22 May What to Consider Before Buying Your First Home
According to a recent survey, owning a home is one of the top priorities for people between the ages of roughly 25 and 40. Making the switch from renting to home ownership has always been a major life decision for individuals and families, and urban housing prices and increases in cost of living have only made this decision harder.
However, in the Hamilton area we are now seeing new in-fill, urban, and suburban development that is aimed at first-time buyers. With these new developments taking shape and with the recent rate changes, many people are contemplating the change to owning rather than renting. When thinking about this major life change and the possibility of buying a home for the first time, there are a few things to keep in mind.
Things to Keep in Mind when Buying Your First Property
Financing your First Home and the Role of Family or Parents
One of the most important and obvious aspects to keep in mind when buying your first home is how you are going to pay for it. The most important components of the financing picture are the availability of a mortgage and, as part of that, the size of your down payment. The required size of your down payment will depend on many factors, including the purchase price you are aiming for, the predominant mortgage rates, and your eligibility for CMHC insurance.
While it is true that the more money you can save for your down payment the better, many first-time home buyers find that hitting the often quoted 20% mark is unrealistic. In some scenarios, first time buyers may consider purchasing with the help of their parents or other family members, who can either contribute to the down payment or go on title together with the first-time buyer in order to qualify for financing.
In this scenario, it is important to bear in mind that:
- the parent’s or other family member’s interest may be subject to capital gains tax when they transfer their interest or otherwise when the property is finally sold,
- the first-time home buyer rebate for Land Transfer Tax will be reduced,
- if title is transferred or if the parent’s or other family member’s name is “removed from title”, that transfer may be subject to additional Land Transfer Tax, even if no money is exchanging hands, and
- the parent or other family member may need to update their will to address their interest in the property.
Another growing trend for people trying to attain home ownership is the use of co-ownership arrangements, where a few friends may join together to buy a home. This co-ownership structure introduces many of the same issues as the parent or family scenario, and also raises new issues with respect to how the arrangement will work on a day to day basis. As such, it is important to speak with a lawyer and other professionals to make sure your co-ownership structure is done right.
Given the issues and points raised above, we recommend that you speak with a your bank or a mortgage broker to see what the optimal financing plan is for you and to speak with a lawyer about the other complications that may arise from having a parent or other family member on title.
While the down payment on your first home is generally expected and understood by most first-time buyers, there are other costs associated with buying a home that you may be unfamiliar with. Keep in mind things like:
- home inspection costs ($500-$1000),
- real estate lawyer fees ($800-$2500) and disbursements for the lawyer’s office ($200-400),
- title insurance, if applicable ($400-$1000),
- land transfer taxes (which can be calculated by using this handy tool),
- security deposits for utility accounts (which are sometimes required for first time buyers),
- ongoing rental contract costs (such as furnaces, A/C units, etc…),
- common expense adjustment (varies, and only if the property is part of a condominium),
- property tax adjustment (varies depending on property), and
- if your obtaining CMHC insurance, there are additional tax costs incurred on closing.
Note that the figures above are rough estimates, and that your costs will vary depending on your situation.
Additionally, make sure to budget for your moving costs such as truck rentals, days off work, and any new furniture or small renovations you want to purchase or complete soon after you move in. Sometimes these initial costs can sneak up on first time home buyers, so it’s important to be informed before beginning your home search.
Real Estate Agent
As with most big decision in your life, it is important to do your research before hiring a real estate agent. There are many options available including independent agents, teams, or full-service companies that can work with you to help you buy your first home. While many agents have a range of experience, some real estate agents will specialize in condominium sales, specific neighborhoods, or certain kinds of buyers, including young and/or first time buyers. It’s important to choose a real estate agent that will suit your needs and be able to help you find the home you’re looking for. Always ask as many questions as possible to a prospective agent to ensure you’re choosing one that will find you the perfect home for your budget and your needs. And when you do find the right agent, make sure you carefully review any agreement you enter into with them so you understand their service terms.
Real Estate Lawyer
In Ontario, every real estate and mortgage transaction requires the involvement of real estate lawyers. Generally, each party in a transaction must have their own lawyer. Given the complexity and importance of the work involved, the lawyer’s role has many facets:
- Even before you enter into an Agreement of Purchase and Sale (the “Agreement”), you may want to speak with a lawyer to review the Agreement and any discuss any plans you may have for the property. For example, you may be thinking about adding a pool, or an income suite. It is important to know early on if your plans are feasible and allowed by the legal restrictions or other title matters that affect the property. Bear in mind as well that you also have the option of adding a condition to the Agreement that makes the deal conditional on a lawyer reviewing the Agreement and any other relevant documents, such as condominium status certificates or new home disclosure statements.
- Once an Agreement is firm, he lawyer is responsible for doing all due diligence for the transaction, including conducting title searches and ensuring that all clauses and terms of the Agreement are complied with;
- The lawyer works meets and works with you near the closing date to ensure that all closing documents are completed properly and in accordance with the original Agreement, that any special issues are addressed, and that all closing funds are handled properly and in accordance with applicable laws and lender instructions;
- The lawyer will also work with the lender that may be involved, and ensure that you, the borrower, understand the financing terms and commitment you are making.
Finding a reputable and professional real estate lawyer is therefore key for ensuring the purchase of your first home goes smoothly and that you are protected.
Make Sacrifices and Focus on What’s Most Important
Most people don’t live in their first home forever. Remember, this is your starter home – you’re likely not going to be able to get all the bells and whistles you’re hoping for! Think about what sacrifices you’re willing to make and which features of the home are most important to you. Compromising in your starter home, and perhaps contributing some “sweat equity” through improvements over time, will help you make a realistic purchase and save money in the long run.
Buying Property in Hamilton? Work with an Experienced Hamilton Real Estate Lawyer
If you’re thinking of buying your first property in Hamilton, work with a professional and experienced Hamilton real estate lawyer. At Vandeputte Law in Dundas, we have years of experience helping both first time home buyers and experienced real estate investors purchase their homes. We use this experience to ensure your deal goes as smoothly as possible, and we always ensure that we take the time to explain the important parts of your deal to you so you are comfortable and prepared for the road ahead.
When you’re ready to purchase your first home take out some of the stress and contact Vandeputte Law today. Call us or email us today for more information or to book an appointment.