We all know buying a home especially for the first time, is a big deal.
Whether you're purchasing a home, a condo, or a townhome, the process can be intimidating, and you may not know where to begin. Although, with the right guidance and invested time, you can close with confidence with the steps below on how to buy your first home in the GTA.
Save for a Down Payment and Other Expenses
You should most definitely save money for a down payment before you begin looking for a real estate property. Generally, the greater your down payment, the easier it will be to get approved for a mortgage. A down payment in Ontario is normally between 5% and 20% of the purchasing price.
Save for Future Costs
While saving for a down payment should be your main concern, you should also set aside money to cover for future closing fees. Closing fees can consist of land transfer tax, legal fees, mortgage default insurance, home inspection, etc. Closing fees typically range from 1.5% to 4% of the sale price. It is critical to save for these costs before purchasing a property so that you're not in debt when the time comes to close.
Check your Credit Score
Before filing a mortgage application, check your credit score to determine where you lie on the scale and figure out how to improve it. A credit score is a number between 300 and 900 that lenders use to determine how risky it is to give a loan to you. It’s good to know that the lower your credit score is, the worse your chances of getting a loan are.
Prepare Finances and Documentation
Before you start looking at real estate listings, be sure your finances are in check. Before granting a mortgage, a lender will consider your present assets, income, and existing amount of debt. Your mortgage lender may ask for documentation regarding the three factors, so it is important to organize important papers needed to support a mortgage application.
Get a Mortgage Pre-Approval
Once your finances are in place, you will then need to determine how much you can spend. To come up with a budget, use a mortgage calculator to help determine how much of a mortgage you can afford. You can also visit a mortgage lender and get "pre-approved" if you want something more concrete. A pre-approval is not required, although it is strongly recommended. This will allow you to establish a budget for house hunting and lock in an interest rate for up to 120 days, depending on the lender. A mortgage pre-approval will also show your realtor that you're a serious and qualified buyer.
First-Time Home Buyer Incentives
In Canada, there are many programs for first-time home purchasers. They assist many Canadians who are trying to purchase their first home in making housing more affordable and accessible.
RRSP Home Buyers' Plan:
First-time home purchasers will be able to withdraw up to $35,000 tax free from their RRSP’s to buy a home under the Home Buyers' Plan. The money must be paid back over a 15-year period.
Land Transfer Tax Rebate Programs:
A land transfer tax credit of up to $4,000 is available for first-time home buyers in Ontario.
The Government of Canada's First-Time Home Buyer Incentive Program:
This program allows the government to share a portion of the ownership and costs of purchasing a home with you. The government will contribute 5% or 10% of the home's price toward your down payment in exchange for the equivalent amount of equity in your property. The government's part of your home must be paid back within 25 years, or when you sell it, whichever comes first. This is not a standard loan, meaning there will be no interest charged.
The House Hunting Begins
You now have a decent amount for a down payment and are pre-approved for a mortgage. This is the most exciting aspect of the home-buying process because you can now begin looking!
At this point, you should seriously consider dealing with a real estate agent. This isn't required, but it is recommended, particularly for first-time homebuyers.
Jay Paramanathan from Royal LePage Ignite Realty, Brokerage has extensive knowledge of every step of the process, which can reduce stress, and is also connected to a professional network of inspectors, insurance agents, and other professionals who could join your team.
If you have any questions or inquiries, please contact Jay Paramanathan today.