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The ultimate guide for first-time homebuyers

The ultimate guide for first-time homebuyers

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The ultimate guide for first-time homebuyers

Buying your first home is a huge step in every adult’s life, but the process isn’t always easy. The excitement of finally being able to make such an important purchase can cloud your thinking and result in you making some decisions that are not 100 per cent based on logical thinking. To avoid making the common mistakes first-timers make, such as buying more than you can afford or miscalculating renovation costs, here are some things you should keep in mind.

Make sure you are debt-free first

Owning a home implies many other costs besides the initial buying price and renovation costs. You may be happy to see that the monthly mortgage payment is lower than your rent was, but keep in mind that when you own, you are responsible for all maintenance costs. This is why you should make sure you start this new chapter in your life debt-free.

Pay off all debt you have and, if possible, try to build an emergency fund. You will feel much more at ease when you have to deal with unplanned expenses if you don’t have other payments to worry about and have a generous emergency fund that you can dig in. Make peace with the fact that you may have to decorate one room at a time and sleep on a mattress for the first few weeks. This will make up for some good stories in the future.

Know your limits

Before even starting to look for a home, set up your budget. Many first-time buyers can’t afford to make the purchase without a mortgage, so you need to determine how much you can pay for it monthly. To keep it safe, your house payment should not account for more than 25 per cent of your monthly income. If you want to take out a bigger loan, you should consider making a bigger down payment.

“Typically, it is advised to make a 20 per cent down payment, to avoid having to pay for private mortgage insurance,” say real-estate experts at Chestnut Park Realtors. “If you can afford it, make a bigger down payment. This will help you in the future, as you will have to pay less each month.”

At the same time, try to go for a 15-year mortgage, instead of a 30-year one. Even though you will end up with a higher monthly payment, you will be in debt for only 15 years and you will be paying far less interest.

Narrow your search

There is no point in scouting the whole city for a house, only to end up living on the other side of town and spending more time and money every month commuting to work. Try to narrow down your search to two or three neighborhoods that provide the most benefits. Because, even though the house seems to be the right one, the neighborhood may end up being the worst.

Nearby schools are among the first things you should be looking for, even if you don’t already have kids, as they can affect home value. Then, make sure the neighborhood has all the amenities you might be needing, such as grocery stores, a pharmacy and maybe even a hospital, at a close range.

Once you’ve narrowed your search down to a few neighborhoods, you can start scouting for houses that better suit your budget and needs. One piece of advice that many realtors give is to purchase the most affordable house in the best neighborhood you can. This way, you can add value to your home in time and end up selling it for more in the future.

Buy a home that fits your lifestyle

When buying your first home, keep in mind that you will be living there for at least 10 years, so think long term. Even though your needs may be pretty basic now, in 10 years a lot can change. You may end up having a family and kids, if you don’t already, so make sure you have enough room in the house for those changes.

How many bedrooms will you be needing? Will you have kids? Will you have people coming to visit and spend the night? Do you want a pool? Do you need room for a home office? These are all questions that you need to answer yourself before deciding on the house.

Attend open houses and think about renovations that you can do to increase the value of the house, but at the same time make sure it fits the needs of your family and gives you enough space to grow. The best way to do so is to make a list of absolute must-haves, such as bedroom and bathroom number, outdoor space and number of floors.

Do a home inspection

Congratulations, you have found your dream home! Now, before signing on the dotted line, make sure to do a home inspection. This will tell you if the house has any issues that may not be obvious to the untrained eye.

An inspector will check everything from pipes to walls, basement, insect or rodent issues, and many others. This way, when you negotiate the contract, you can present the seller with the issues you have found and maybe even get a price reduction in case they really bring down the house value.

Be careful when you sign the contract, especially when it comes to contingencies. You need to be able to back out of the sale after inspection, if there are issues that can’t be fixed, or in case something happens with financing.

After inspection, be realistic about the issues that are worth fixing or not. If, for example, you encounter mold issues or a degraded foundation, it may end up costing you more than it is actually worth paying, so if you don’t get a generous discount to cover repairs, don’t even bother thinking about it.


