September 10, 2019
Are you interested in buying your first home but don’t know where to start? I’m going to outline the FIVE Things you NEED to know to buy your first home.
My name is Glenn Heslop, I bought my first home in 1997 and have since worked for 18-years as a professional real estate investor, home builder, house flipper & Realtor. I have bought and sold dozens of homes myself and a bazillion with clients. In the next few minutes, I am going to use my experience to show you FIVE things you need to know to successfully buy your first home.
Let’s get started!
One of the first things to ask is, why should you buy a home of your own? Good question!
Owning your own home is an important part of a solid financial foundation. When you rent, you pay thousands of dollars every year to your landlord. Those dollars are building his financial foundation, not yours. At the end of that year, you aren’t any better off. When you buy a home, paying your mortgage every month with eventually result in you owning that home. This may sound like a simple concept but it is so important. Wouldn’t you rather buy your own home rather than paying off your landlord’s???
It also feels pretty great to know that your home has your name on the title!
First of all, what is a downpayment? A down payment is the initial cash you put ‘down’ when you buy a home … the rest you’ll borrow from a lender, in the form of a mortgage.
In general, the more cash you have for a down payment or the bigger the down payment the better, but the minimum you need is 5% of the total price of the house. So for example: If you were buying a $300,000 house you would need a downpayment of at least $15,000. Okay, so what if you really want to buy your first home, but you don’t have the 5% yet, what are your options?
Option#1 is to use your RRSPs (Registered Retirement Savings Plan). If you haven’t owned a home in the past four-years you can qualify to use the RRSP Home Buyers Plan. This plan will allow you to take money out of your RRSP for your down payment & not pay taxes on the withdrawal (as long as you put the money back in your RRSP) over the next 15-years. There are some additional details, but those are the basics.
Option number 2 is a gifted down payment.
Mortgage lenders will usually not allow you to borrow your down payment. They view it as additional debt and it affects your ability to qualify. What they will allow, is for all or part of your downpayment to be ‘gifted’ from an immediate family member. For example, if you need a $15,000 down payment and you only have $10,000, a family member could give you the additional $5,000 along with a gift-letter.
Option number 3!
The old-fashioned way is to simply live frugally and stash all the extra cash you can to save up the required down payment.
Whichever Option (or Options) you choose, you’ll need to provide documents showing you have the money & 90-days history of the money.
Getting approved for a mortgage is a key part of the home buying process. It is super important to get approved before you start looking at houses. Imagine finding a home you love and then discovering you can’t afford to buy it. It’s like a bride looking at wedding dresses above her budget. It’s just a bad idea. It’s also very helpful when negotiating with a Seller, to be able to show that you have been qualified for financing and are financially able to close the deal.
Where do you get a mortgage?
The first response for many of us is to walk into our local bank and ask for a mortgage. Sometimes the second inclination is to look online and tap out mortgage applications on a bunch of different websites & see who will offer the best deal. I’m going to explain why I advise my clients to avoid both of these choices and suggest a better option.
The problem with going to your local bank for a mortgage, is your file will only be presented to one lender (that bank) & the person you are talking to will get their paycheque whether you get your mortgage or not.
So what about looking for a mortgage online? Many years ago, I learned this lesson the hard way! I Googled around and applied for mortgages on a bunch of different websites. What I, and many others, have found is that multiple credit inquiries damage your credit score & your ability to get approved for a loan. Booo!
So what IS the best option?!
I have found the best way to get the fastest approval and the best interest rate is to get the help of an experienced professional - a mortgage broker!
A great broker has access to many lenders. Rather than putting all your eggs in one basket, your dedicated broker will evaluate your file and, through their experience know which lender (or lenders) to present your file to for the best results.
A great broker works for YOU instead of the bank! A broker is specialized and dedicated to mortgage financing … and ONLY gets paid AFTER they make it happen for you … and the best part is you don’t pay them … they are paid by the mortgage lender.
What type of home should you buy? It is important to think about what kind of home you can afford and what your family’s needs are.
How much should you actually spend on your home?
Your mortgage professional will give you a maximum amount that you can get approved for. Along with your mortgage payment, you’ll need to pay property taxes, insurance, and utilities & condo fees if you buy a condo. You will still have to budget for food, transportation, savings … and a little fun.
Next, what style of house do you want?
There are so many choices nowadays; apartments, townhouses, duplexes, single-family homes, bungalows, two stories this list goes on and on …
You also have to think about whether you want a yard, a garage, or a basement suite.
There is no such thing as a forever home so think about what your family needs right now and what will they need in the next 5 to 7 years?
Where should you buy? This really depends on your personal preferences.
What do you want to be near? How far are you willing to commute to work? Do you want to be near all the shops and restaurants or would you rather have quiet suburban living? What are the neighbourhoods you are considering like? You can really get a feel for an area by looking at how well the homes are taken care of.
There are other costs involved in buying a home. These include getting a home inspection, an appraisal, condo doc review (if you are buying a condo) , a lawyer to close the deal, land title fees etc… It’s important to have some extra cash on hand for these costs so you won’t be caught off-guard.
I hope you found this helpful! If you have ANY questions about buying your first home or need clarification on anything I’ve talked about today please leave a comment below.
If you’d like some help with the process of buying your first home, consider hiring me to work as your realtor.
If you’d like someone dedicated, caring, unpretentious and experienced on your team, I might be your guy.
Okay, so, who should contact me?:
If you can say “yes” to these seven things, then click on the “contact me” link in the description below.
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