First-time homebuyers: what to ask before signing a contract

October 27, 2014

Buying your first home is a serious investment, especially if it’s your first one: you’ll need to assess your needs and find concrete answers to your questions. To help you navigate the process from start to finish, here are some key questions to ask before signing a contract.

First-time homebuyers: what to ask before signing a contract

Can I afford it?

For a healthy budget, your mortgage payments should not exceed 32% of your gross monthly income. This is one of the easiest ways to determine if you have the means to afford it. This figure should include the cost of insurance, electricity, heating and taxes.

  • Fortunately, if this is your first home, you’ll be eligible for an HBP (Home Buyers Plan), to finance the purchase and shoulder the investment. Check with an adviser at your bank or financial institution, who will explain how to go about borrowing money.
  • You’ll need to set money aside for a down payment; at least 5% of the purchase price. Otherwise, you may need to be patient and wait. Or adjust the criteria of the property you’re looking for to find something in a more suitable price range.
  • Shop around to find the best lender. Some financial institutions offer advantages like cash-back bonuses and competitive rates. Decide on the best deal according to your goals and priorities.

What are the collateral and related costs?

You’re not just buying a home, you are making an acquisition with financial obligations. As such, you must know how to manage it.

For instance:

  • You must consider municipal and school taxes, which alone can cost as much as the monthly lease on your car—between about $250 to $400 or more, depending on the neighbourhood.
  • Transfer tax, i.e., the "welcome tax", is calculated based on the purchase price or the valuation the property, and reflects the higher of the two. You’ll have to pay this down within the first 6 months of purchase. The transfer tax on a home (or condo) valued at $200,000, will be approximately $1750.
  • Notary fees, which vary, are usually in the ballpark of $1100 to $1200.
  • Property appraisals and inspections for insurance purposes will identify problematic elements as well as hidden costs. These services usually run about $400 to $500.
  • You'll need to establish your ability to cover costs associated with maintenance, repairs and insurance fees.

Is there anything I must do before finalizing the purchase?

  • The first thing to do is check your credit rating score. This alone will decide whether or not you are eligible for a mortgage.
  • Have a pre-approved mortgage on hand when making an offer.
  • If possible, visit the area during peak hours (rush hour) and in the evening. This will give you an idea of the traffic you can expect during your commute, as well as proximity to services such as the corner store, public transit, schools, bike paths and more.
  • Instead of focusing on your dream home, assess your true needs and be honest about your current financial situation.
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