Buying Your First Home? Avoid These 6 Common Mistakes
May 28, 2020 • 4 min read
If you’re looking at buying your first home, and not sure where to start, you're not alone. Most people consider buying a home an extremely daunting prospect. Avoid these top first-home buyer mistakes and have peace of mind you're on track for a successful first purchase:
1. Buying Based on Current Needs Versus Future Needs
Make sure to consider how long you really plan to stay in this home, and how your needs might evolve over time. Are you planning to start a family? If so, you'll probably need additional bedrooms, adequate indoor/outdoor play areas, and good schools nearby.
Changing homes costs money, remember that you'll need to pay Land Transfer Tax (LTT), Realtor commissions, and other transaction fees every time you upgrade to a different home. Also, consider how your income is likely to change in the near future. What seems like a stretch now might become very do-able within 1-2 years, and this mindset will save you from needing to upgrade as frequently.
2. Failing to Take Advantage of First-Time Home Buyer Incentives
Did you know that up to $35,000 from your RRSP can be applied to a down payment (and up to $70,000 for couples)? As long as the funds are in your RRSP for 90 days and you can repay the money within 15 years (1/15th each year), this can be the difference between purchasing today vs continuing to rent.
You also have access to a First-Time Home Buyer Incentive of 10% for newly-constructed homes, and 5% for other homes if you meet certain conditions. Broadly, your household income must be less than $120,000, your borrowed amount must be less than 4x your household income, and your down payment needs to meet certain thresholds. You can also include a First Time Home Buyers Tax Credit of $5,000 in your tax return (which works out to be around $750 of federal tax relief).
A Land Transfer Tax Rebate (LTT Rebate) may also be available for first-time buyers in Ontario, British Columbia, and Prince Edward Island. For example, Ontario buyers may be eligible to receive the full cost of their LTT up to $4,000, and Toronto buyers may also be refunded their Municipal LTT up to $4,475.
3. Forgetting to Budget for Closing Costs
Closing costs typically add up to about 1-4% of the purchase price and include things like Land Transfer Tax, home inspections, legal fees, and Mortgage Default Insurance (CMCH Insurance). Since these need to be paid upfront and will not be covered by your mortgage, it's essential to understand which apply to you and budget accordingly.
4. Not Starting with a Mortgage Pre-Approval
Before you start seeing homes in person, you should first investigate mortgage options and obtain a pre-approval. This way you won't waste time looking at homes you can't afford, and you'll be ready to make an offer with confidence if the right property becomes available.
Remember to consider how much you can afford each month in repayments vs what the bank is willing to lend you, and remember to budget for annual property taxes plus any monthly maintenance fees (i.e. for condos). Also, don't forget to include a buffer for unexpected life and home expenses.
5. Buying Without a Professional Home Inspection
Looks can be deceiving, especially when you're inexperienced. Don't be fooled by the fresh paint and brand new kitchen. A professional home inspection will ensure that there aren't any hidden structural issues that'll cause you frustration and cost you money. Your offer to purchase can generally be made subject to a passed inspection, or alternatively, you can have one conducted before making an offer for around $500 (note that in heated property markets, you may be against unconditional buyers).
6. Not Fully Exploring your Mortgage Options
Unfortunately, most Canadian buyers accept what their primary bank offers or what their broker has recommended. It does take extra time to enquire with multiple brokers and banks, but doing so could save you thousands over the life of your home loan.
While the interest rate offered is a significant factor, you also need to consider each mortgage product's features and how they fit in with your priorities. A lower interest rate can easily be paired with higher fees to attract customers, and repayment restrictions may impact your ability to repay the loan faster should you get that major salary increase.
The Bottom Line
Purchasing your first home is a major milestone and a big investment. Do your research, shop around and plan ahead. Keep in mind that your credit report plays a major part in your ability to access financial products and get favourable rates. Sign up or log in to access Borrowell’s free Credit Coach that provides personalized recommendations to improve your score before you start the application process- it only takes a few minutes.
About the Author
Properly is simplifying the process of buying or selling a home in Canada. Homeowners can sell their existing home directly to Properly, avoiding the hassles of listing, and can work with Properly to find and purchase their dream home. Properly also offers Canada's most accurate home value report - homeowners get a free assessment of their home’s value that is always up-to-date.
Properly is a Canadian real estate technology company that enables homeowners to buy when they find the home they love, move in, and then sell their old home from the comforts of their new one. Properly also offers Canada's most accurate home valuation report - homeowners can obtain a free and instant assessment of their home’s value that is always up-to-date.