The First-Time Home Buyers Guide

Owning a home is a dream for many people. Buying a home in in the GTA for the first time can be both exciting and stressful.

You may find yourself overwhelmed by the many things you have to do. On top of the challenge of looking for the right home, you also have to prepare documents, visit a mortgage lender, figure the right finances you can afford, and many more.

You must know what to do and who to turn to, so I prepared a guide to help you learn how to buy a house, what you need to know about the process and what to expect from the home buying process.


How to Buy a House in the GTA


Buying a house is a decision that takes months of planning and preparation. In this article, I’ve broken the home buying process into simple steps you can follow as you look for your new home. I’ve also included checklists to help you get a better idea of the home buying process.

But before we go to the actual buying process, here are three things you have to answer to check your readiness to buy a home:


  • Are you ready to own a home?
  • Do you know your mortgage options?
  • Is this a good time to buy a house?

 

Are You Ready to Own a Home?


Owning a home is a significant milestone in the world of adulthood and financial responsibility.

Buying a house is likely the most expensive single purchase you’ll make, so you don't want to do it casually. As much as possible, you should take the time to be well-informed about the process because you want to avoid mistakes. In real estate, mistakes can be costly and can run up to thousands of dollars.

Here are some questions you need to answer honestly before you proceed any further into planning to purchase a home.



1. Why do I want to buy a home?

Are you buying because you’re tired of renting and would like your money to go to some sort of investment? Are you buying because you're planning to start a family? Are you buying because you've fallen in love with a particular property?

You need to have a solid reason to support your goal of buying a house. Knowing your ‘whys’ will help you navigate challenges you'll face later on.



2. Am I financially ready to buy?

This is one of the most important questions you should ask yourself. Do you have a source of income that sufficiently covers your lifestyle and your upcoming mortgage?

Do you have enough savings to cover the 20% down payment?  Lenders will want you to have a cash deposit when you buy a home. The more substantial the deposit, the smaller your monthly mortgage payments are.

How’s your credit score? Your credit score will determine whether you are capable of purchasing a home or not. If you have good credit ratings, it will make the house purchase easier. If you’re having a hard time getting by, you may want to get your financial affairs in order first.

Are you paying off any other loans? If you are still making some other payments, you may want to continue paying them off before making another huge purchase. You want to make sure you have enough money to pay for the monthly mortgage.  

If you’ve saved enough money, have a stable and sufficient source of income, as well as good credit standing, then you’re financially ready to buy a home.



3. Should I buy or rent?

Owning a home gives a sense of security and pride. It’s also a big decision that requires years of commitment and financial stability.

There is a long-time argument between buying versus renting.

Renting may seem easier. You only have to pay a last month's rent deposit at the start of your rent, then monthly rent afterwards. You’re not strapped with a huge debt to the bank. You don’t have to worry about things like leaks.

However, if you’re planning to start a family and settle in a community for good, then buying a home might be a better option than renting.



4. Am I emotionally ready to buy a house?

Many first time buyers think that buying their first property is all about money - like paying the mortgage and property tax. What many fail to overlook is the emotional part that comes with a home purchase.

Buying a house means making some lifestyle changes, especially if the house you can afford requires some work. It may mean giving up vacations for a couple of years to put money into a down payment or possible repairs. If you're ready to give up your vacation and put every possible penny into financing the costs of carrying the home, then you're ready to buy a home.
 
Some first-time buyers make the mistake of deciding to buy a house because they fell in love with a certain home feature. If you think things through before making decisions, and are undaunted when faced with challenges, then you are emotionally ready to buy a house.



5. Do I have a vision or goals for the coming years? Is being a homeowner one of those?

A house purchase is one you’ll be paying off for a long time, so you need to have a plan on how to pay for your mortgage. Perhaps it means staying in your work for at least the next five years. If you plan to pursue a different career in the coming years, now may not be a good time to buy a house.

Your vision and goals can help you identify if you’re ready to buy a home.

Now that you’ve assessed that you’re ready to own a home, here’s another question that you need to answer...




Do You Know Your Mortgage Options?


Buying a home is a significant investment. Not many people can afford to pay cash for a house. For many, buying a house means getting a mortgage.

A mortgage is an agreement between two parties — the borrower and a bank or financial institution — to help the borrower purchase a property on the condition that the money will be paid back in a certain period of time. The mortgage loan is linked to the property. If you fall behind on payments, you risk losing your house to the lender.

