Being a first-time home buyer (aka FTHB) is an exciting position to be in. The dream of owning your own home is a fascinating one and comes with all sorts of inspiring thoughts about having a home base for your family and a place to build memories with friends.
At the same time, being a first-time home buyer can be an extremely daunting position to be in. There are numerous questions to consider when buying a home for the first time.
What is the cost of owning a home? What is the process for qualifying as a first-time home buyer? How much money do I need for a down payment on my first home? Should I buy a condo or a house?
It's important to be methodical in answering these questions, so let's explore them together.
Pros and Cons of Buying a Home
Before jumping into the process of buying your first home, it's important to be aware of both the pros and cons of buying one in the first place. It's likely that buying a home will be the biggest purchase you make in your lifetime, so it's worthwhile to consider the weight of what you are venturing into.
Pros of Buying a Home
Buying your own home offers you the pride of ownership and the freedom to do what you want with your space. You can paint walls, replace carpet, build a garage if you have the space and tear down walls at will without having to go through a landlord for even the tiniest modifications.
On top of doing what you want with your home, owning your own home is a solid and secure method for building equity. Each mortgage payment is one step closer to being able to leverage that equity for further investment opportunities.
On the topic of investment opportunities, buying your first home can be something you enjoy for yourself, but you can also look at the possibility of turning your home into an income-producing property. Whether it's renting out a bedroom to a roommate or the basement to an independent tenant, owning your own home can be a great alternative source of income.
As a first time home buyer you might be interested in a fixer-upper. In that case a purchase plus improvement mortgage might be for you.
Cons of Buying a Home
The challenge of getting into the home ownership market is no small feat. Perhaps the biggest challenge is coming up with a sufficient down payment. Down payments are determined by the purchase price of the home you are looking at, and in Canada, houses can be very expensive depending on where you buy.
With every home comes the reality of maintenance and repairs. Many of these expenses are foreseeable, but occasionally something unexpected happens and it can be difficult to swallow the cost of these situations.
Finally, when it comes to owning a home, you are at the mercy of the market. Buying and selling at the right time can be a tough thing to predict and there's always a risk of loss if the value of your home is low if you need to sell quickly.
Moving Forward with Buying Your First Home
While there is notable risk in buying and owning a home, it's fair to say that both the immediate and long term benefits of owning a home generally outweigh the potential downsides.
Now that you're feeling confident that home ownership is something for you, let's discuss how to pull it off.
Finding Enough Money for a Minimum Down Payment
Every home purchase requires a down payment and this can be a big hurdle to jump over to get into the home ownership market. In Canada, down payments can be as small as 5%, but most lenders look for 10-20%.
If you can achieve a higher down payment to reduce your mortgage payments, this can be even more beneficial. All of this can be calculated with a simple mortgage payment calculator that is available on any financial institution website.
What Mortgage Am I Pre-Approved For?
Beyond that initial down payment, it's important to know what is affordable for you. The CMHC lays out a general rule that suggests your monthly housing costs should be no more than 32% of your average gross monthly income.
Crunching these numbers is an important next step before scrolling through listings and checking out all the open houses. Most financial institutions and mortgage brokers offer no-charge consultation on what kind of mortgage you will be qualified for.
Home Buying Incentive Programs
Given the challenge of scraping together enough money for a down payment, the federal government offers Canadians several benefit measures to help first time home buyers. These incentives include:
The Home Buyers Plan
This allows first time home buyers to pull money from an RSP and use that money toward a down payment on a home.
The Home Buyers Amount
This is a $5000 non-refundable tax credit that can be applied to qualifying home buying situations.
The First Time Home Buyers Incentive
This incentive from CHMC allows home buyers to decrease their mortgage payments without having to increase their down payment by means of shared equity in partnership with the government.
Which Home Should I Buy?
When you've gathered a sufficient down payment, assessed what you're pre-qualified for and tapped into any incentives you qualify for, it's finally time to get into the fun stuff and start looking at homes!
Realtor.ca is a great place to start poking around for homes in the affordability range that you've determined. You can connect with a real estate agent and check homes out in person and find out what works for you.
There's an endless debate between condo, townhouse and detached homes. Much of this is personal preference and what you can tolerate, but if you're a first-time home buyer, the biggest determining factor is likely affordability.
Despite the speed of the Canadian real estate market, it's important not to rush the process. Know what you're looking for and when the right opportunity presents itself, you can jump in with confidence.