Buying a home is likely one of the biggest financial decisions you’ll ever make. But it’s also an emotional process as you face a major life transition.
Searching for the perfect home is both an exciting and stressful time – be sure to arm yourself with all the information you need to make a smart, well-informed decision.
Here’s what to think about now.
Practical considerations
✔ Calculate and prepare for your down payment
As you start to make financial arrangements for your future home, keep in mind the minimum down payment requirements. For properties between $500,000 and $999,999, there is a 5% minimum on the first $500,000 and 10% on the remainder. For properties worth $1 million or more, you’ll need a 20% down payment. Note that your down payment cannot be financed with other pre-existing debt.
✔ Get a mortgage pre-approval
Getting a mortgage pre-approval from a financial institution not only allows you to focus on what you can afford and stay within budget, it also puts you in a stronger position as a buyer. Your firm offer in a bidding war may give you the edge over other offers which might be higher, but conditional on financing. Want to learn more about mortgages? See our Mortgages 101 article.
✔ Protect yourself with mortgage insurance
Whether you’re taking out your first mortgage or renewing, it’s vital to ensure your mortgage is covered should you or your significant other pass away. Mortgage insurance and life insurance are two different types of insurance that can ensure your mortgage is paid after death. Mortgage insurance is sold by a financial institution to pay off your mortgage in case of death. Life insurance is broader coverage sold by a life insurance agent that can cover both your mortgage and other financial costs. Talk to your Richardson Wealth Advisor to learn more about which option is best for you.
✔ Be aware of “hidden costs”
Home inspection ($300 to $1,000) – While today’s current sellers’ market has many buyers skipping a home pre-inspection to present a more competitive, condition-free offer, an inspection is still a key component of due diligence. If you decide to forgo a home inspection before making an offer, make sure your budget allows ample room for repairs. You may wish to also consider completing an inspection once an offer is accepted so that you are prepared for any necessary or recommended repairs.
Appraisal fee ($375 to $500) – Once your offer has been accepted, your new home will need to be appraised before your mortgage is finalized. This allows the lender to protect their loan and ensure your home is worth what you’ve paid for it, for example, where a bidding war may have occurred to increase the price. Some financial institutions may offer to cover this cost themselves.
Title insurance – (varies based on size and value of property) – While title insurance isn’t a necessity, it can offer valuable protection and save you thousands if someone challenges the ownership of your property. The cost varies, but it could add hundreds of dollars to your closing costs.
Land transfer tax (typically 1.5% to 4% of purchase price) – With the exception of homes purchased in Alberta and Saskatchewan, you’ll also have to pay land transfer tax. And for Toronto homebuyers, you’ll be charged land transfer tax at both the municipal and provincial levels. However, if you’re a first-time homebuyer in Ontario, British Columbia, Prince Edward Island or the city of Toronto, you can take advantage of the Land Transfer Tax Credit for First-Time Homebuyers which allows you to claim and receive a full refund of the provincial Land Transfer Tax (up to $4,000 maximum). If you’re buying a new construction home, you’ll also be responsible for paying GST on the property although this is often included in the listed purchase price.
Adjustment for prepaid property taxes and/or utility bills ($1,000-2,000) – These are costs that the seller has prepaid which must be reimbursed by the buyer. Your lawyer will determine how much is owing.
Home insurance (will vary based on value of your home) – Property insurance protects your home in case of fire, flooding or certain other disasters. Most lenders will require proof that you have insurance in place before they release the mortgage funds. You’ll need to have insurance in place before your lender releases the mortgage funds.
Emotional considerations
✔ Make a ‘needs vs wants’ checklist
Depending on your lifestyle, you’re likely looking for certain features in your next home (number of bedrooms, outdoor space, proximity to schools and amenities etc.). Before you begin your house search, make sure you have a clear idea of your “must haves” and your “nice to haves”. Not only will this save you time by avoiding houses that don’t fit your criteria, but it will also help you manage your emotions and make the right decision when the right home finally comes along.
✔ Do your research
A good real estate agent will research what comparable houses have gone for in the neighborhood and give you a range of what you could realistically expect to pay based on recent sales. Of course, many factors can play into what a house might ultimately go for but establishing your cut off price will help you avoid getting caught up in the emotion of a bidding war, and worse, ending up paying far more than you had budgeted for.
✔ Look past the decor
Professional staging is intended to sell a lifestyle and influence buyers to form a strong emotional connection with a house. As a buyer, be sure to look beyond the finishings to consider how your own family will use the space, and make sure the home meets your must-haves. Conversely, don’t rule out a dark, dated interior – cosmetic changes are relatively easy to make if a home ticks all the other boxes.
✔ Don’t let your emotions drive your decisions
Looking for a home is an inherently emotional process. But it’s when emotion clouds our judgement and influences our decisions that it becomes a problem. Falling in love with a house may mean you overlook major flaws and end up with a house that doesn’t meet your goals. Consult your ‘needs versus wants’ list, stick to your budget and be patient.
Need help understanding how buying a home will fit into your budget and impact your financial plan? Talk to a Richardson Wealth Investment Advisor.
Mortgage 101
There’s a lot to think about when you’re considering a mortgage: your down payment, type of mortgage, how long you have to pay it off, how much in monthly payments you can afford, mortgage interest rate. Knowing the mortgage lingo will help you better understand the financial aspects of buying a home.