A mortgage is usually paid monthly.  Mortgage payments cover the principal, interest, taxes, and sometimes the property tax and even insurance.

There are different types of mortgages. Knowing what they are will help you decide better when you are presented with mortgage products to choose from.



  • Traditional / Conventional / Low Ratio Mortgages require the borrowers to give a 20 percent down payment. The lender will likely finance the remaining 80 percent. This type of mortgage has a low loan-to-value ratio and therefore, does not require mortgage protection insurance.


  • High Ratio Mortgages are mortgages where the borrower can't meet the required 20 percent down payment. The lender is therefore required to shoulder a higher loan ratio. If you have a high-ratio mortgage, you are required by law to get a mortgage default insurance which can be taken through some mortgage insurers including Canada Mortgage and Housing Corporation (CMHC).


  • Open Mortgages gives you the flexibility to repay the mortgage before the specified loan term is complete either through lump-sum prepayments or accelerated payments. These types of mortgages have slightly higher interest rates compared to a closed mortgage.


  • Closed Mortgages is a mortgage where the borrower cannot renegotiate before the loan term is complete unless the borrower is ready to pay a penalty.


  • Fixed-Rate Mortgages will have the same interest for the whole duration of your mortgage term, which usually runs from one to five years. This type of mortgage is popular among Canadians because it guarantees that the mortgage rate remains the same for five years. The rate for fixed-rate mortgages tends to be higher than other mortgages.


  • Variable Rate Mortgages vary in mortgage rate during the loan term. These loans are based on the current prime rate. This means that if the interest rate drops, you'll have a lower mortgage rate. If the interest rates rise, your interest rate will also increase. Variable-rate mortgages have lower interest rates than a fixed rate but they can go up anytime during your loan term.


  • Hybrid Mortgage is a combination of fixed and variable rate mortgages. This type of mortgage allows you to finance the loan at a fixed rate and the other part of the loan is financed through a variable rate.


  • Portable Mortgages can be transferred from one property to another property. You get to keep the interest rate of your current mortgage loan without going through the approval process again.

    
Mortgage types and products are different. You need to have a better understanding of the products so that you can avail of the best one for your budget.



6 Not To Do’s After Applying for a Mortgage



A home mortgage can be several hundreds of thousands of dollars. Because it’s such a large amount, certain measures are set in place by financial institutions to ensure they won’t lose their money. Once you’ve started on the mortgage process, there are some things you need to avoid to ensure that you’ll be successful in your application for the mortgage.

Here are some things you must not do after applying for a mortgage.



  • Don't change jobs or the way you are paid at your job


The lender wants to ensure you can repay your mortgage so it tracks the source and amount of your income. Changing jobs can affect your loan approval. Sometimes a better job opportunity may happen when you are in the process of buying a home. If you plan to accept the job offer, you need to inform your lender as soon as possible.


  • Don't make any large purchases like a new car or new furniture


New purchases come with new debt, and new debt comes with monthly payments, which greatly affects your debt to income ratio.

If you plan to secure a mortgage loan and you've recently just made a big purchase, this will likely reflect on your account statement. It will also add to the payment side of the equation, which may cause financial challenges.

Lenders prefer individuals with low debt to income ratio.  Individuals with higher debt to income ratio sometimes don't qualify for a mortgage loan.



  • Don't co-sign any other loans for anyone


Co-signing someone else's loan means you are promising responsibility for the loan should the principal borrower fail to give the monthly payment. Co-signing increases your debt-to-income ratio, which could be a key reason for denial of the mortgage loan.



  • Don't change bank accounts


Another big NO-NO when applying for a mortgage loan is changing bank accounts. One reason is the lender should get your most recent statements, and when you transfer to a new account, you may not be able to provide the most recent statements. You may not be able to comply with the requirements on time if you change bank accounts.



  • Don't apply for new credit


Applying for new credit will likely affect your credit score, which may be the reason you'll get turned down for the loan.



  • Don't close any credit accounts


If you have unused credit accounts, you may think that closing them during the mortgage process will help improve your chance of getting the mortgage loan. That's far from the truth. Closing credit accounts means losing available credit.



Is This a Good Time to Buy a House?


One of the most common questions I get from buyers is “Is it a good time to buy a home?”

You probably hear people say that the best time to buy a property is January. In fact, the Toronto Star published an article in 2017 stating that Jan 17 is the best time of the year to buy a house. The news article stated that although there are fewer homes for sale in winter months, the sales price down.

