rossei]

Many in Canada for whom money is a factor cannot stay practical when purchasing their first house. It’s often treated as the “dream house”. Hence, young first time home-buyers fall for the look/aesthetic of the house. As I went through the same experience and made both good and bad choices, I would like to share my ideas with those who are considered middle-class and looking forward to buying their first house in Canada.

I will talk in terms of money here which will help you understand what you’re getting into if you never owned a house before. In short, this will help you to plan and prepare a budget.

Initial (Closing) Cost:
1. Down-payment (min 5%). You need to pay min 20% to avoid CMHC fees (mortgage loan insurance). CMHC rates are now 3.6% for a 5 - 9.99 % down-payment and 2.4% for 10 - 14.99% down-payment.
2. Legal charges (Lawyer’s fees+title insurance/search etc.). Can be anything starting from $1500
3. Home inspection fees. Usually, it’s around $500.
4. Any cost incurred from maintenance/repair of the house (new furnace, AC, water heater, driveway, roof etc.) that you’re willing to do. You can also negotiate with the seller if something comes up from the home inspection report that would need immediate replacement.
5. New furniture/appliances/outdoor equipment (lawn mower, snow blower, trimmer etc.)
6. Moving cost
7. Security deposit (few hundred dollars) for new customer with utility companies

Savings:
1. As a first time home buyer, you don’t have to pay land transfer fees. Usually, it ranges from 0 - 2%.
2. You can also save some tax money by putting the down-payment amount into your RRSP account under Home Buyer's Plan (HBP). You can withdraw this from RRSP only to use it for your first house. But you have to pay it back to RRSP (you can make a monthly/weekly payment plan with your bank for max 15 years). You can claim for a tax refund in the following year. FYI, your RRSP limit is shown on your recent NOA. Note that, there is deadline each year in order to contribute/withdraw money from RRSP account, so talk to your bank in advance.
3. Talk to your own bank, other financial institutions and mortgage brokers for a cheap mortgage rate. If you find a cheaper rate from somewhere else, you can ask your bank to match that if you want to stick to one bank.
4. You don’t have to pay a real estate agent anything. S/he gets her/his commission from the seller (~4%).

Monthly Cost:
1. You will pay roughly $500/mo for every $100,000 borrowed. For example, if you borrow $300,000 from bank to buy a $300,000+ house, you will probably be looking at $1500/mo payment towards your mortgage for a 20-25 year plan.
2. Add another $20-$50/mo if you want to buy some insurance for safety (disability, job loss etc.).
3. Calculate your property tax. You can find a property tax calculator of each city just from Google. The tax amount largely depends on the price of the house and the city where it’s located. It can vary from $100 to $500 per month. For example, you would need to pay only $175/mo in the city of Toronto whereas $375/mo in the city of Sarnia for a $300,000 house.
4. You will also require buying a home insurance, roughly $100/mo. Also, consider 3rd party home security (installation + monthly charge).
5. Utility bills. If you’re moving from an all-inclusive apartment, it will be a shock. Gather historical data of utility bills that have been charged to previous owner. You’re accounted for hydro, water/sewer and gas which can average $300-$500/mo.

Priorities:
1. Reselling/depreciation value of the house and the neighbourhood houses. Generally, the real estate agent can provide you with past history of house values in the particular area.
2. Overall condition of the house (age, foundation, roof, floors, doors & windows etc.)
3. Location of the house (neighbourhood, distance to schools, public transits & other amenities)
4. Type of the house (detached/semi-attached/attached, split/multi-level/bungalow, none/single/double garage etc.)
5. Condition of essential equipment (brand/age of furnace, AC, water heater etc.)
6. Any history of flooding
7. Condition of appliances (brand/age of oven, refrigerator, fridge, dishwasher, washer-dryer etc.)
8. Condition of internal infrastructure (insulation, plumbing, electrical wiring, duct system etc.)
9. Condition of the exteriors (size of the lot, driveway, landscaping etc.)
10. Historical data of utility bills (property tax, hydro, gas, water + sewerage etc.)
11. Size and aesthetics of the house
*** Consider any immediate/future repair or replacement work that deems necessary prior to buying the house. Also, consider any future upgrade or renovation (floor, kitchen cabinets/counters, paint, and new doors/windows etc.) that you may be interested in. Prepare a budget and negotiate to decrease the price accordingly with the seller.

I hope this info will be helpful to new home buyers, especially to new immigrants who never bought a house in Canada before. I’m not an expert in home buying/selling; but learned a lot when I bought my first house in 2013. Choose your agent wisely on recommendations from your friends/colleagues. If you don’t like working with him/her, you can always move out and select another one. I was fortunate to have a great agent whom I will be happy to work with again.

