It used to be that many first time buyers eased into the market with a starter home – a perhaps more modest than desired property that offers the chance to build equity and upgrade to better housing in the future. With housing prices at all time highs across Canada, and recent rules that limit affordability options for buyers, however, the concept of a “starter home” may be put on hold for many.
A Change of Expectations
Let’s take a look at a theoretical scenario facing many would-be home buyers: Kim and Kyle have been together for six years, plan to get married and wish to be home owners before they do so. They have saved a small nest egg and feel ready to begin the search for the perfect home.
Kyle wants lots of space, with a finished basement and a large backyard where he could host summer BBQs, and isn’t interested in renovating a fixer-upper. Kim wants a big kitchen and a modern, open-concept layout. She’d like to have granite countertops and hardwood floors, and hopes that their first home will be large enough for the children they plan on having. She thinks it would be nice if their house were located in a nice residential area, ideally somewhere close to a public school. With their list of needs and wants in place, Kim and Kyle begin the hunt.
Dreams Vs. Reality
Kim and Kyle’s enthusiasm for the search quickly fades as reality sets in. With a tight budget and only enough for a maximum down payment of five per cent (which caps the longest amortization for their mortgage at 25 years), things are looking a bit grim. Quickly they realize that they’re going to have to make sacrifices – and not just one or two, but many. As a result, they’re forced to re-evaluate their list, and realize they may be limited to home types they would never have before considered – the condo market.
Preparing For the Purchase of Your First Home
1. Know your credit rating. The first and most important step in preparing to buy your new home is getting your finances in order. This means paying down debt and evaluating your credit report to make sure it’s perfect. Without a mortgage loan you can’t buy a house, and you’ll only get that loan if your finances are in order.
2. Get pre-approved. Before you set out on the great hunt, it’s important to know just how much you can afford. The amount your lender will give you can make the difference between a single family started home and a small condo. Visit your bank or choose a mortgage broker and be sure to get preapproved before you hit the streets.
3. Make a list of your needs and wants. Kyle and Kim made a list of needs and wants, which is a great idea so that you’re on the same page. The problem for the couple was that their list wasn’t realistic, given current market conditions. Make your list, but prioritize what’s most important, and be honest on whether it’s possible with your budget. You may need to re-evaluate after you view a few homes, but that’s ok. It’s a learning experience.
4. Choose a real estate professional. Not sure who to work with? Ask family and friends to share their experiences with an agent. Be sure to conduct interviews to make sure that the potential real estate agent fits your needs – and matches your personality.
Let the Search Begin!
Remember, your idea of the perfect first-time home and what your money can truly buy might not actually jive. Be prepared to amend that list as you go. It’ll make the search that much more rewarding. And good luck!
This post is also available in: French