If you know anything about me by now, I love researching and planning and organizing and to-do lists. So, when I thought about buying a home a few years ago (see here for the history of my purchase), I did some major research to take a look at my budget and see what I needed to save and think about. Here are a few tips I picked up along the way! (This is not an extensive list and I’m by far NOT an expert. You should do your own research and contact a financial advisor to see what is right for YOU).
List of Things to Know
- Rent vs. Buy
- Condo vs. House
- Long Term Goals
- Other Costs
- Viewings/Bidding Wars
Rent vs. Buy
I suppose the first logical step is this: Are you ready to BE a home owner? This was a major reason why I didn’t purchase a home two years ago when I first thought about it. There are so many pros and cons to both. When you rent, you don’t have to think about things like repairs, maintenance, yard work, property taxes, etc. but it can feel like you’re just helping someone else pay down their mortgage. When you buy, it’s a long-term investment but the financial burden and maintenance/up-keep is on you. It’s a huge decision and rushing into it is not in your best interest. There are tons of quizzes and lists online to help you make the decision (trust me, I took a few!) but ultimately it’s your money and your lifestyle that will be the deciding factors.
Condo vs. House
The second thing to think about is whether you want to own a condominium or house. Even with those two options, there are tons of choices! For a condo, you could own: a semi-detached, row home, high rise, etc. You’ll have to pay condo fees and every condo association has different inclusions: insurance, maintenance, amenities etc. For a house, you could own: a row town home, a semi-detached, or detached. Instead of paying a condo association, you take care of the maintenance and have the freedom to make choices such as landscaping.
The biggest factor for me to buy a condo vs. a home was that I would be doing all the house work/yard work/cleaning etc. by myself. I’d thought about purchasing a townhouse but ultimately I wanted something smaller within the City rather than living in the suburbs. Your lifestyle will help determine the best purchase for you!
Long Term Goals
If you’re like me, you likely don’t have a down-payment ready without having saved for years. If you even THINK you’ll want to purchase a home, start saving now. Putting away smaller amounts monthly is more manageable than trying to change your lifestyle to put away large chunks because you’re in a rush to buy. I personally loved having the money available when I was ready.
On top of the down-payment, there are a lot more factors to consider: closing costs; lawyer fees; insurance and taxes; emergency fund; furnishings; moving costs; giving notice to your current landlord etc. I’m a huge fan of budgeting and it’s an excellent way to take a look at your finances now and find out how much you should save to both purchase your property as well as maintain your lifestyle after the purchase.
Another reason budgeting is helpful: as a home owner you’ll be paying for more than your mortgage. There’s utilities, internet, insurance, taxes, parking, condo fees etc. that you may not have had to think about before, especially if you’re in an all-inclusive lease.
If you’re thinking of purchasing, I know you know about this! If you’re a first-time home buyer I imagine you’re not looking to purchase a $1 million property so you’ll ideally want a 20% down-payment. This is where the two things above come in handy: to know what a 20% down-payment would be, you need to know the purchase price. Take a look and see what the market is like in your city and plan according to what you want.
If you don’t have a 20% down-payment, as long as your house costs less than $1 million, you can have a 5-20% down-payment BUT you’ll have to pay a “CMHC Mortgage Insurance” on the difference. This amount is a one-time fee that gets tacked onto your mortgage.
As I said earlier, there are other costs you’ll need on top of your down-payment when purchasing a property. These include:
- Closing costs: this includes an appraisal fee ($300+), land survey fee ($1000-$2000+, not always required), title insurance ($300+).
- Lawyer fees: due upon closing ($1000+)
- Building inspections: this one is tricky: you may fall in love with a house but the inspection reveals large problems with the house and you back out. You’ll still have to pay the fee ($350+) and you’ll need the inspection for the next home you put an offer on.
- Insurance and property taxes
- Land transfer tax: for resale homes, depends on province/region.
- Emergency fund: another budgeting thing. Having an emergency fund (or rainy day fund) is handy when unexpected repairs, such as replacing an appliance, comes up. Having an emergency fund, on top of everything else, gives some peace of mind that you’ll be able to pay for something and not have to go further into debt (hopefully)
- Furnishings: I need a few things myself, such as a couch (don’t currently own one), TV, dresser and bedside tables. Other things include: window treatments (blinds); storage boxes; shelves; decorations etc.
- Moving costs: unless you’re moving within the same city, or have helping hands (like myself, thanks friends/family) you may have to/want to pay for a U-haul or moving company. I’ll be renting a U-haul to move almost everything and I’ll have a few extra days after closing in my current place that I won’t have to completely move out of one place and into the other in the same day/weekend.
- Giving notice: You’ll likely need to give 60 days notice to your current landlord.
Once you have an idea of what kind of home you want to purchase and a down-payment and other expenses covered, sign-up for a pre-approval! This will give you an upset limit to tell your realtor what you can afford. A bonus for getting a pre-approval: if the insurance rates increase, you’ve locked in a lower amount; if the insurance rates decrease, you can lock in the lower amounts! To get the pre-approval, you can apply online at some banks. There’s a threshold that banks and mortgage brokers are looking for (that the mortgage is a maximum percentage of your income) and you may get a call from someone asking for a bit more information if you apply online.
If the market is competitive, you may get into bidding wars with other buyers. This isn’t something I had to deal with but just make sure to stay within your budget and don’t get caught up with trying to beat someone else and then overspending.
If you’re like me, you’ve been collecting mismatched furniture for years (since my second year of university). There were a lot of pieces that either don’t fit in my new place or that I’m not attached to so I decided to sell on Kijiji. The good thing for me is I have all the essentials: a bed, everything in the kitchen, and two chairs for the living room. Everything else I’ll be searching for sales to get a good deal on what I want.
To do this, I’ve kept a little aside (rather than putting it all into my downpayment) so I’m not strapped for cash after purchasing a few big items like a couch, TV and dresser. I’m so excited to be furnishing my new home!
On top of that, there are a few upgrades I want to make (like painting the cabinets and changing the closet doors) so I kept some money for those upgrades as well.
Do you have any other tips for new home buyers? Leave them in the comments below! I’d love to hear about your experience!