Buying Your First Home

March 5, 2003

The transition from renter to homeowner is likely the biggest investment you will ever make. It is frightening to know that you will now be responsible for a home. As a renter, if the basement wall fell in or the furnace went, it was the landlord’s problem not yours. As a renter you just paid your rent every month, but as a homeowner you’ll be responsible for deciphering mortgage terms and paying property taxes.

It is essential to do your homework before buying a house, keeping in mind that it is not a simple proposition. Numerous questions are to be answered in order to make the whole process come to life. Not only do you need to consider your budget, lifestyle and location, you need to look at the many housing and mortgage options. What type of home do you want? Do you have location preferences? What about the mortgage you will need? Do you want it open or closed, long or short term, fixed or variable? The home buying process introduces you to numerous people: real estate agents or homebuilders, mortgage consultants, lawyers, and home inspectors. If it all sounds complicated to you, it is.

The first logical step in buying a home is getting a pre-approved mortgage. You need to qualify for a mortgage. If you do not have good credit, steady reliable employment, and the money for a down payment you may be denied a mortgage. It is a lot easier if you know that your financing is in place before you get your heart set on the house of your dreams.

A pre-approval will also let you know how much house you can afford compared to the debt you currently have. Your mortgage consultant will use the Gross Debt Service Ratio, a process that determines how much you can afford to pay each month toward a mortgage. A conventional mortgage requires a down payment of 25% or more. Anything under a 25% down payment is considered a high ratio mortgage. This type of loan must be insured against default with the federal government through the Canada Mortgage and Housing Corporation (CMHC). You pay a one time insurance premium, ranging from 0.5% to 3.75% depending on the size of the loan and the value of the home. The premium is usually added to the principal amount of the mortgage. It takes an entirely new vocabulary to negotiate the terms of your mortgage: open or closed, long or short term, fixed or variable interest. An experienced mortgage consultant will be able to advise the best options for you. Now, pretty much all that is left to do is to find a house, sign your name to the mortgage forms and prepare for 20-30 years of debt.

Your next step is to begin scouring the market for a house, unless you already have one in mind. Finding a reputable realtor who is eager to devote hours upon hours of their time to finding you a home would be helpful. Talk to family and friends to get a referral since there are usually so many realtors to choose from. Once you decide on a realtor you need to let them know what you are specifically looking for: size, price, location, number of bedrooms, a garage and whatever else you may require. A good realtor will keep you regularly updated on newly listed homes that meet your specifications by providing you with detailed information sheets. If a home comes up that you are interested in viewing the realtor arranges the viewing and tours the home with you. Touring a home with a realtor is a good idea because they can provide you with useful information such as surrounding property values, incentives to buy the home, and if the home is worth the list price. If you are building your home a realtor will not be necessary, but a very close relationship with the builder will be. Building a home requires you to make every decision alongside the builder from the size of the house to the colour of the carpets. If you decide to buy a house privately there are usually no realtors involved, but it is then necessary to draw up legal papers with a lawyer binding the sale.

The third step in buying a home – putting in an offer – can be the most difficult. Included in the offer are all basic details associated with the sale: names of the buyers and sellers, address of the property, the purchase price, amount of deposit, the closing date, etc. Make sure everything you want included with the sale of the house is listed in the offer. “All attached fixtures” is a good example of being specific with what you list. Otherwise, you could move into a house with no baseboards, plug-in covers, light fixtures or taps on the sink. You should also state in the offer that any appliances included are in good working order as of your possession date. Your offer to purchase will either be firm or conditional. A firm offer means that you will buy the property as outlined in the offer to purchase and that there are no conditions attached. Once the vendor accepts your offer, you are both legally bound to the agreement. A conditional offer means that you will buy the property if certain conditions are met. These conditions have to be significant and have to be listed. Substantial conditions include: securing financing, selling a property or obtaining a satisfactory building inspection. If these conditions are not met the offer becomes null and void. If the building inspection finds only a couple of dripping taps, that will not be enough to withdraw the offer to purchase. If the vendor changes the offer (called a counteroffer), you have a certain amount of time to decide whether to agree to the changes, revise them or withdraw your offer. A deposit is required to confirm your offer, which is then applied to the down payment. Remember to make sure you know what you are buying, and give yourself time to think if this is really the house for you before putting in an offer.

For step number four you will need to acquire a lawyer. You must deliver certain documents and monies to your lawyer. These include: a copy of the accepted offer to purchase and any conditional waivers that have been added, a copy of your homeowner’s insurance policy, a survey signed by a qualified land surveyor, the money necessary to cover the balance of your down payment, legal fees, applicable taxes, and adjustment fees for utilities or prepaid property taxes. Some people decide to carry out this step themselves, but for first time homebuyers it is very advisable to use a lawyer as one mistake could cost you your house and any deposit you have put toward it.

Finally, you are handed the keys to your biggest investment ever. Make sure before you move in that you have transferred the utilities into your name and changed your mailing address. Now all that is left to do is move in, unless you need to paint or make repairs to the house. Most young people buying their first home come from small apartments, if this is you, you may need to go and buy furniture or decorative accessories to furnish your home. It would also be a good idea to make sure you have a little extra cash available to pay for anything that might spring up – remember there is no longer a landlord to pay for repairs.

This is your home; you own it! All the mortgage decisions, looking, bartering and signing are over. You can finally relax and en joy your new home – until the walls fall in and the furnace goes!