I was somewhat practical and knew what I needed/ didn’t need; but it’s not easy to get everything when you have a budget. And there was also my wife, who became very emotional when we lost to another buyer for one of our first chosen houses (he bought it with a higher than asking price).

So, stay practical, research and think while you jump into home buying market.

Useful Links:
1. Canada Mortgage and Housing Corporation (CMHC) home buying guide
2. The Canadian Real Estate Association
3. Multiple Listing Service (MLS/Realtor)
4. Mortgages for First-Time Home Buyers – RBC Bank
5. Home Buying Savings – Service Canada

 

[emamabd]

Many in Canada for whom money is a factor cannot stay practical when purchasing their first house. It’s often treated as the “dream house”. Hence, young first time home-buyers fall for the look/aesthetic of the house. As I went through the same experience and made both good and bad choices, I would like to share my ideas with those who are considered middle-class and looking forward to buying their first house in Canada.

I will talk in terms of money here which will help you understand what you’re getting into if you never owned a house before. In short, this will help you to plan and prepare a budget.

+1 excellent post!

 

[Quanticko]

Thanks a lot! Rather detailed information in the topic

 

[paolo1967]

Thank you this is very useful topic. I want to share my experience in buying my first house in Canada. I just signed an offer to buy a house which was accepted by the buyer. At the beginning I was very clear about my family needs as I have a big family we are 6 members. so I have general specification which are: need of big house “4 rooms 3 baths”, need to be near to high school and middle school additionally my sons are professional swimmers so I need to be close to swimming club. My wife has its own needs, good and safe neighborhood , quite, big garden, not very exposed to neighbors, big kitchen and near shopping areas. Actually it was difficult to search for home in 20 days landing, however putting all of these specification to relators makes their job easier, of course all of this in addition to your budget. We have seen more than 25-30 houses in different areas until we reached a house that we all felt this is our home and meets 90% of our needs. We went to see this house more than 8 times and each time we felt yes this is our house. We signed an offer and we went through some negotiations with the buyer till we reached an agreement , he dropped the price by 5%. I went to the bank to secure finance which was very easy to obtain 65% finance of its value. The Relator handled all other issues, home inspection, valuator and roof/electricity/ water inspection. Later I assigned a lawyer to handle all paperwork. From my experience you have to take care of :

- Determine yours and your family needs for a house size “number of rooms and bathrooms”, garden size, finishing, electronic, neighborhood,….
- Determine your budget based on required down payment, monthly payments, utilities, taxes and maintenance.
- Speak with your relator about all your needs and dreams.
- Have a look to all possible houses falling with your criteria and exclude house you don’t like or you have doubts about it.
- Put in your mind that you will not find house meets 100% of your needs I believe 70-80% is good ratio to consider.
- Have short list an go to look at it in different timing morning , afternoon and at night.
- Listen to your wife and children they can see things you don’t see, additionally they are the ones who will live in this house.
- Make sure you understands all your obligations in offer letter before sign it and know exactly when your closing date.

 

[scylla]

Thank you this is very useful topic. I want to share my experience in buying my first house in Canada. I just signed an offer to buy a house which was accepted by the buyer. At the beginning I was very clear about my family needs as I have a big family we are 6 members. so I have general specification which are: need of big house “4 rooms 3 baths”, need to be near to high school and middle school additionally my sons are professional swimmers so I need to be close to swimming club. My wife has its own needs, good and safe neighborhood , quite, big garden, not very exposed to neighbors, big kitchen and near shopping areas. Actually it was difficult to search for home in 20 days landing, however putting all of these specification to relators makes their job easier, of course all of this in addition to your budget. We have seen more than 25-30 houses in different areas until we reached a house that we all felt this is our home and meets 90% of our needs. We went to see this house more than 8 times and each time we felt yes this is our house. We signed an offer and we went through some negotiations with the buyer till we reached an agreement , he dropped the price by 5%. I went to the bank to secure finance which was very easy to obtain 65% finance of its value. The Relator handled all other issues, home inspection, valuator and roof/electricity/ water inspection. Later I assigned a lawyer to handle all paperwork. From my experience you have to take care of :

- Determine yours and your family needs for a house size “number of rooms and bathrooms”, garden size, finishing, electronic, neighborhood,....
- Determine your budget based on required down payment, monthly payments, utilities, taxes and maintenance.
- Speak with your relator about all your needs and dreams.
- Have a look to all possible houses falling with your criteria and exclude house you don’t like or you have doubts about it.
- Put in your mind that you will not find house meets 100% of your needs I believe 70-80% is good ratio to consider.
- Have short list an go to look at it in different timing morning , afternoon and at night.
- Listen to your wife and children they can see things you don’t see, additionally they are the ones who will live in this house.
- Make sure you understands all your obligations in offer letter before sign it and know exactly when your closing date.

