8 Tips for First Time Home Buyers

Acknowledgement: I would like to express my great appreciation to Viktoria Halim for her helpful contribution towards the development of this article

The COVID-19 pandemic has created a lot of uncertainty for the Canadian economy. The housing market has also been impacted but it is expected to bounce back by early 2021. However, as provinces start to reopen and loosen their restrictions, we are seeing home buyers and sellers coming back to the market. The Canadian Real Estate Association recently reported that national home sales increased by 56.9% month-over-month in May. The number of newly listed properties also increased, by 69% from April to May, indicating that the housing market is definitely starting to see some traction.

As many start thinking about buying a home, we wanted to share some tips for new home buyers.

1. Work with a financial advisor on a financial plan
   1. Financial advisors can help you throughout your homeownership journey. They can help you at the beginning, to better understand how long it will take you to afford the home of your dreams and the best way to get there. 
   2. An important thing to note is that you do not need a 20% down payment (as long as your home is less than $1,000,000). The Canada Mortgage and Housing Corporation provides mortgage loan insurance on mortgages that have a down payment of less than 20%. You will need to pay a CMHC mortgage insurance premium, but it may help you realize your dream of homeownership sooner rather than later. Recently, CMHC changed its underwriting policies for insured mortgages. In Canada, there are also two private sector providers of mortgage default insurance (Canada Guaranty and Genworth) who are not planning on following the lead in tightening the qualifying criteria for applicants.
2. Use a Mortgage Affordability Calculator 
   1. Before you start looking for a home, it will be very important for you to find out how much mortgage you can actually afford. This will impact many of your decisions, specifically the size and location of your home.
3. Carefully review the pros and cons of a new build versus a resale home 
   1. Each type of home has its pros and cons so it will be very important for you to do your research to select the type of home that is the best choice for you and your family.
4. Understand the full cost of home ownership 
   1. The most common justification people make for a home purchase is the fact that they can repurpose their rent payments towards mortgage payments. Remember that owning a home is a huge responsibility and there are one time and other recurring fees to consider.
      1. One-time fees: At closing, you will be expected to pay a number of fees in addition to your down payment that include: Lawyers closing fees, land transfer tax, title insurance, property taxes, home insurance, PST on CMHC insurance, GST/HST etc. The rule of thumb is to set aside 2% – 4% of the purchase price of your home for closing fees.
   2. Recurring fees: Depending on the type of property you purchase, there are additional fees aside from the mortgage fees that you will be expected to pay. They include: property tax, home insurance, utilities, condo/association fees, emergency fund fees etc.
5. Look into the home buyer grants in Canada 
   1. GST/HST new housing rebate
      1. Many provinces offer provincial and federal rebates for the purchase of a new home. In Ontario, for example, you could get a rebate of around $27,300 for an eligible new home that costs $350,000. 
   2. Home Buyers’ Plan 
      1. The Home Buyers’ Plan (HBP) is a program that allows you to withdraw from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability.
   3. Home Buyers’ Amount
      1. The Home Buyers’ Amount offers a $5,000 non-refundable income tax credit amount on a qualifying home acquired during the year (the credit may provide up to $750 in federal tax relief).
   4. First Time Home Buyer Incentive
      1. This is a shared equity mortgage with the Government of Canada and allows qualified first-time homebuyers to reduce their monthly mortgage payments without adding to their financing burdens.
   5. CMHC Green Home 
      1. Offers a premium refund of up to 25% to borrowers who either buy, build or renovate for energy efficiency using a CMHC insured mortgage.
   6. Genworth Canada Energy Efficiency Program 
      1. Offers a premium refund of up to 25% of the Genworth Canada insurance premium
   7. Land transfer tax refund 
      1. Some provinces offer a land transfer tax refund for first-time home buyers. 
         1. In Ontario, there is a maximum refund of $4,000 on the land transfer tax for first-time home buyers.
6. Read your contract in detail 
   1. This is something that may seem as an obvious tip, but many people do not read through their contract in detail. Of course, the hundreds of pages may seem very intimidating but it is important to sit down and take your time to go over it. This is not only for you to flag any potential issues with the contract but also for you to understand your duties as a new homeowner (e.g. fencing for a new build, understanding your warranties)
7. Work with a mortgage broker 
   1. Working with a mortgage broker is the best way to ensure that you have the best interest rate and someone who you can turn to with any questions you may have. You could opt out of this but having a mortgage broker will really help you and will provide you with a peace of mind (and there is no direct cost to you for this service)
8. Calculate your variable costs 
   1. The variable costs, on the other hand, can vary significantly so it will be important to create a plan and decide on what is essential versus not and what needs to be done now versus can be done/purchased later. This may include, for example:
      1. AC cost and installation 
      2. Garage door installation 
      3. Security systems 
      4. Furniture 
      5. Appliances 
      6. Window blinds