If you’re a first time buyer, there are some things you really need to do to be well-prepared for your search.
1. First of all, get yourself a good realtor. This should be someone you trust; someone who will take the time to answer all your questions. Remember, you’re a first time buyer: there are no stupid questions.
2. Before you start looking at houses, talk to a mortgage broker and find out what kind of mortgage you qualify for. There’s no point wasting your time by looking at homes that are outside your budget. Why use a mortgage broker? Because they can get you the best possible deal, and their commission is paid for by the lender. Your realtor can recommend someone to you.
If you’re not comfortable with the idea of using a broker, make sure to connect with a mortgage specialist at the bank you deal with. Yes, you can do it on-line, but a website can’t answer your questions or take the time to build a relationship. If there are problems later on (and there often are), knowing who to get hold of will help.
3. Sit down and figure out what you can reasonably afford to pay in costs above and beyond your mortgage. Factor in property taxes, property insurance, legal fees and disbursements, closing costs, hydro, heat, condo fees and moving costs as well as things like cable and internet. Be sure to consider all the necessary repairs and maintenance that go with home ownership too. And don’t forget to set aside $400-450 plus HST for a home inspection.
4. Try to have a healthy amount of money in the bank. You can buy a house with only 5% cash but you’ll pay a bundle in CMHC mortgage insurance if that’s all your equity (i.e the cash you’ve put in), and that can actually double your monthly costs. If you have 20% socked away for a downpayment, you don’t need to pay for that insurance at all, and that will lower your monthly carrying costs significantly. CMHC insurance is prorated: the more cash you have, the less you pay.
5. If you find the house you want, be ready to make a deposit. That deposit will be applied against the cash you have to come up with to close the deal: i.e. the difference between your mortgage and the actual price of the home plus the closing costs. It forms part of the equity in your new home. Equity is a good thing: it’s how much you have invested and the more you have, the lower your mortgage payments will be.
6. Remember that interest rates are going to go up eventually. They will almost certainly have gone up by the time you are ready to renew your mortgage. To be prepared when that day comes, calculate what it would cost you if the interest rate on your mortgage has doubled when it comes time for renewal.
When I bought my first house, the rate was 7.25. When I bought my second home, it was 11.25. Don’t be lulled by low interest rates into thinking that this is the way it will always be. Be realistic. What goes down always goes up, too.
7. Finally, have your agent set up an auto-notification process for you. This involves getting automatic computer-generated searches for new listings that meet your criteria. Don’t rely on Realtor.ca or online listings alone: by the time you’ve found something on the Net, it’s often already sold. You want to be at the front of the line when your dream house hits the market.
Tomorrow: Tips for what to look for inside a house.