This “January advantage” is also supported by the Toronto Real Estate Board (TREB). The TREB conducted a sales data analysis for a five-year period and found that January offered better prices for buyers.

Home prices may be lower in the month of January, but you also have to remember that inventory tends to be lower in the winter months meaning you have fewer options which now gives the buyer the risk of competition.

What if you don’t have enough savings by January? Do you have to wait for the next best month to buy a home?



The best time to buy a home is NOW.



Like other real estate markets, the GTA market also has its ups and downs. Summer tends to the peak seasons and winter season slows the market down. The market is affected by interest rate, economic changes, and affordability, — things you have no control over. But during a seller's market, winter, summer, rain or shine don't seem to make too much of a difference.

Relying solely on the market to decide when to purchase a property may lead to purchasing decisions which may cause your financial problems.

Instead of depending on your area's real estate market, rely on your needs.



The best time to buy a home is when you have these things:


- When you have saved for a downpayment. If you already have the money for a downpayment, then it's time to buy a house. Many people want to be homeowners but they don’t have enough money saved yet, which delays their chances of reaching for their dream.


- When you are financially stable and can make the monthly payments. One of the best indicators you're ready to own a home is your finances. You need a steady source of income that will help you save for your initial deposit, cover your monthly mortgage, and still allow you to live a comfortable lifestyle. Experts recommend that your mortgage costs no more than 20 to 30% of your monthly income.


To ensure that you can also meet the emotional demands of home buying, lenders requires that you pass a Mortgage Stress Test.  The stress test is not really a test. It is more of a strict set of rules that lenders must use to check if you qualify for a loan, and how much you can borrow.


- You have strong credit. Your credit score is essential in securing a mortgage. If you have a good score, you can secure a better interest, which can save you thousands of dollars in interest payment.


A strong score takes time to build. If you plan to buy a home, you should start building your credit score.

Making payments on all debts on time helps boost your credit score. The same goes for avoiding large purchases months before you have your credit score checked.


- You plan to stick around. Buying a residence means you’re planning to keep your home at least 2-years or more.  Longer is great, so give this some consideration.


- When you’re ready to be a homeowner.  Being a homeowner is not easy. It comes with much responsibility, and I don’t just mean the monthly mortgage. I am also talking of property maintenance, yard work, landscaping, etc.



Compelling reasons why you shouldn’t wait to buy your own home



If you still have doubts about whether to push through with the home buying process or not, here are four reasons you should proceed and not wait to buy a home.

- Home prices are increasing.


Although general market conditions continue to tighten, the average selling price continues to increase on a year-over-year basis. GTA’s housing market is on the boom for over a decade now, and it is predicted to continue to rise in the coming years.

In the 1980's, homes could be purchased from between $100,000  to $200,000. When the 90's rolled in, house price average increased to more than $250,000. 1992-1996 showed a drop in the price range, but it started picking up again in 1997 and it has been on the rise since then.

Home prices have doubled and tripled, and it will continue to do so, so if you’re planning to buy a property in the GTA, now is the best time to do it.  

- Mortgage Interest Rates


Mortgage interest rates continue to be low and a 5-year fixed-rate mortgage is available for under 2.5%.


- You’re paying a mortgage whether you buy or rent


If you are presently renting, maybe the reason you haven't bought a house yet is because you are not sure about taking on the obligation of a mortgage. Well, you are paying a mortgage either way - either yours or that of the landlord. Are you ready to put your housing payments to work for you?

When you buy a house and start paying monthly mortgage, you are building equity. In five to ten years time, you’ve built enough equity that you can borrow against or turn into cash if a need arises.

- Your “why”

What’s your why?

In other words, what’s the reason you are buying? Whether you want to have a great place for your children to grow up, greater safety for your family, or you just want to have control over renovations, NOW is the time to buy.

Now that we’ve covered the factors that affect your readiness, it is now time to find out the home buying steps.


Step 1: Get Pre-approved


Before you look at homes online, you need to know how much you can afford. Knowing your budget gives you realistic expectations, allowing you to choose a home that's right and within your financial range.

To get an idea of how much you can possibly qualify for, you can get a prequalification from a reliable lender. It's a quick process where you provide the bank or the lender with your financial information, like your income, assets and debt. It can be done online or over the phone.  After a simple evaluation, the lender can give you a great idea of how much mortgage you qualify for, which in turn lets you know the price limit of the home you will search for.