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Budget 2019 comes up short

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Budget 2019 comes up short

GTA waterfront homes

The federal government released the much-anticipated Budget 2019 this week, with homebuyers, builders and others awaiting measures to address housing issues.

And in short, it comes up, well… a little short.

First-time homebuyer help

Much of the housing focus in Budget 2019 was on addressing the needs of first-timers, namely with a new First-Time Home Buyer Incentive.

  • The Incentive would allow eligible first-time homebuyers who have the minimum down payment for an insured mortgage to apply to finance a portion of their home purchase through a shared equity mortgage with Canada Mortgage and Housing Corp. (CMHC).
  • About 100,000 first-time buyers would benefit from the Incentive over the next three years.
  • Since no ongoing payments would be required with the Incentive, Canadian families would have lower monthly mortgage payments. For example, if a borrower purchases a new $400,000 home with a five-per-cent down payment and a 10-per-cent CMHC shared equity mortgage ($40,000), the borrower’s total mortgage size would be reduced from $380,000 to $340,000, reducing the borrower’s monthly mortgage costs by as much as $228 per month.
  • CMHC to offer qualified first-time homebuyers a 10-per-cent shared equity mortgage for a newly constructed home or a five-per-cent shared equity mortgage for an existing home. This larger shared equity mortgage for newly constructed homes could help encourage the home construction needed to address some of the housing supply shortages in Canada, particularly in the largest cities.
  • The First-Time Home Buyer Incentive would include eligibility criteria to ensure that the program helps those with legitimate needs, while ensuring that participants are able to afford the homes they purchase. The Incentive would be available to first-time buyers with household incomes of less than $120,000 per year.
  • Budget 2019 also proposes to increase the Home Buyers’ Plan withdrawal limit from $25,000 to $35,000, providing first-time buyers with greater access to their Registered Retirement Savings Plan savings to buy a home.

Noticeably absent from the housing measures was any adjustment to the stress test, which a number of experts say is necessary.

Industry reaction

“The Building Industry and Land Development Association (BILD) agrees with (Federal Finance Minister Bill Morneau’s) comments that there aren’t enough homes for people to buy or apartments for people to rent,” says Dave Wilkes, president and CEO.

“BILD feels the policies presented in (the) budget are a step in the right direction to help first-time homebuyers. We will continue to advocate for a review of the stress test so that first-time homebuyers can realize the dream of homeownership. Supply challenges still exist and are at the centre of the current unbalanced market, and we call for action on these by the provincial and municipal government.”

Supply challenges in the Greater Golden Horseshoe are serious, and Budget 19 fails to address them.

“This was a re-election budget that didn’t move the dial for new-home buyers in the GTA,” Richard Lyall, president of the Residential Construction Council of Ontario (RESCON) told HOMES Publishing. “While increasing RRSP borrowing for first-time homebuyers is helpful, creating The First-Time Homebuyer Incentive at a maximum of $500,000 doesn’t help many Torontonians or GTA residents.”

The Canadian Home Builders’ Association (CHBA) had been recommending a shared appreciation mortgage approach for some time, as a tool to help those who can’t get into homeownership but have the means to pay rent.

The modification to the RRSP Home Buyers’ Plan will help get Canadians into their first home, but will also act as a burden because the loan has to be repaid within 15 years, including a minimum of 1/15th per year.

“This means that, in the years following their home purchase, a homeowner has the additional financial responsibility of repaying their RRSP,” says James Laird, co-founder of Ratehub Inc. and president of CanWise Financial.

Important details of the First-Time Home Buyer Incentive program have yet to be released. For example, says Laird, it remains unclear whether the government would take an equity position in homes, or whether the assistance would act as an interest-free loan.

“This is an important distinction because if the government is taking an equity stake in a home, the amount the homeowner would have to pay back would grow as the value of the home increases,” he says.