You must be living in a smaller city or town. An approach like this wouldn't work in Toronto unfortunately. Some houses sell before the are technically even on the market. Opportunities to see a house multiple times before purchasing are often non-existent. But congratulations - sound like you found the perfect house for your family.

 

[paolo1967]

No Syclla, i am living in Dubai. you are right this approach is for smaller towns in Canada, I was speaking about Moncton, New Brunswick. Definitely it is totally different real estate market than Toronto, that is why i open this for discussion in order everyone to get benefit from different experiences.

 

[emamabd]

An approach like this wouldn't work in Toronto unfortunately. Some houses sell before the are technically even on the market. Opportunities to see a house multiple times before purchasing are often non-existent.

Not to mention the bidding wars...which often lead to the property being "sold over asking price" ..

 

[COPRQuestion]

Can someone clarify the below for me please:

Savings:
1. As a first time home buyer, you don’t have to pay land transfer fees. Usually, it ranges from 0 - 2%.

Is this for a brand new home or as a first time buyer in Canada? I thought that you don't have to pay this amount if the value of the house is below a certain figure, I recall CAD 450k. For a property over this price then even as a first time buyer the land transfer fee has to be paid.

I'd be grateful for clarification

Thanks

 

[steaky]

Can someone clarify the below for me please:

Savings:
1. As a first time home buyer, you don’t have to pay land transfer fees. Usually, it ranges from 0 - 2%.

Is this for a brand new home or as a first time buyer in Canada? I thought that you don't have to pay this amount if the value of the house is below a certain figure, I recall CAD 450k. For a property over this price then even as a first time buyer the land transfer fee has to be paid.

I'd be grateful for clarification

Thanks

Depending to the market value of the house (CAD 475K):

http://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand/first-time-home-buyers/current-amount

 

[COPRQuestion]

Depending to the market value of the house (CAD 475K):

http://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand/first-time-home-buyers/current-amount

So as a first time buyer in Vancouver of a property valued at CAD 1.2m I'm still paying a land transfer fee?

 

[Rossei]

Depending to the market value of the house (CAD 475K):

http://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand/first-time-home-buyers/current-amount

I should have been more precise about exemption of Land Transfer Tax. Ontario has similar scopes: the maximum refund amount is $2000. And the land transfer tax varies from 0.5% up to 2%.

Ontario Land Transfer Tax: http://www.fin.gov.on.ca/en/tax/ltt/index.html
Ontario Land Transfer Tax Refund: http://www.fin.gov.on.ca/en/refund/newhome/

 

[COPRQuestion]

I should have been more precise about exemption of Land Transfer Tax. Ontario has similar scopes: the maximum refund amount is $2000. And the land transfer tax varies from 0.5% up to 2%.

Ontario Land Transfer Tax: http://www.fin.gov.on.ca/en/tax/ltt/index.html
Ontario Land Transfer Tax Refund: http://www.fin.gov.on.ca/en/refund/newhome/

Thanks so you're more focused on the Ontario market?

 

[Rossei]

Thanks so you're more focused on the Ontario market?

Well, my writing was from a new home buyer's perspective who has limited budget. This is applicable to most cities in Canada. Obviously, few things will be different in big cities from other smaller ones. For example, a $300,000 house in South-West Ontario (Windsor, Sarnia, London) would be equivalent to a $700,000-$800,000 house in Toronto. $1M cannot be considered a "limited" budget.

However, since I never moved out of Ontario in my 12 years of Canadian life; my words may be little focused on Ontario.

 

[emamabd]

a $300,000 house in South-West Ontario (Windsor, Sarnia, London) would be equivalent to a $700,000-$800,000 house in Toronto. $1M cannot be considered a "limited" budget.

I wonder if Toronto's real-estate bubble would blow up at some point, property prices have gone way far beyond being "reasonable" the bubble keeps growing bigger and bigger! ???

 

[COPRQuestion]

Well, my writing was from a new home buyer's perspective who has limited budget. This is applicable to most cities in Canada. Obviously, few things will be different in big cities from other smaller ones. For example, a $300,000 house in South-West Ontario (Windsor, Sarnia, London) would be equivalent to a $700,000-$800,000 house in Toronto. $1M cannot be considered a "limited" budget.

However, since I never moved out of Ontario in my 12 years of Canadian life; my words may be little focused on Ontario.

Thanks Rossei, appreciate the clarification

Overall it was a great post and very useful. My question certainly wasn't trying to point out an error just to gain clarification for my own circumstances.

+1