If you want something more official, get a written pre-approval.



A pre-approval is a more in depth evaluation of your finances by the lender.



With a pre-approval, the lender will do an extensive check on your financial situation and current credit rating. The lender will also tell you the specific mortgage amount for which you are pre-approved. It holds a heavier weight over a mere pre-qualification.

Getting a pre-approval has many advantages:



It tells you exactly how much mortgage you qualify for. Knowing how much you can afford helps streamline the properties you seek out. This way, you don't waste time looking at homes you'll just end up pining for because they are out of your budget range.


It makes the home selection process easy for your agent. A pre-approval tells you the location, size, and type of home you can afford. It makes it easier for your agent to know which properties to show you.



It increases your negotiating power. Sellers are more likely to take your offer more seriously when you have already been pre-approved.  It boosts your ranking in a pack of potential buyers because the seller thinks that your offer is much stronger than the others.   It may slightly ease the seller's fear that you won't qualify for a mortgage when your offer to purchase the home is conditional upon you securing a mortgage.



It lessens stress knowing you have already been approved by the lender. It gives you assurance that the buying process will be smoother.


Step 2. Establish Your Needs and Wants


Knowing the difference between your wants and your needs is critical. You need to know your MUST-HAVES and SHOULD-HAVES. What’s the difference between the two?




Must-haves are features so important, so critical you won’t even consider buying a house without these items. Do you need three bedrooms? How many bathrooms do you need? Do you prefer a single-family home? Stairs or no stairs? How much parking space do you need?

Should-haves are items that are nice to have but the house does not necessarily have to meet all the required features in order to be considered, provided that it meets all the must-have requirements. Do you want a home office? How about a screened porch? Is the hardwood floor a must-have or a should-have?



Step 3. Hire the Right Real Estate Agent



Purchasing a home is a big investment. Did you know there are over 230 possible steps that need to take place during every successful real estate transaction?

You need the guidance of a reputable REALTOR®. You need someone who will listen to you, prioritize your needs, and look out for your interests.

In other words, you need someone like me, Sol Kahane.  I am the REALTOR® you should hire when buying a home. I do the right research and know what's going on in the market.



Why do you need a real estate professional when buying a home?

Determine the fair market value of your home. Pricing can be tricky. You don’t want to buy an overpriced home.  As your REALTOR®, I will leverage on my skills and use comparables and recent sales while taking present market pressures into account before advising on how to proceed with your offer to purchase the home.  

Negotiate for you. Hiring an experienced negotiator could save you thousands or tens of thousands. After the original offer, the deal can take many turns, such as the possible re-negotiation of that offer after a home inspection, to the possible cancellation of the deal. You need someone who can help you get the most benefit out of a deal.

Convenience in dealing with the paperwork. Home buying involves a lot of paperwork that you need to review and sign. If you are not careful, you may end up with a deal you didn't want.  As your agent, I will take care of all the necessary paperwork and ensure that you know what you are getting into when you sign something.


Step 4. Find the Home



You’ve secured a pre-approval and you now have an amazing REALTOR®. You’re ready for the most exciting step - Choosing a Home.

There are so many decisions and considerations before you can pick out the right home.

How do you find the right home? Do you just base it on the price? How about the location? Should you also factor in the finishes?

All these questions in your mind can make it challenging to find the right home.



Take a look at these three factors you should consider in choosing a home:


Price. Your top consideration in looking for a home is price.


The Toronto and the GTA real estate markets have homes at different price ranges, but you have to find a home that's within your budget range. You want a home that will keep your mortgage payments at a minimum.



Location, location, location! This is the mantra of real estate. Your home's location is essential in living comfortably and conveniently. It is influenced by the kind of neighborhood it belongs to and by the amenities surrounding it.


If you have children, you may want to consider finding a property near schools. How far or how close is it to your workplace?  Having shops, retail stores, and restaurants within walking or driving distance are also good points to factor in your search for the right location.



Type of home. What kind of housing are you looking for? Do you prefer the single detached house or a condo? Do you want a home near the city center or on the outskirts of the city? How large do you want it to be?


Having a good idea of what you want is critical. Looking at online real estate sites is good for starters. Always keep in mind your budget when looking for a home.

Once you’ve chosen several homes, I will take you to them so you can get a feel of the home and the neighborhood and ask questions. You may also feel the need to adjust your wishlist.



