Location, location, location may be the most common rule of thumb when it comes to buying your first home, but there are other important considerations to keep in mind to help you make an informed decision
While many first-time buyers know exactly what they want, others don't have a clue. Finding what you want may be part feeling and part knowing. Playing it smart now will help you when it comes time to move.
Maximum price range
Price range is a key determinant of what you can buy. So finding out your price range is instrumental in your house selection process.
There's not much point in looking at houses you can't afford. That's why being properly pre-approved by your lender - having your income verified and your credit history checked - is so important. Your pre-approval will help you calculate the maximum price you can afford.
But just because you can afford a seemingly expensive house, doesn't mean you should stretch your budget to the limit. "I would never push somebody to their maximum," says Bill Courtney, sales representative at Century 21 Request Realty Inc. in Windsor, Ont. Buyers need to keep in mind the additional costs they may incur, as well as their lifestyle and employment. "You always want to keep a buyer safely in their comfort zone, especially with the way the economy is, because nowadays there's no such thing as job security."
Jennifer Kelly, a realtor with Sutton Group Premier Realty, Ottawa, says it's important to figure out what you can afford and how a change in expenses will impact your plans for the short and long term. "Lots of times, people start out looking for houses without having a good idea what a specific price means on a monthly basis," she says.
Once you've been pre-approved and you've figured out your maximum price range, it's time to think about where you want to live.
Location, location, location
Location has long been touted as the most important factor when purchasing real estate, and for good reason.
"Location is extremely important because you can't change anything about it," says Pam DeCourcey, a real estate agent with Re/Max Professionals in Saint John, NB. "If you're looking at a home, and something doesn't quite fit you can make changes, but with the location, that's something that's really rock solid."
And while location is largely buyer specific, there are some key determinants of a great location. Up and coming neighbourhoods where property values are holding, proximity to schools, churches, amenities, parks and shopping, are all staples of a great location. A desirable location is an asset because it is likely to increase the resale value of your home; should your employer transfer you out of town or if you're planning to move up or away in a few years, being in a desired location could make your house easier to sell.
On the other hand, a poor location can negatively affect resale: if a house is on a busy street, it may be less desirable, and harder to sell, than one on a tranquil cul-de-sac.
If you're moving to a new city, it's best to speak with a local realtor who will be knowledgeable about the neighbourhoods and what they have to offer. If you've got an idea of where you want to live, your realtor can help you determine why you like that area and if there are comparable neighbourhoods you can also consider, says Diane Beauchesne, sales representative, Re/ Max Chay Realty in Barrie, Ont.
Driving around is a great way to identify whether you're going to like the neighbourhood. It lets you take a glimpse at the neighbours, amenities, schools, convenience stores, parks, as well as the maturity of the homes and the age of the neighbourhood.
If there's nothing in your desired neighbourhood, at least not in your price range, there are a couple of things you can do.
Consider widening your search parameters somewhat. Is there something just outside that neighbourhood? Maybe listed at a little more than you wanted to pay?
Talk to your realtor about using their contacts for information. By reaching out to other realtors, they may come into contact with a potential seller who hasn't put their house on the market quite yet.
Needs versus wants
Deciding what you can live with and what you can live without is a key factor in determining what house is right for you. But some first-time buyers have trouble separating the two. DeCourcey suggests making a list of the things that are important to you - first in a neighbourhood and then in a house. "That list can show me very quickly what's a priority and what isn't," she says. "It's really to get them to think about everything they're wanting and making them decide if it's really a want or a need."
When two people are buying a house together, their needs and wants may differ or create an extra long list. It's demands like these ones that make the process more difficult. Sometimes it's necessary to give ourselves a reality check, says Kelly.
It's important to keep in mind that when you're purchasing your first house, you have to be realistic. Your first house is not your last house, says Kelly, and just because you don't have everything you want in your first house, doesn't mean you never will.
Courtney says the reality is that an original list will change as first-time buyers visit houses. For example, if a couple originally stated they needed a two-car garage, they may find a one-car garage and extra parking will work just as well once the option is presented and they see it firsthand.
For Beauchesne, it's important that first-time buyers recognize things they can change and things they can't change. She advises her clients not to get caught up in the decor and beautiful paint. "You can change a house but you can't change the property." In such an exciting time, first-time buyers sometimes forget to look at these homes with a wide-angle lens, she says.
Types of house
In today's environment, first-time buyers can range from 20-something singles, to young families to seasoned executives who are tired of renting, so the options available are usually limited by price. Typically, a first-time buyer will be focusing their searches on entry-level homes such as condos, townhouses or small bungalows.
