Buying your first home can be very exciting but a little overwhelming. You’ll want to do it right, and we can help you understand what to expect at every stage of the process.
We’ll make sure that you understand your options, the home-buying process and when to engage the other professionals who make up your home-buying team.
Step one – your budget
The first thing to do before buying a home is to make sure it’s the right time to do so. Although it may not always be feasible if you live in an expensive real estate market, you should aim to try to keep your total housing payment under 35 percent of your gross monthly income.
When you spend much more than that on your housing, you risk becoming “house poor” — you might live in a beautiful home but find it difficult to save or even cover other monthly expenses.
You should also consider the cash you’ll need to make buying your first home a reality. A down payment is typically between 3.5 and 20 percent of the purchase price.
As you save, don’t underestimate how much money you’ll need — you might be surprised at how much cash you’ll need for closing, and you never know when that hot water tank could break down.
Finally, if you’re close to putting an offer on a home, begin to collect documents that you’ll need to verify your finances on the mortgage application: paystubs, W-2’s, bank statements and, if you have freelance or self-employment income, copies of your last two tax returns.
Step two – finding the right real estate agent
While having a real estate agent is not a necessity for finding and buying a home, it is highly recommended, particularly for your first home purchase. Having an expert to rely on who is knowledgeable about the market you are looking in and the steps to finding and closing the sale of a home to lead you through the process could take a big weight off your shoulders.
What’s more, a good agent will always have a network of other professionals you will need in this process like home inspectors, insurance agents and mortgage brokers who will be a part of your home-buying team before and after your purchase.
Feel free to contact a few agents and choose the one you have the best rapport with. Your agent will be playing a big role in the home buying process and it’s important to choose someone you feel comfortable with.
Step three – a mortgage
Getting pre-approved for a mortgage is always a good idea. It’s an important first step in the home-buying process – you don’t want to start house-hunting and fall for a home you can’t afford.
Your credit score is one of three factors that will be considered before you get approved for a mortgage, so make sure your credit is in order, as there may be problems with your credit that you don’t know about, like a department store credit card that you forgot to cancel. The other two factors are your income and your down payment.
With regards to your income, if you’re accustomed to paying a fairly low rent and transitioning to a mortgage, you’ll need to consider your lifestyle.
For instance, you may have done your budget calculations and find our you are able to afford your own home, but you should realise that you might need to give up going out for dinner or trips with friends because you’re going to be paying a mortgage now.
One good question to ask yourself is the following: if you lost your job and weren’t working for three months, would you be able to afford your home? Or are you stretching yourself too thin?
As for your down payment, keep in mind that the bigger the down payment, the smaller your mortgage and overall interest charges will be.
Step four – start the search
We’ve all seen the real estate shows with the gorgeous multi-million dollar properties. Your first home will most likely look nothing like that. The kitchen might need an update, the walls might be a terrible colour and the backyard could be overgrown with weeds.
Have an open mind. Wallpaper can be removed, walls can be painted and countertops can be changed. The things you should be most concerned about is whether the location, size and layout are right for you, along with the condition of the roof, plumbing and hot water tank.
Remember, it’s your first home and you very likely will not be living there forever: most people only live in their first home for 7-10 years. It’s called a “starter home” for a reason.
Next week we’ll explore making an offer, closing the deal and the steps to take once your offer is accepted.
As always, please reach out with any questions or comments!