House hunting tips for first time home-buyers in Canada
Buying your first home is a big step. If you're about to take that step, congratulations! Now it’s time to make an appointment at the bank, find a real estate agent, set a house budget and start shopping for your dream home. As someone who just went through this process, I can tell you that buying your first home is both exciting and terrifying at the same time. Buying your own place and having a space to call your own is major adulting; the amount of energy, time and money it takes to find, purchase and move into is considerable.
Buying your first home is one of the biggest purchases you’ll ever make, and it's understandable that you want it to be perfect. However, you get what you pay for and sometimes it’s smart to take a step back and differentiate between what you need and what you want. Keep in mind that buying a home is a process, and very rarely will it be perfect from the first time you step through the door.
Here are four must dos for first time home-buyers in Canada:
Understand the down payment rules
The down payment is a big part of buying a home. The amount of savings you have for the down payment sets the tone for your purchase price – along with the pre-approval. The bigger the down payment the more home you can afford (with all other factors being equal) and the more money you put down, the smaller the mortgage loan will be.
If you don’t have the entire down payment in cash, first-time buyers can withdraw $25,000 from their RRSP under the Home Buyers Plan to help fund the purchase of a home.
Get a pre-approval
A pre-approval is the starting point of shopping for your first home. Once you have the down payment, book an appointment at your bank for a pre-approval. In a nutshell, this is a preliminary evaluation of your financial situation, which determines how much the bank is willing to lend.
Most Canadian institutions require a minimum of 5% for the down payment. However, if you put down less than 20% you are required to pay Canada Mortgage and Housing Corporation (CMHC) Insurance.
Ask about CMHC
CMHC insurance is additional insurance homebuyers need to purchase along with their mortgage. It is calculated based on the amount of your mortgage loan. It “protects the mortgage lender against loss if a borrower defaults, and allows qualified borrowers to access homeownership at interest rates comparable to those offered to buyers with larger down payments.”
This is required in addition to the standard home owner’s insurance you need to purchase to protect the land, your home and your personal belongings inside.
Hire a real estate agent
Or at least seek their advice. There are so many levels to buying a home, from the property inspection to negotiating the price. A professional knows which questions to ask and when to negotiate.
I purchased a newly constructed home and didn’t think hiring a real estate agent would be of much value. However, when it came to doing the walk through for the floor plans and negotiating the purchase price with upgrades, she knew exactly which features were worth the additional cost.