Town homes are considered an investment as a first-home property because the resale and price are good, and they're usually located in neighbourhoods of other first-time buyers, says Beauchesne.
Small bungalows are well suited for a couple or a single where kids are not necessarily an issue right away.
It's common for first-time homebuyers to be inexperienced in different styles of homes. Realtors generally suggest seeing and walking through a variety of home styles to learn what you like and what you don't. It can be hard to understand what square footage looks like in real life.
"Maybe they grew up in a bungalow and that's the only kind they want, or maybe they want anything but. Maybe there's a beautiful bungalow and it's a lot different to what they have in their head," says DeCourcey. "I suggest we walk through these homes and see if you can get a nice feel."
Expect to tour more homes with your first purchase, she says. Even if you don't figure out exactly what style suits you best your first time out, you'll probably eliminate some styles you don't like.
Current versus future needs
What you need right now may not be what you need in five years. Buying a home that fits your current and future lifestyle may depend on your job, the length of time you're planning to stay in your home, and whether you have or are planning to have children.
While the majority of first-time buyers are looking for ready-to-move-in homes, some couples see their first home as an investment.
"It's a fantastic opportunity to purchase a property that needs superficial or cosmetic work," says Kelly. Spotting easy upgrades like countertops, floors or paint and wallpaper could allow your home to grow with you or make it easier to sell when the time comes.
Extra bedrooms can give you home a little more lasting power.
Regardless, industry statistics indicate most first-time buyers stay in their homes for five to seven years before moving up. With that, resale is something that should be considered when purchasing a home. But whether it's at the forefront or in the back of your mind is buyer specific.
Realtors agree it's in your best interests to purchase a home with resale value in mind, but your long-term goals should dictate how heavily it plays into your decision. If for some reason you needed to move on short notice - you lost your job or were transferred to a different city - resale value will help you sell your home in a hurry, says Kelly. But if your long-term goals are to live in your home for 10 years and grow into it, resale is less likely to affect your decision, says Beauchesne.
The condition of the house will affect resale, says Kelly. If the kitchen and bathrooms are updated, the floors and walls are in great condition and if it's located in the downtown of a city, it's likely to move quickly once you put it on the market.
Beginning your search
Looking for a house can begin as simply as taking the 'long way' on your drive home from work, perusing the Internet for MLS listings, or speaking to friends, family and colleagues about neighbourhoods, what they've heard or their own home purchases.
The internet can give you a good idea of what types of houses are in your price range and help you weed out what you don't like, says Courtney. And having an idea of where you'd like to live can help speed the process along.
Realtors are a wealth of information on neighbourhoods and house types and have access to housing listings before they are available to the public. They can take you out on a prospecting tour to help determine what you like, and once they have all the criteria, they'll gather listings based on search specifics and then email them to you, says Courtney.
Research tips
Doing your research is important before any major purchase. But it stands to reason that the bigger the purchase is, the more research you should do.
Kelly suggests calling the local councillor for the area and asking if there are any developments that may be coming up in the future that may affect housing prices. In some cities, you can view crime reports online, or consider calling your police station to ask about crime rates in the area. Checking housing data - available through your realtor - to see what other houses have sold for in the neighbourhood can help you determine if yours has been priced competitively.
Driving through a neighbourhood on a Saturday will give you a great idea what it's actually like, says DeCourcey. Neighbourhoods that are quiet during the week could come alive on the weekends - in a good or bad way. You may not want to be in an area full of empty-nesters, screaming children, parties or loud cars.
It's also a good idea to drive to the potential house directly after work. It will allow you to see traffic patterns that could affect your commute, and you will get a feel for when people in the neighbourhood get home.
If you have children, you may want to be in a neighbourhood with other children. DeCourcey suggests going to the bus stops and seeing the makeup of the children - their age and demeanour.
A home should never be a flippant purchase. DeCourcey says she's heard from first-time buyers who fell in love with a property after attending an open house, didn't do their research and ended up unhappy with their decision. "It happens," she says. But it doesn't have to.
New vs. Resale
One of the common questions first-time homebuyers have is whether to buy a new or previously owned home, typically called a resale. Much of your decision will depend on your budget, the area you want to live in and other specifics - but there are some characteristics to consider:
New home
Modern design: A new home usually has an up-to-date design that takes into account the latest trends, materials and features.
Personalized choices: You may be able to upgrade or choose certain items such as siding, flooring, cabinets, plumbing and electrical fixtures.
