First Time Buyers

So, you’ve finally decided to fulfill a lifelong dream and buy your own home… how exciting!

You are ready to fulfill your dream of having a place to call your own.

Buying a home is one of the biggest emotional and financial decisions you’ll ever make. Prepare by learning about the process of homebuying and the responsibilities of homeownership. The differences between renting and buying a home are vast, and there’s a long list of pros and cons for both options. And, remember — there is no one best decision for everyone. Before moving forward, though, here are some questions to consider.

  Do you have the necessary financial management skills?

  How financially stable are you?

  Are you ready to take on the responsibility of all the costs involved in homeownership, including mortgage payments, repairs, and maintenance?

  Are you able to devote the time required for home maintenance?

There are pros and cons for both renting and buying. Everyone must make his or her own best decision. Buying a home is not for everyone. Take a moment to think through the advantages and disadvantages of both owning and renting.

Read over your completed worksheet and then think carefully. Are the advantages of owning your home really bigger than the advantages of renting? Are the disadvantages of owning your own home really smaller than the disadvantages of renting?

If homeownership is for you, you must be both financially and emotionally ready. Buying a home isn’t only about money. You should listen to your heart… and take an honest look at your lifestyle.

Financial Readiness

How Much are You Spending Now?

Calculate Your Household Expenses

Start figuring out your financial readiness by evaluating your present household budget. How much are you spending each month? Knowing exactly how much, will give you a better idea about whether you can afford to become a homeowner.

Calculate Your Monthly Debt Payments

Do you know how much debt you are carrying? You need this information to figure out whether you are financially ready for homeownership. If you decide to buy a home, mortgage lenders will ask for this information.

How Much Can You Afford?

Before you begin shopping for a home, it’s important to know how much you can afford to spend on homeownership. You will want to plan ahead for the various expenses related to homeownership. In addition to purchasing the home, other significant expenses will include heating, property taxes, home maintenance and renovation as required. Two simple rules can help you figure out how much you can realistically pay for a home. You must understand these rules to understand if you will be able to get a mortgage.

Affordability Rule 1

The first rule is that your monthly housing costs shouldn’t be more than 32% of your gross monthly income. Housing costs include your monthly mortgage payments (principal and interest), property taxes and heating expenses. This is known as PITH for short — Principal, Interest, Taxes and Heating.

Lenders add up your housing costs and figure out what percentage they are of your gross monthly income. This figure is called your Gross Debt Service (GDS) ratio. To be considered for a mortgage, your GDS should be 32% or less of your gross household monthly income.

Affordability Rule 2

The second rule is that your entire monthly debt load should not be more than 40% of your gross monthly income. Your entire monthly debt load includes your housing costs (PITH) plus all your other debt payments (car loans or leases, credit card payments, lines of credit payments, etc.). You have calculated these on the Monthly Debt Payments form. This figure is called your Total Debt Service (TDS) ratio.

Needs & Lifestyle

Your Needs — Now and in the Future

Try to buy a home that meets most of your needs for the next 5 to 10 years, or find a home that can grow and change with your needs. Here are some things to consider:

Size

  • How many bedrooms do you need?
  • How many bathrooms do you need?
  • Do you need space for a home office?
  • What kind of parking facilities do you need? For how many cars?

Special features

  • Do you want air conditioning? If so, what type?
  • Do you want storage or hobby space?
  • Is a fireplace or a swimming pool high on your list?
  • Do you have family members with special needs?
  • Do you want special features to save energy, enhance indoor air quality, and reduce environmental impact?

Lifestyles and stages

No matter what type of housing you choose, you must have a clear idea of your needs today as well as your possible future needs. These are some examples of questions home buyers might ask:

  • Do I need a home office?
  • Do I plan to have children?
  • Do I have teenagers who will be moving away soon?
  • Will I need a home that can accommodate different stages of life?
  • Do I have an older relative who might come to live with me?

Choosing a Location

What Location Should You Choose?

Location is a critical factor. A home with everything you need but in the wrong location, is probably not the right home for you. Here are some things to consider about location.

  • Do you want to live in a city, a town or in the countryside?
  • How easy will it be to get to where you work? How much will the commuting cost?
  • Where will your children go to school? How will they get there?
  • Do you need a safe walking area or recreational facility, such as a park, nearby?
  • How close would you like to be to family and friends?

What is a Sustainable Neighbourhood?

A sustainable neighbourhood meets your needs while protecting the environment. Homes in a sustainable neighbourhood are located near shops, schools, recreation, work and other daily destinations. This helps reduce driving costs and lets residents enjoy the health benefits of walking and cycling. Land and services, like roads, are used efficiently. Sustainable neighbourhoods also feature a choice of homes that are affordable. In your search for a sustainable neighbourhood, here are some questions to ask:

Easy transportation

  • Are stores, schools, recreation facilities, restaurants, and health services within walking or cycling distance? Will your children need to take a bus to school? Can they walk to the park? Can you do most of your shopping without a car?
  • Are there nearby bus stops and cycling lanes? How long is the bus ride to work, or school? Can you safely bike?

House size and features

  • Are the homes compact with shared walls to reduce heating costs?
  • Are homes reasonably sized with lots requiring less upkeep?
  • Are there different dwelling types (such as single-detached, semi-detached, townhouse and apartments) in the neighbourhood?
  • Are the lots modestly sized? Roadways narrow? Driveways/parking areas small? Do natural drain ways lead to streams or park lands? Is there native vegetation and streams with woodland edges?

