3 Critical Things First Time Home Buyers Need to Know

I love being a real estate agent who represents first time home buyers. It’s an amazing feeling to help someone take such an important step in their lives. In my many years in the market, I’ve found that most rookie home buyers really benefit from having someone to guide them through the process.

Buying a home can be stressful, but more importantly it can (and should) be fun and exciting too.

Here are some critical things you should know to ensure your experience with buying your first home is a positive one.

1. You Can’t Believe What You See on TV

If you’re watching a lot of reality shows about real estate, you should be aware that most of them are based in the US. The US market is a lot different from the Canadian market, and you need to temper your expectations accordingly.

A recent show I saw depicted a couple buying a 3,000 square foot home for $125,000. That just doesn’t happen in Canada. That American property was so cheap because it was a foreclosure home sale, and in the US their banking laws are very different. In Canada, rules are stricter and you as a consumer have more protection.

Say you bought a home but couldn’t make the payments, and the bank took over the property. Canadian law requires that the bank sell the home for a reasonable amount close to market value. If the bank sells the home for more than what you owe, they must pay you the balance (after expenses like the listing agent’s fee, of course).

In the US, the bank has no obligation to you, so they can sell the property for a song if that will get it to sell quickly. In Canada, we keep things more honest.

The takeaways from this difference are:

1. Have realistic expectations about what you’re going to pay.
2. Don’t be afraid of having the financial rug pulled out from under you if the worst happens.
3. Dramatic profits from flipping don’t happen here as much.

This difference also means you have more obligation to make a financial commitment to the property when buying. Our rules require that you put at least 5% down payment on your home, and also that you buy mortgage loan insurance from a company like the CMHC or Genworth.

2. Figure Out What You Can Afford First

To avoid disappointment, it’s really important to actually visit a mortgage professional at a bank before you start looking at properties.

Online calculators don’t count. Just because you can afford to pay $2,000 a month, it doesn’t mean the bank will approve you for $2,000 a month. This can make a dramatic difference in the price range and quality of the homes you will be looking at.

Saving You Time and Keeping Expectations Realistic

If you start cruising the listings before getting approval from a lender, you’ll have been looking at homes in a higher price range. You may have had some time to get your heart set on a certain quality of home before learning the hard truth. In Ottawa, it’s hard to get anything that will meet most people’s expectations for under $300,000.

If you can only afford in the $250,000 – $275,000 range, you can still get a well made home that ticks most of your boxes. But it may not have all the cosmetic touches that most people are looking for these days, like new kitchens with granite countertops.

Protecting You if There’s a Bidding War on The Home You Want

If you’re not fully pre-approved you may lose out on your dream house if there are multiple offers. It takes time to get fully pre-approved, and in that time the seller is free to accept another offer.

Getting a full approval is not done over the phone. It’s a process that involves an in-person visit, a full credit check, and usually a brief waiting period.

More Great Reasons to Visit Your Lender First

There are other benefits to having that talk before you jump into the deep end. For example, you’ll learn more about the costs involved in buying a home like:

1. Property inspection, which is about $500.
2. Lawyer’s fees, which are usually around $1,700 – $1,800.
3. Land transfer taxes, which will vary according to the value of the property.

Makind Smart Decisions on Mortgage Loan Insurance

There’s also mortgage loan insurance. The amount you’ll pay for this is flexible, depending on how much of a down payment you make. Basically, if you put more down you have to buy less insurance, and if you put 20% down you don’t need to get mortgage loan insurance at all.

Your mortgage professional can help you figure out if it’s smart for you to put more down or not.

For example, let’s say you buy a $325,000 house and will put 5% down. That will mean you pay about $11,000 in mortgage insurance. But if you put 10% down, you only have to give about $7,000 to the CMHC, saving $4,000 over the 10 years or so of the term.

Sounds great, doesn’t it? But that will mean you’re spending an extra $16,000 or so on your down payment out of your pocket. The big question is what could that money be doing for you if you invested it elsewhere. Maybe it could be earning you more money if it was in an RRSP, for example.

Right now interest rates are averaging around 2.5%, so it would make more sense to make a 5% down payment. But if you were paying, say 6% the story would be different.

That’s why you talk to your mortgage professional first – they’ll help you figure this out.

3. You Don’t Pay Me a Cent

That’s right – I study the market, show you the right kinds of properties, negotiate for you and represent your interests, but you don’t pay me. And while I do have fun, I don’t work for free either. My fee is actually paid by the listings agent – the realtor representing the person selling their home.

What I Do

I am here to protect you. If needed I even protect you from yourself. The excitement of buying a home can be overwhelming, and it’s too easy for the inexperienced to get carried away. Part of my job is to act as a reality check.

Part of my job is to make sure you look past the cosmetic surface of the home and make sure you get what you really need. I’ve had clients who say they don’t like a property because of something that’s an easy fix, like the paint colour. I look past that to make sure it meets the requirements that you set out in the beginning, like location or number of bedrooms.

When the Going Gets Tough

Some people don’t think they need a buyer agent. It’s true that if everything goes smoothly it can appear that you don’t need one. But what about all the times when the unexpected happens? Things can happen that will turn a simple transaction into a nightmare.

I’m talking about situations like:

• The seller of the home you want gets multiple offers. I know there are things you can do to convince the seller to take your offer, even if it’s not the highest one.
• The seller wants you to give ground on conditions. I know what’s reasonable and what’s essential, and can go to bat on your behalf.
• There are hidden problems with the home that aren’t obvious to you. While I’m not a property inspector, I can often spot trouble and save you time.

When buying a home, you should:

1. Know what you’re getting into
2. Know what you can afford.
3. Know who you’re paying during the process, and for what.

My fellow agent Kevin talks about even more reasons you need your own realtor when buying a home.

I’ll Get You A Great Home – Guaranteed

When I’m your agent, my job is to get you the right home, not just any home. That’s why the Paul Rushforth Real Estate team has a buy-back guarantee. It states that if you don’t love your home one year later, we’ll buy it back from you or sell it for free.

I know that if I don’t do my job right the first time, I’ll be doing it again a few months down the road – for free. If that doesn’t give you confidence when buying your first home, nothing will.