To be frank, buying your first home is one of the most exciting buying experiences you'll ever encounter. There's lots to do and think about seeing this will be the largest purchase you'll ever make. For some of you, this is making your dream of buying the home with a "white picket fence" a reality. For others, it's anchoring a marriage into official family life. Whatever this represents to you from an emotional standpoint, there's lots to decide. Let's walk you through some of the decisions points.
Firstly, do you know how much you can afford? Most financial institutions will want you to have your monthly mortgage payments (including property taxes) to be no greater than 30% of your gross income. For example, if your joint income is $75,000 per year, you can afford $1,875 per month. Assuming, say 5% interest rates, this means you can afford a mortage of approximately $285,000. Not bad, eh? That'll get you a number of homes in the GTA.
Secondly, how about the downpayment? In today's market you can actually put zero down although you'll need to pay insurance fees (through CMHC or GE Capital). As a matter of fact, any down payment less than 25% down will require insurance. Don't panick - this insurance can be added to your mortgage. Putting this in context, if you put 10% down on a $300,000 value house (or $30,000), your insurance fees will be $6,750. The more you put down, the less you'll need to pay in insurance. This insurance, which is paid only once, actually protects the financial institution in case you default on your mortgage. The insurance company (e.g. CMHC) will cover the bank's losses.
Thirdly, there are tons of other fees (or closing costs) you'll need to pay upfront. Legal fees can run you anywhere from $1000 to $1,500. Land Transfer Tax fees will run you approximately $3,000 for a $300,000 house. Adjustments (such as pre-paid property taxes or utility bills) can run you up to $500. And don't forget moving costs, which may be between $1,000 to $2,000. Adding all of these up, you will need about anywhere from $5,000 to $7,000 on top of your downpayment. Banks actually want you to have up to 3% of the value's property available on hand for these costs.
Now the fun part: selecting your home. In real estate, they say the three most important things when selecting a home are Location, Location and Location. There's a lot to be said about that. It is my personal belief that you are better off buying the "worst" house in the nicest neighbourhood rather than the nicest house in the worst neighbourhood. Obviously, somewhere in the middle is fine. But what's important is resale consideration. Meaning when you buy, you already have to think "how easy will it be to sell this house down the road" and "will this house appreciate in value".
And last but not least, you must fall in love with your home the first time you see it and walk into it. Your first impression will be the impression you will have 10 years from now. So go with your gut feeling and pick the house of your dreams.