The very launch of the program is surprising, Laird says, given that the BC Government implemented a similar measure a couple years ago, with unsuccessful results, and it was terminated in 2018. First-time home buyers found it difficult to understand and unappealing to have the government co-own their home.

Let’s do the math

Under existing qualifying criteria, including the stress test, homebuyers can qualify for a house that is 4.5 to 4.7 times their household income.

Under the new First-Time Home Buyer Incentive, however, the government has set a purchase limit of four times household income for the mortgage, plus the amount provided by the government, according to Ratehub.

By participating in this program, first-time homebuyers effectively reduce the amount they can qualify for by about 15 per cent, and their monthly mortgage payment naturally decreases in lockstep.

A household with $100,000 of income, putting a minimum down payment of five per cent, can currently qualify for a home valued at $479,888 with a $2,265.75 monthly mortgage payment.

Affordability calculations

The maximum purchase price for the same household, if they participate in the first-time homebuyer incentive, drops to $404,858.29 with a five-per-cent minimum down payment. The total mortgage amount would then be $400,000 (or four times their household income).

Mortgage payment calculations

If the household took a five-per-cent incentive from the government (for resales), their mortgage amount goes to $378,947.37, and monthly payment is now $1,810.90.

If the household took a 10-per-cent incentive, (for new homes) their mortgage amount goes to $357,894.73, and  monthly payment is now $1,710.29.

Stress test modifications

The CHBA is among the industry groups that is pushing for modifications to the existing mortgage stress test, which has served to lock out too many well-qualified Canadians due to the market and interest rate changes of the past year.

“The First-Time Home Buyer Incentive, if coupled with immediate adjustments to the stress test, has the potential for getting the housing continuum functioning again,” says CHBA CEO Kevin Lee. “It is essential that these changes come quickly, though. Current restrictions on mortgage access mean that many millennials and new Canadians are seeing homeownership slipping away, and in many markets the economic impacts are substantial.”

Looking ahead to the 2019 federal election, CHBA will be encouraging all federal parties to address housing affordability in very meaningful ways in their respective platform documents.

Budget 2019 housing measures

Budget 2019




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Start the new year with a new condo!

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Start the new year with a new condo!

Affinity and Odyssey Condos
Affinity and Odyssey Condos, Rosehaven Homes.

Why start the new year with a new condo?

  1. Condominiums across Toronto and the Greater Toronto Area have proven to be excellent additions to people’s lifestyle and financial portfolios. According to Urbanation, new condo prices hit an all-time high in the third quarter of 2018, while sales volume hit the third-highest Q3 total in the past 10 years. Think of the return on investment condominium owners who bought years ago have enjoyed. Get into the condo market now, while prices are still on the rise.
  2. You will find superb condominiums in remarkable locations close to amenities, public transit and parks. Some offer direct access to transit, which eliminates the need to own a vehicle. First-time buyers, in particular, find this tremendously helpful in affording an urban condo. Buyers of all ages appreciate the convenience of owning within walking and biking distance to run errands, and for some people, to their workplace.
  3. Today’s condominium architecture is stunning, whether the building is a sleek, modern point tower, an intimate boutique midrise, or anything in between. Traditional, transitional, contemporary… when you shop for a condo, you will find a variety of exteriors available to please a variety of sensibilities. Your condo should feel like “home” from first glance.
  4. Lifestyle in a condo is one of luxury, whether you move into a studio or compact one-bedroom suite or a sprawling penthouse. Beautiful building amenities span the gamut from party rooms to boardrooms, fitness centres to yoga studios, ground-level courtyards to rooftop oases with pools, barbecues, dining areas and/or lounges.
  5. The lifestyle is also one of ease as well, as residents’ maintenance fees cover the exterior upkeep such as landscaping and snow removal, as well as the cleaning and repair of all common areas in the building. Imagine the time that frees up to spend more time with family, traveling or enjoying hobbies.
  6. Suite interiors are masterpieces of design, with functional layouts that are flexible as well. With open-concept main living spaces, residents can delineate “rooms” to their preference using furniture groupings and area rugs. Gorgeous linear kitchens become part of the main living area and free up space. Dens can double as guest rooms, nurseries, home offices and anything else your imagination can conjure up.
  7. Today’s features and finishes rival those of condominiums around the world. In fact, our condominium purchasers here have much more choice than they do in the U.S. Even buyers who choose to appoint their suites with standards appreciate their beauty and quality.
  8. In Toronto and the GTA, we are fortunate to have some of the finest builders and developers in Ontario offering condominium communities. They enlist award-winning design firms to help bring their vision to reality.
  9. New condominiums in Ontario are still protected by Tarion Warranty Corp. Last year, the Minister of Government and Consumer Services announced proposed changes to enhance consumer protection, and Tarion is committed to supporting the province in this transition.

