What You Need To Know As A First Time Home BuyerPosted on April 02, 2014
What You Need To Know As A First Time Home Buyer
Buying your first home is a momentous occasion. It can be hard to know exactly where to start. Below is my step by step guide to purchasing your new property.
Step 1: Deciding What Type of Property You Should Buy
There are many types of real estate that you can buy.
House: The most popular style and the most solid investment. It is a free-standing home which sits on its own lot thereby offering a greater degree of privacy. In Greater Vancouver, owning a detached, single-family home is simply not an option for many Buyers, especially first time buyers.
Townhouse: One of several types of single-family homes joined by common walls. It offers less privacy than a single-family detached home, but still provides a separate outdoor space. These homes can cost less to own and maintain.
Condo: Refers to a form of legal ownership rather than a style of construction. Condominiums can be high-rise residential buildings, townhouse complexes, individual houses and low-rise residential buildings. Condominiums are also known as Stratas in British Columbia.
Step 2: Mortgage Pre-Approval Process
Pre-approval of a mortgage is when your lender has reviewed all your financial information and has determined the maximum amount of money you can borrow. The advantages to pre-approval include:
• Know how much you can borrow, so you don’t waste time looking at properties you can’t afford.
• You don’t have to worry about rising interest rates while shopping for a home, as usually the mortgagebroker will guarantee the current interest rate for 60 – 90 days.• You have an edge when you make an offer, because the seller knows you’re more serious.
• You save time when you apply for your loan because you’ve already assembled your paperwork.
Step 3: Where to get Pre-Approved
Many banks and financial institutions are competing for your business so it makes sense to shop around for a mortgage. Most lenders will reduce their posted interest rate so don’t be shy about bar- gaining. Your ability to bargain for a low rate and a flexible mortgage will often depend on how much business you have with the institution. You can contact banks and credit unions directly, or work with a mortgage broker. A broker will help you find a lender and the best mortgage package. Once you have selected your lender, you will need to provide your financial information. Your lender will want the following:
• Personal information such as number of dependents and marital status;
• Details of employment, including a letter from your employer verifying your salary;
• Banking and investment information;
• Details of your assets (i.e.- a car, other property);
• Information on loans and other liabilities;
• Past 2 – 3 year tax forms;
• Permission to do a credit check.
Step 4: What are the Costs?
Costs to be Borne by the Buyer:
• Lawyer or Notary Fees – Lawyers/Notaries fees for closing the sale range according to the complexity of the deal but they should range from $600 – $1500.
• Land Title Registration Fees – These fees are approximately $300. Your lawyer/notary will arrange the payment.
• Survey Certificate (if applicable) – $150-300.
• Mortgage – If you get a high-ratio mortgage (a mortgage where you pay less than a 20% down payment) you will have to buy mortgage loan insurance from CMHC or a private company. If you qualify for a 5% down payment, CMHC charges an insurance fee that equals 3.25% of the mortgage. If you put 10% or 15% down, your insurance fees will decrease to 2% and 1.75% respectively. The insurance premium usually gets added to your mortgage.
• Fire/Home Insurance Premium – For strata owners, be sure to obtain Strata Deductible Insurance and Betterment Insurance for any home improvements.
• Sales Tax – If you buy a newly constructed home, you must pay the 5% GST.
• Home Inspection fee – Most REALTORS® recommend that you get a home inspection by a certified home inspector. It will cost you from $350-750.
• Property Transfer Tax – When a residence is purchased a Property Transfer Tax (PTT) is applied. The tax is calculated at 1% on the first $200,000 and 2% on the remainder. The First-Time Home Buyers’ Program offers an exemption to the PTT if the fair market value of the residence is $425,000 or less. In all regions there is also a proportional exemption for first-time buyers of homes with a fair market value up to $25,000 above the thresholds.
• Moving Expenses – This can range wildly depending on many things but it should not be forgotten and should be budgeted.
You can read and download the complete First Time Buyer’s Guide here.