Costs for First-Time Home Buyers
Buying a new home can be a huge, complex undertaking, especially when it’s your first time. That’s why it’s important to have an experienced real estate agent guiding you along the way.
The owning advantage (and some added incentive)
Two out of three Canadian families own a house – that's one of the highest rates of home ownership in the world. And for good reason.
Financial advantage of home ownership
- Homeownership is the single largest source of savings for Canadian households.
- Your payments build equity (as opposed to renting, where your money goes to the building owner).
Buying a home and building equity is the first step on the property ladder. It gets you into the housing market, keeps you in touch with increasing house prices, and puts you in a good position to trade up to bigger and better homes as your circumstances allow.
Real estate is a great investment. And with increasing housing prices, it's all the more important for first-time buyers to get a foot on the first rung of the property ladder.
How much can I afford?
First-time buyers need to look at their financial situation and crunch the numbers to see if this is the right time to buy. Chances are the numbers they see today will be the best they will see for some time, which is why so many are considering homeownership.
Still, understanding the money that goes into a home purchase is important. The biggest mistake new buyers make is underestimating the costs of buying a house and maintaining it over time.
Homebuying requires more than a down payment as closing costs and future expenses will figure prominently. Many experts agree that homeowners should have 1%-3% of their homes’ purchase price in savings for improvements and surprise expenses. Mortgage experts also say it’s wise to have at least six mortgage payments in the bank after a closing.
Calculate your TDS:
1. Multiply your monthly gross (before tax) income by the maximum TDS ratio of 40%.
2. Subtract your regular monthly costs (e.g. credit cards, car payments, personal loans).
The figure you are left with represents the maximum amount available for your mortgage payment, property taxes and 50% of condo fees (if applicable).
While those numbers may not be feasible for everyone, if you are spending above your means on a new home, you may find yourself in financial trouble fast.
Inspections are important for the first-time buyer, as they list repairs that will be needed for the home. A buyer should put together a short-term and long-term plan based on the inspection so they know how much money they will need in the months and years ahead.
As renters, people are accustomed to paying rent and basic utilities. As homeowners, you’ll also pay for water, sewer and trash collection. Then there are property taxes, homeowner’s insurance and homeowner’s association dues, plus yard care, snow removal and other expenses unique to your location.
To be sure, buying a home is one of the largest investments you’ll make and when done wisely, it can be one of the best decisions of your life. Your real estate agent will help each step of the way, first helping you establish a realistic price point for your home purchase and a clear understanding of your monthly expenses.
(ps. and in Ontario there is a Land Transfer Tax that must be paid and in Toronto there is an additional Land Transfer Tax that must be paid. There is a formula based on price paid on the property and is roughly between 1.25-1.75% of the purchase price!! In Toronto therefore the LTT can be up to 3.5% of the purchase price !!!)