Those are just some of the reasons to start 2019 with a brand new condominium. Happy New Year!

BARBARA LAWLOR is president and CEO of Baker Real Estate Incorporated, winner of the pinnacle 2017 Riley Brethour Award from BILD, and an in-demand columnist and speaker. A member of the Baker team since 1993, she oversees the marketing and sales of condominium developments in the GTA and overseas. Keep current with The Baker Blog at blog.bakerrealestate.com


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GTA moving into balanced market for 2019

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GTA moving into balanced market for 2019

Although the Greater Toronto Area housing market is somewhat in balanced territory, buyers and sellers are both up against the ropes.

This year has changed so much from the last five to 10 years. Both buyers and sellers have been affected in both positive and negative ways. For me, when working with a buyer and investor client, it was always a tailored approach. However, now more than ever, we have to be extremely diligent when analyzing residential types, location and price range.

In past years, it was much more common to think about flipping real estate or short-term investments. Now? Not so much. There is a total shift to a minimum five- to 10-year hold. Since the introduction of the stress test, some real estate markets took a hit. Buyers are also now faced with additional challenges such as qualification rules and rising interest rates.

Glass half full

Although there are pros and cons in today’s market, take a glass half full approach. Just think, in the past, is was very challenging for a seller to move up to a bigger property. There were bidding wars, price increases that exceeded pay raises, and to top it all off, extremely low inventory – which meant buyers might have to settle for something they might not fully love. The trade-off was a low interest rate environment. If you were a seller, it was nice to think you could sell your property for top dollar, but the million-dollar question was where will you buy next?

Also read: GTA home prices continue to rise

Also read: GTA new home market gains further momentum in October

Also read: GTA condo sales and prices hit record levels

Today, if a seller wants to move up, they can usually find a good deal and sell their property for a fair market value. Maybe your property went down 10 to 15 per cent, however, you are also buying your next home for the same 10 to 15 per cent less. Another benefit to such market conditions is that there are more deals to be had.

Notably, there have been fewer first-time buyers out there recently. Even a larger down payment might not cut it anymore, due to higher interest rates. This is why the condo market is doing well, especially the smaller and less expensive properties, due to affordability. The new reality could well be more people renting for a longer period.

Rising rates

The qualifying rate today is slightly more than six per cent. “The recent rule change with regards to the stress test basically decreased people’s max mortgage amount by about 15 to 20 per cent,” says Michael Yosher, director of lending at Integrity Tree Solutions Inc. “The 2019 horizon looks like this trend will continue, as Bank of Canada and economists are predicting several interest rate hikes, which will further reduce the amount of mortgage a buyer will qualify for. This has really taken the wind out of first-time buyers. Family members helping out with gifted down payments and cosigning mortgage loans are the trend these days.”

According to the Toronto Real Estate Board, in October 2018 compared to last year October, average sales prices were up 3.5 per cent. Although this is good news for some sellers, most of this price growth is driven by the condominium market, which at one point lagged behind detached, semi-detached and townhouse product.

Arie Buzilo is a real estate broker with Century 21 Leading Edge Realty Inc. Brokerage, and an investor specializing in buying and selling properties in the GTA.


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