The Real Cost of Buying a Home: Everything First-Time Homebuyers Need to Know
Buying your first home is a momentous time in your life, and it can be very exciting, but it's also one of the biggest financial decisions you'll make in your lifetime. There are many things to consider during the home purchasing process, costs you may not have considered, and aspects you may not have even known about.
First-time home buyers will need to take in a lot of new information during the home-buying process and there will be several decisions that need to be made. It will require the guidance and counsel of real estate and finance professionals to help you make the right decisions, but you'll also need to base some of your decisions on how you envision everyday life in your new home.
Do you want to be able to walk to work, or do you want to be close to a good school? Are you looking for a tight-knit community, or a more rural setting? There are going to be many questions you need to ask yourself, but these factors are only the tip of the iceberg. Beyond lifestyle decisions are the costs involved in buying and owning a home.
House hunting is the fun part, but before you start, it's essential to assess whether you’re really ready to purchase real estate. Remember: this is an investment, and not one that you should be rushed into. Here are some things to think about before you take the leap into buying your first home.
Get rid of your debt and check your credit score.
It’s time to be financially responsible, and that means getting your debt and your credit in check. It’s difficult to get a mortgage with debt, so this is a natural first step in the home-buying process. You don’t necessarily need to pay off all your credit cards, but you need to make sure that you have enough money for both the downpayment and the subsequent mortgage payments and incidentals.
By paying down your credit cards, you are also helping your credit score, so it’s a win-win all around, and will put you on the path to becoming a first-time home buyer.
Before you start house hunting, have a preliminary meeting with a mortgage broker. A good mortgage broker will be able to give you an idea of what you can afford without having to go through all your information in detail.
How much money do you have saved?
Ideally, you should have 20% of the purchase price of a house saved before you start looking. The larger the down payment, the smaller the mortgage, which could mean saving thousands of dollars in the long run. However, that is not always possible for first time home buyers.
High-ratio mortgages give you the option to pay less than 20% for a down payment, but they need to be insured by a mortgage insurer such as Canada Mortgage and Housing Corporation (CMHC). A mortgage insurer allows homeowners to put down a minimum down payment of 5% and receive the same competitive interest rate as those who hold a traditional mortgage, and the insurance premium can be added to your overall mortgage.
If you decide to go the high-ratio (insured) mortgage route, make sure to buy a home well within your budget. That way you'll have room for other expenses and costs, the ability to build savings, and maybe even some left over to decorate your new place.
If it’s going to take you many years to save for a 20% down payment, you’re probably better off financially to pay the insurance premiums on a mortgage compared to paying rent for that length of time.
Other Costs That Can Really Add Up
It’s not just the down payment and mortgage payments that you need to think about when buying a home. There are other hidden costs that you may not have considered.
Closing costs. When you purchase a home, you have to pay these upfront costs before you are handed the keys. They usually range between 1.5 and 4% of the costs of your home, and they cover things like legal fees, land registration fees, appraisal fee, home inspection, and more. These fees can vary by province, so make sure you discuss expected closing costs with your Realtor or Lawyer early in the purchasing process.
Moving and storage costs. Moving everything into your first home is a big task and that can be made harder when you have to line up possession dates. You may also be doing some renovations in your new home and you can’t bring all of your things with you right away. If you use a moving company like BigSteelBox, you can pack your things in mobile storage containers and store them at your property or at one of their secure storage facilities until you’re ready to unpack them in your new home. This is especially useful if you’re moving to a new city. Mobile storage containers also allow you to pack and unpack at your own pace, and are often more affordable than most traditional movers.
Ongoing costs of owning a home. When you're a renter, you don't necessarily think about ongoing housing costs in the same way as a homeowner. You may have to budget for utilities, but things like home insurance, homeowner association fees, ongoing maintenance, landscaping and property taxes are all the responsibility of the home owner. The positive side to these costs is that it means you have the freedom to do what you like with your home! No one can dictate the colour you want to paint your walls or whether or not you can take out a wall. As a first time home buyer, this is perhaps the most exciting prospect of home ownership.
Strata Fees. Many first-time home buyers will end up purchasing a townhome or condo, which will also include monthly strata fees. These need to be included in your budget, and it is also smart to project an increase in these fees over time, especially for older buildings and communities. One other thing that many buyers of strata properties overlook is being properly insured. The strata fees will include an insurance for the building (exterior and structural) but the homeowner is still liable for any damage originating from their unit. Make sure you speak with an insurance agent to make sure you have the correct insurance in place. It’s important to understand the strata insurance and any deductible amounts a homeowner would be responsible for in the event of a claim.
Pay Close Attention to the House Inspection
The excitement of finding your dream home is often put on hold while you wait for the results of a home inspection. Getting a home inspected is highly recommended before you officially purchase it. This may seem like a nuisance, but it’s vital to making an informed and lucrative investment decision.
Make sure you add “subject to a home inspection” on the contract of purchase and sale so you can walk away from the sale if the inspection uncovers significant repairs required.
Choose your house inspector carefully, and always dig deeper when they flag something during their inspection. Get a written report from your inspector, and if you feel like something is not right, push to get it checked out because once you buy, it’s on you to fix any issues that may come up in your house. The costs associated with replacement, renovation and repair has to be considered in the overall cost of a new home. If you're up for the challenge of a "fixer-upper", you will need to factor in the cost of home renovations.
It's also helpful to know that you can use that home inspection to save on potential costs. If your inspector does find a problem with the roof or plumbing, for example, use that flaw to your advantage when negotiating the price of the house. Do the calculations beforehand of how much those repairs are going to be, and make sure you save at least that much on the price of the house to stay under budget.
It’s also important to note that the cost of the home inspection is the responsibility of the buyer, and in many cases it will be a requirement from the lender.
Add Value to Your Home Yourself - DIY to Save Money
Tackling home improvement projects on your own can save you thousands of dollars. If you're able to do the work yourself without hiring a contractor, it’s a great way to add value to your first home. You may have to live with some clutter and dust while you make these changes, so keep that in mind before you leap into a DIY home reno project.
Any large-scale renovation will probably require extra storage to keep your things clean and out of the way during the construction phase. Our portable storage containers are secure and can keep your things safe and out of the way while you work reno magic inside your home.
Don’t Forget About the Yard
Even if you don’t have a green thumb, improving the landscaping of a home can really add to its value and will help you enjoy your time in the home, so it's worth the effort. But, like any home improvement project, back yard updates can be expensive.
When looking for a new home, keep an eye out for properties with exterior spaces that you already like and won't need improvements to save some money. But, if the house you love doesn't have your dream back yard, you'll need to budget for outdoor renovations. Check out these DIY backyard ideas to for outdoor improvements on a budget.
When You're Ready to Move, We Can Help!
Buying your first home can be daunting, but it's also very rewarding! If you feel you're ready to become a first time home buyer, sit down with industry professionals, like a Realtor and mortgage expert, and get started on your budget and hunt for a new home. After you're fully educated on the home buying process and you know what you can afford, you can start your search for a home that will bring you joy for years to come.
If you think BigSteelBox could help make your move easier, request a free quote online today, or give us a call at 1-800-373-1187. We’re here to answer any questions you might have about moving, packing and storage in between homes!