“Look and feel”

  • Do the buildings have a friendly face to the street? Are the community centres, shops and meeting places welcoming?
  • Are there trees lining the street? Do you find the homes interesting to look at?  Do the building sizes feel comfortable to you? Are the roads easy to walk along or cross?

Safety

  • Do the homes have “eyes on the street”? (In other words, are there people around who might watch out for you? Is there somewhere to go in an emergency?)
  • Is there adequate street lighting?
  • Are there safe places for children to play?
  • Are the streets safe for cyclists and pedestrians?
  • Is traffic slow moving and light?

New vs Previously-Owned

Do You Want a New Home or a Previously-Owned Home?

A new home is one that has just been built — no one else has lived in it yet. You might buy a new home from a contractor who has built it, or you might hire a contractor to build it for you. A previously-owned home (often called a resale) has already been lived in. Here are some characteristics of each type of home.

New Home

Up-to-date

A new home has up-to-date design that might reflect the latest trends, materials and features.

Choices

You may be able to choose certain features such as style of siding, flooring, cabinets, plumbing and electrical fixtures. You may have to pay extra if you want to add certain features, such as a fireplace, trees and sod, or a paved driveway. Make sure you know exactly what’s included in the price of your home.

Costs

Taxes such as the Goods and Services Tax (GST) (or, in certain provinces, the Harmonized Sales Tax (HST)) apply to a new home. However, you may qualify for a rebate of part of the GST or HST on homes that cost less than $450,000. For more information about the GST New Housing Rebate program, visit the Canada Revenue Agency website at www.cra-arc.gc.ca.

A new home will have lower maintenance costs because everything is new, and many items are covered by a warranty. You should set aside money every year for future maintenance costs.

Warranties

A warranty may be provided by the builder of the home. Be sure to check all the conditions of the warranty. It can be very important if a major system such as plumbing, or heating, breaks down.

New Home Warranties may be provided by provincial governments. There are also private new home warranty programs. In some provinces a warranty may be provided by the builder of the home. Check with your realtor or lawyer/ notary to find out what the new home warranty program in your province covers. Check the internet for Home Warranty Programs in your province.

Neighbourhood amenities

Schools, shopping malls and other services, may not be completed for years.

Building Your Own Home

Some people prefer the challenge and flexibility of building their own home. On one hand, you make all the decisions about size, design, location, quality of material, level of energy-efficiency and so on. On the other hand, expect to invest lots of time and energy.

Resale Home

When the home already exists, you can see what you are buying. Since the neighbourhood is established, you can see how easy it is to access services such as schools, shopping malls, libraries, etc.

Landscaping is usually done and fencing installed. Previously owned homes may have extras like fireplaces or finished basements or swimming pools.

You don’t have to pay the GST/HST unless the house has been renovated substantially, and then the taxes are applied as if it were a new house.

You may need to decorate, renovate or do major repairs such as replacing the roof, windows and doors.

Types of Homes

What Type of Home Should You Buy?

What types of homes will you be visiting with the idea of buying? Do you see yourself living in a detached single-family home? Or, perhaps a townhouse? Maybe, a duplex?

Single-family Detached

A single-family detached home is one dwelling unit. It stands alone, and sits on its own lot. This often gives the family a greater degree of privacy.

Single-family Semi-detached

A semi-detached home is a single-family home that is joined on one side to another home. It can offer many of the advantages of a single-family detached home. It is often less expensive to buy and maintain.

Duplex

A duplex is a building containing two single-family homes, located one above the other. Sometimes, the owner lives in one unit and rents the other.

Row House (Townhouse)

Row houses (also called townhouses) are several similar single-family homes, side-by-side, joined by common walls. They can be freehold or condominiums. They offer less privacy than a single-family detached home, although each has a separate outdoor space. These homes can cost less to buy and maintain, although some are large, luxury units.

Stacked Townhouse

Stacked townhouses are usually two-storey homes. Two two-story homes are stacked one on top of the other. The buildings are usually attached in groups of four or more. Each unit has direct access from the outside.

Link or Carriage Home

A link, or carriage home, is joined by a garage or carport. The garage or carport gives access to the front and back yards. Builders sometimes join basement walls so that link houses appear to be single-family homes on small lots. These houses can be less expensive than single-family detached homes.

Apartment

A self-contained unit in part of a building consisting of a room or set of rooms including kitchen and bathroom facilities.

Ownership

Forms of Home Ownership

Freehold

Freehold means that one person (or two, such as joint ownership by spouses) owns the land and house outright. There is no space co-owned or co-managed with owners of other units.

Freehold owners can do what they want with their property — up to a point. They must obey municipal bylaws, subdivision agreements, building codes and federal and provincial laws, such as those protecting the environment.

Detached and semi-detached homes, duplexes and townhouses are usually owned freehold.

Condominium

Condominium ownership means you own the unit you live in and share ownership rights for the common space of the building. Common space includes areas such as corridors, the grounds around the building, and facilities such as a swimming pool and recreation rooms. Condominium owners together control the common areas through an owners’ association. The association makes decisions about using and maintaining the common space.