Step 5. Make an Offer — and Get it Accepted


Congratulations! You’ve found a house that’s right for you. The next step is to make an offer.

Making an offer is not as easy as you informing the seller of your desire to purchase, haggling the price, and ending the deal with a handshake.

When I find the house you want, I need to create the strongest offer possible. Is "strongest offer" the one that guarantees you'll get the house? No. The strongest offer is the one that gets you the house on terms that really work for the sellers.



When drawing up an Offer, my job is to :



  • Help reign in your emotions when you might be frothing at the mouth over at a certain house.  Making a decision based on just some of the home features is a problem. Yes, you may love the kitchen, but how about the rest of the house? It's my job as your agent to help reign in your emotions and explain things as objectively as possible.


  • Ensure that you are happy with your decision two months or a year from now. Buying a home is an expensive endeavor. When you buy a property, it's my job to make sure that you will be satisfied with the house, location and price.


  • Be creative and have excellent negotiation skills to make this happen.


  • Help decide on things like price, closing date, what you want included in the purchase, conditions to protect you, who pays for what, what repairs you should actually request or not request to be done by the seller.


Everything is negotiable depending on what the market is doing, so I set my buyer's expectations up correctly from the beginning.


Step 6. Provide DEposit and Meet Conditions


Once there is an agreement between you and the seller, you will have to provide a deposit of approximately 5% of the purchase price. The deposit is usually in the form of certified cheque or money order. The deposit is usually held in trust by the seller's real estate agent's brokerage firm.


Conditions are  requirements stated in the Agreement of Purchase and Sale that you need to meet prior to to the agreement becoming 'firm' and for the sale to push through. A REALTOR® representing the buyer makes sure the proper conditions are entered in the agreement to protect the buyer.

During the 'conditional' period, you’ll have documents for your lawyer to review the legal details of the property or a home inspection condition. Once all conditions are met and satisfied, the buyer may waive the conditions which now makes the agreement firm. If the buyer is not satisfied and decides to back out of the agreement, he may do so and the deposit funds would then be returned to the buyer.


The Home Inspection Condition


If you’re buying a home in the GTA area, you’ll need a home inspection.  
The home inspection performed by a reputable home inspector is used to protect the buyer. The home inspection report should give the buyer a good idea of what he/she is buying.

Why get a home inspection?

A home inspection is conducted to discover any unexpected surprises that may hurt you financially and to give you peace of mind. It also helps to uncover flaws in the home you’re planning to buy that might have been missed. 


When to get a home inspection?


A home inspection should be conducted immediately after your offer is accepted.


Here are four things you need to know about home inspection:

It identifies the issues of the house.  A home inspection is conducted so you’ll know the condition of the house and the possible problems. Many of the homes for sale in the GTA were built within the past century, though they were periodically upgraded and renovated.  

Good inspectors can give a thorough assessment of the home’s condition, possible safety hazards, and what repairs might be in your future.


- It helps you get to know the house better. A home inspection tells you many things about the house so you can maintain it better. As a first time buyer, getting a home inspection may tell how to take care of your investment.


- It can’t see through walls. A good inspector may give you a comprehensive assessment of the house’s condition, but theinspector can’t see through walls.  Many people think that home inspectors can check what’s behind walls, but inspectors are not allowed to look behind the walls and under the floor.


However, an experienced inspector can give many clues about the condition of the house that you as a buyer may have overlooked.


- It ensures your home’s safety. One of the benefits of home inspection is it makes sure that your home is safe.  For example,  the inspector will check the electrical system.


- It offers peace of mind. An inspection helps you to get to know the condition of the home, which ultimately brings peace of mind. Surprises are not something you want in real estate. You want to know everything you possibly can about the whole house.


Step 7. Close the deal


You’re almost there!

When you’ve agreed on the price, submitted a deposit, and finished waiving the conditions, it is time for the closing process. You need to stay in close communication with your lender and lawyer because you have to sign all the necessary documents related to the home purchase.

The closing part is where the transfer of ownership takes place. This happens when all legal and financial obligations are met. Once the new deed has been recorded, you are now a homeowner.

Congratulations! Your next step is to move in and enjoy your property.

Buying your first home can be a difficult experience, but when you have my help, you’ll know what to do and when to do it. This step by step guide already laid down the essentials of the home buying process, making things easier for you.

Call me, Sol Kahane, at 416-576-6656, and let’s discuss your first home purchase.