From a very early age, home ownership is a goal for most people. Whether you grow-up dreaming of a downtown condominium, a house with a white picket fence in the suburbs, a farm of your own, or a castle - we all seem to have a dream.
We're privileged in Canada, dreams of home ownership can certainly become a reality; but one should make careful and measured decisions about the purchase of their first home. For most, a home is the single largest financial commitment they will make, and will often become their biggest asset. It is especially important for fist time buyers' decisions to be guided with the help of a real estate professional. A REALTOR® will ensure that the buyers are getting a home that they can afford, for a fair market price, which meets their needs.
To guide first time buyers through the process of getting their home, REALTOR® Derek Dunphy of Johnson Associates Real Estate Ltd., Brokerage, focuses on five areas with his clients: The Benefits of Home Ownership, The Financial Commitments of Home Ownership, Finding a Home That Meets the Buyers' Needs, the Location of that home, and Completing the Purchase of the home.
The Benefits of Home Ownership
While the payback of ownership is hard to describe with just a few points, several factors that people express as benefits are:
•· Pride of Ownership. The primary reason most want their own home; no landlord looking over your shoulder, the ability to make improvements that you will enjoy and appreciate the value of, and the sense of stability and security that comes with ownership.
•· Appreciation of Value. In Canada, especially over the last few years, homes have considerably appreciated in value, and appreciated home owners' net worth. Over the long-term, real estate has steadily increased in value; and in Canada a principal residence is exempt from capital gains tax. Keep in mind that although real estate has consistently performed well over the long term, there have been periods of time where real estate values have temporarily been reduced.
•· Equity. As a home owner pays their mortgage off each month, a portion of that payment pays off the loan (mortgage) that is normally taken to buy the house. With each payment, home owners are building their own equity (instead of the equity of a landlord). Home owners accumulate wealth for the future, while enjoying the benefits of the home that they live in.
The Financial Commitments of Home Ownership
Before you can commit to taking on a mortgage, most banks require that buyers have some equity committed to the purchase, in the form of a down-payment. In most cases, a minimum 5% down payment is required - but there may be times where the bank will accept less or require more. One should pay down as much as possible, to decrease the amount of interest paid on the mortgage over the length of its term. Often, in addition to a down payment, a person requiring a mortgage must also demonstrate a stable income stream and a history of credit worthiness.
The first thing Derek Dunphy normally recommends to First Time Buyers is a trip to a qualified Mortgage Broker. A Mortgage Broker will help buyers establish how much of a mortgage they will qualify for, help them negotiate a favourable interest rate and terms, as well as help set-up a plan for overall improved debt management. Interest rates can differ greatly between institutions; a mortgage broker can ensure you are getting the best possible terms for your situation.
To help buyers ascertain what their monthly payment will be, Derek Dunphy, has set-up a convenient online Calculator.
Programs and Incentives
First-time buyers should also ask their REALTOR® about programs and incentives that are available from the government to help first-time buyers get their first home.
An example of one program is the Home Buyers' Plan available from the Canadian government. Under this plan, first time buyers can withdraw up to $25,000 from their RRSPs to use as a down-payment on their home. The money used from the RRSP does not have to be included as income in the year of the withdrawal, but the money must be paid back within 15 years.
Another example is a rebate available to first-time buyers on their Land Transfer Tax, of up to $2000. The newest program, as of the writing of this guide, is the First-Time Home Buyers' Tax Credit (FTHB) - which is available on your 2009 tax return, as a federal credit. There may also be regional programs available for people with lower incomes, and/or people with physical or mental disabilities.
Ask your REALTOR® what programs are available, if any, to help you with the purchase of your first home; programs change periodically, and your REALTOR® should be up-to-date with the latest information.
Outside of the normal down payment of 5 to 10%, first time buyers should prepare themselves for a number of other payments that they will need to make before, or shortly after they move into their new home. These payments may include, but are not necessarily limited to:
Legal Fees and Disbursements
GST and PST (or HST), if applicable
Property Taxes and Adjustments (which may need to be reimbursed to vendor)
New Account Security Deposits may be required from Utility, Cable, and/or Phone Company
New Services and Utilities Hook-Up Fees
Utility Payments (Water, Hydro, Gas)
Strata or Condominium Fees
Status Certificate Fees
Home Inspection Fee
Water Quality and Quantity Testing and Certificates
Mortgage Brokers' Fee
Mortgage Application Fee
Mortgage Insurance Application Fee (if putting less than 20% down)
Mortgage Insurance Premium (if you are putting less than 20% down)
Critical Renovations and Repairs
Furniture, paint, carpeting, window coverings...
Appliances (stove, fridge, washer, dryer, dishwasher)
Mortgage and/or Deed Registration Fees
Cable, Telephone, and Internet
A first-time buyers' REALTOR® can help establish which fees and expenses are applicable to their particular situation.
Finding a Home that Meets the Buyers' Needs
Before Derek Dunphy takes his clients out to shop for houses, he will ask questions that help to establish the needs of the buyers. In asking these questions, Derek will also try to establish which features are "must haves" for the clients, and which features are "would like to haves". These are some of the questions that will help first time buyers in assessing the features of their new home:
How many bedrooms do you require?
Do you need space for a home office?
How many cars do you need to park?
Do you require a garage? If so, how large?
