If you’re in the market for your first home purchase, there’s a lot to learn. This is a huge decision, and lots of thought should go into it. Besides the immediate large financial investment, you’re locking yourself into a long-term commitment, and don’t want to create more headaches during this happy time. This article from Groupe Youthana puts things in their proper perspective: How to get started, how much you can afford, and how to handle important decisions. Although there’s always more to learn, here we offer some pretty insightful First-Time Home Buyer Advice.
Should you buy a home, or continue renting?
Many people begin their adult life renting an apartment because there’s no big down payment or long-term commitment. The main disadvantage to this is that your rent is 100% expense with no chance for return on the dollar. Once that money is spent, it’s gone forever.
When you own your home, however, it’s an investment which can offer benefits including:
- Each monthly payment (in part) brings down the total mortgage loan balance, especially if the mortgage is fixed-rate.
- Income tax perks for home owners: the interest on that mortgage and municipal tax can normally be expensed from your taxable income.
- The market value of the property historically rises over time, which provides profit upon sale, or the ability to borrow more money for a second property.
- You can renovate, modify, and decorate however you like, with no landlord to limit your creativity.
When should you enter the market as a First-Time Home Buyer?
The answer here is never the same for everyone. However, the decision-making process should always involve these questions:
- How much will the down payment be, and do you have enough savings?
- Will your present income likely increase, decrease, or remain stable?
- Have you enjoyed 2 or more years of regular income?
- What will a mortgage payment, property and school taxes, and home insurance do to your monthly budget?
- How is your credit score?
If more than one of these issues creates doubt, you might not qualify for a mortgage, and you might be rushing into things too. It’s not only the desire to own a home that should motivate your timing, but your means as well. This is likely First-Time Home Buyer Advice that your grandfather gave you, and he was right.
What will your “cash up-front” amount look like?
Again, there’s no universal answer here. It fluctuates depending on several things. Factor in the selling price of the home, what kind of mortgage you landed, and the normal “closing costs” for your area. That last figure may come as a surprise, but usually cannot be avoided.
One smart piece of First-Time Home Buyer Advice is to be ready with enough cash in hand to cover…
The Down Payment: This is the percentage of the selling price that you must pay up front. The higher the amount paid “at closing”, the lower your monthly mortgage reimbursement will be. Historically, you could get away with 5%, but many banks today require between 10% and 20% of the total agreed price. This will also be influenced by “Mortgage Loan Insurance”, which is commonly referred to as CMHC Insurance. It is mandatory in Canada for down payments between 5% (the minimum allowed) and 19.99%. If you want to avoid this added monthly premium, put down 20% or more.
Closing costs: These are various charges you must pay at settlement. They include lender fees, the appraisal, a survey, a building inspection, notary fees, the Montreal “Welcome Tax”, title insurance, and any similar administrative costs. Ask for an estimate of your total closing costs from your Mortgage Broker or Bank, to avoid surprises. Thankfully, the Realtors’ commission comes out of the Seller’s share (unless they’ve made special arrangements in advance). The Mortgage Broker’s cut is covered by the Bank.
Monthly payments: what can you afford?
Use our Mortgage and Land Transfer Calculator to see what dollar figures fit within your budget. If what you can really manage is much less than the going rate of homes in your region, then you may need to alter your game plan. Maybe look at a different area, a smaller property, or wait till your financial situation improves.
Don’t forget you’ll have other new expenses every month, and not just the selling price of the home. The main components are principal, interest, taxes, and insurance. On top of this, you’ll now be paying more in utilities, maintenance (upkeep), and perhaps landscaping or snow removal.
What to expect at the official closing?
Another good piece of First-Time Home Buyer Advice. The closing process (usually facilitated by a Notary in Quebec) is where all the various fees and costs attached to buying the home are finalized. This is the last chance to make needed or desired changes to the written agreement. You should be accompanied by your expert Montreal-area Real Estate Agent to help ask about terms or charges that you’re not clear on.
By this point, you should really be familiar and comfortable with what you’re getting into, and it’s not time to back out or play hardball. The Notary should run you (and the Seller) through the major terms of sale, then present a small pile of documents to sign. The mortgage and title transfer will be recorded with the city registry, and you’ll receive a copy of all documents. Once they hand you the keys, you’ll be the new owner, and it’s time to celebrate!
What government incentives are offered for first-time home buyers?
For First-Time Home Buyer Advice on this topic, you need to become familiar with the financial programs that apply in your area, and to your situation. The rebates you might qualify for, a tax strategy for funding your down payment, and the minimum down payment for your purchase all tie in together. There’s guidance and info available for First-Time Home Buyer Programs for Canadians in general, and for Quebec First-Time Home Buyers specifically. Read up on these and ask your Real Estate Agent how it might guide your buying process and save some money along the way.
Do your homework, know what you can afford and what to expect. In the end, becoming a homeowner should always be a life goal. Is Real Estate A Good Investment? Of course! It’s just a question of when and how.