How many bathrooms are required? Do you need/want a separate shower area?
How much closet space do you require for clothes?
What features are you looking for in a kitchen?
Do you need a separate formal dining area?
Would you like an eat-in kitchen (with a breakfast area)?
Do you need a separate family room and living room?
Would you like a fireplace?
What kind of lighting would you like to see?
How much money will be needed to "update" home to meet your style needs?
Do you need additional storage space?
Do you need a large yard?
Do the needs of a pet need to be considered?
What services are provided in the area (gas, high-speed internet, cable...)
Do major renovations need to be done?
Do major repairs need to be made to electrical system? Is the wiring safe? How many amps of service does the house have? Is the electrical system insurable?
How does the roof look? When will new roofing be required?
How do the windows look? When will they need to be replaced? Are they energy efficient?
What is the condition of the heating system? When will it need changing? Is it energy efficient?
Is the water heater owned or rented? If owned, how does the water heater look?
Does the home have air conditioning? What is the condition of the air conditioner? Is it energy efficient?
What are the property taxes?
What are the estimated monthly costs of heating and utilities?
Are appliances included in the purchase price? How old are the appliances, and are they in good working order?
Have there been major repairs or renovations to the house? If so, get details. Was there damage to the foundation? Was there water damage? Has there been a major fire? Has there ever been an illegal drug operation in the house?
Does the home or property have problems with insects, rodents, or other animals?
Please note that most REALTORS® will recommend that buyers get a thorough inspection done by a qualified Home Inspection company before they purchase the home. This inspection should help to answer many of the questions involving the condition of the home.
First time buyers often focus on the house, and don't consider that area you live in is as important as the house you live in. When somebody buys a house, they are buying a piece of that community. The location, features and amenities in a community not only effect buyers' finances, but their quality of life.
First time buyers may want to consider:
Where a community is located, relative to the buyers' place of business? What is the traffic like? How much should be factored into the cost of fuel?
Is the home close to family and friends? How much travel will be required to visit each other?
Are their schools nearby? If not, is bus service available for children?
If you do not own transportation, is there local transit service available? What costs should be factored in for use of LRT/bus/train/subways each month?
How do the local schools rate in provincial standardized tests?
How is the crime rate in that community? Do you feel safe there?
Is there easy access to shopping, recreation facilities, churches, theatres, libraries, gas stations, cafes, and restaurants
Is there easy access to medical/dental services and emergency medical services (how far away is the hospital and ambulance station)?
Is there easy access to the fire station, and a fire hydrant?
Is there easy access to parking for visitors?
Are there noise pollutants in the area? Heavy traffic, airports, loud manufacturing close by?
Is there any undeveloped areas close by? If so, what is proposed for that area?
Does the look and feel of the neighbourhood match your values and needs?
What is the economic climate of the community? Is it growing? Are new businesses moving in or moving out? Will there be more or less jobs there in years to come?
Completing the Purchase
Once the buyer and their REALTOR® have found a home that meets their needs, at a price they can afford - it's time to make an offer to purchase the home. REALTORS® like Derek Dunphy will prepare the legal paperwork that is required to purchase the home, and guide the buyers step-by-step through the document, until they are comfortable it. It is normal for first time buyers to have many questions about the offer. Once the offer to purchase has been completed, the buyers' REALTOR® will communicate the offer to the sellers' agent. Ideally, the contract between the buyer and seller should protect the rights and expectations of both parties.
An Agreement of Purchase and Sale (known as an offer, until both parties agree) that is void of any conditions is known as a firm offer. An offer with conditions attached (which is far more common), is known as a conditional offer. A conditional offer represents certain circumstances which must take place before the offer can become firm. Examples of some conditions are: "Subject to Financing Approval", "Subject to a positive report from a Home Inspector", "Subject to Sale of Buyers' Property", among lots of others.
The seller and their representative may accept your initial offer, or they may make changes to some of the terms and conditions, and present a counter-offer. The offer will go back and forth between the two parties until one party agrees to the conditions, or rejects the offer and does not counter.
Once completed and agreed upon by both parties; the Agreement of Purchase and Sale will stipulate the purchase price, amount of deposit required by the buyers, completion date (date of possession), fixtures and chattels included and excluded with the purchase, along with many other terms and conditions.
A good REALTOR® will guide buyers through the actions required between reaching an agreement and actually taking possession of the home. Often times, as described earlier, a Home Inspector will help ensure that the home is free of major defects, and guide buyers through maintenance and repairs that may be required. In addition, buyers will require a lawyer to complete the purchase of the home.
The lawyer provides various functions, including:
Ensure that the terms and conditions of purchase are met
Ensure all the legal paperwork has been properly completed
Transfer the title from the buyer to the seller
Ensure the title is free of any liens and encumbrances that may affect the transfer of titl
Register your mortgage with the land registration office
Upon completion of the transaction, the lawyer will present the buyers with a Statement of Adjustments, outlining all financial aspects of the sale.
The goal of this guide is to help people better plan for their role as home owners, and help them avoid any surprises when they are going through the process of buying.
For further information and help in buying your first home, please contact Derek Dunphy:
Derek Dunphy, REALTOR®, Sales Representative
Johnson Associates Real Estate Ltd., Brokerage.
247 Guelph Street
Georgetown, ON. L7G4A8