Up-to-date with the latest standards: The latest building codes, electrical and energy-efficiency standards will be applied.
Maintenance costs: Usually lower maintenance costs because everything is new and many items are covered by warranty. Still, you should set aside money every year for future maintenance costs.
Builder warranty: This is a warranty that may be provided by the builder of the home, but be sure to check all the conditions of the warranty. A homebuilder's warranty can be important if a major system such as plumbing or heating breaks down at some point.
New home warranty programs: Generally, new home warranty programs are provided by provincial and territorial governments, but there are also private new home warranty programs. Check with your real estate agent to find out what the new home warranty program in your province or territory covers.
Neighbourhood amenities: Planned schools, shopping malls and other services may not be complete for months or years.
Taxes: Goods and Services Tax (GST) (or in certain provinces, the Harmonized Sales Tax (HST)) will apply. However, you may qualify for a rebate of part of the GST or HST on homes that cost less than $450,000 (cra-arc.gc.ca).
Extra costs: You may have to pay extra if you want to add a fireplace, plant trees and sod or pave your driveway. Make sure you know exactly what's included in the price of your home.
Resale home
You can see what you are buying: Access to established services and amenities, such as schools, shopping malls and other features.
Landscaping and fencing: This is usually already installed in existing homes, and possibly also other extras such as fireplaces or finished basements.
No GST/HST: You don't have to pay the GST/HST unless the house has been renovated substantially, and then the taxes are applied as if it were a new house.
Possible redecorating and renovations: You may need to redecorate, renovate or do major repairs such as replacing the roof, windows and doors.
Source: CMHC
Top 5 condo incentives
In a buyer's market, developers often use incentives to lure customers. When it comes to condos, here are some of the best. These are important to look out for to get the most from your money.
1. Upgrades to the property itself: These can include to appliances, flooring and possibly inclusion of some highly desired options such as a gas stove, fireplace, insert or extra pot lights. Kitchen and bathroom upgrades would be the most beneficial since these do tend to enhance potential resale value.
2. A free locker or price reduction on parking: Parking is an issue in large cities such as Toronto, and the going rate is somewhere in the $30,000 to $35,000 range. Lockers start at $2,500. In order to make parking seem more reasonably priced, developers will often play with the pricing of lockers to alter this spread. Since most buyers will tend to get both, the combined costs are worth thinking about. Should you be looking to purchase a more expensive unit or penthouse suite, a second parking spot - free - may be a possibility. That said, parking is always contingent upon the nature of the actual development, and always depends on availability.
3. Free or reduced maintenance fees: Some developers have discounted the price of the unit (at closing) by providing a cheque to cover the first three years of maintenance fees (as predicted by the budgeted fee included within the condominium documents). For a first-time buyer, this might be attractive because it would reduce your carrying costs over that period of time.
4. Developer-absorbed closing costs: Closing costs (and government taxes and levies) can really add up, so buyers would be doing well if they can negotiate for the developer to swallow some of these fees. This might include the mandatory land transfer fees.
5. Valuation assurances: This one is a little more complicated, but if you're buying a pre-built condo, you may be able to get the developer to include something in the way of a formula to limit or mitigate against any potential decrease in the value of the proposed purchase. For example, you might be able to include a condition which suggests that any decline in the value of the property (over the course of its sales cycle and subsequent construction) will be shared by both the buyer (you) and the developer. Hypothetically, should the property value decrease by 10%, the builder would further discount the price by (at or before closing) by 5%.
Source: Thomas Hoeher, Marketpoint Realty Corp., Toronto
Case study: From condo to detached
Rachel Robinson took possession of her home on Dec. 5, 2008. The 29-year-old had been looking in both Ottawa and Barrie, Ont. for the past few years, viewing 15 or 20 homes on her own, and never sticking with any of the agents along the way.
It wasn't until she met Diane Beauchesne, a realtor with Re/Max Chay Realty in Barrie and a listing agent for a condo she was interested in, that she got on the right path. Robinson didn't buy the condo, but she found a keeper in Beauchesne.
"We just clicked. Diane was really relatable and down to earth. She helped me through the process and recommended a great lawyer. I could contact her at any time, and if I couldn't reach her she'd get back to me within an hour or two."
Originally, Robinson was looking for a two-bedroom condo or townhouse with a small yard. After only a few weeks of searching and visiting six or seven homes, Beauchesne came across a great deal - a single detached home with three bedrooms and a garage.
It was something Robinson hadn't considered. The original listed price was $230,000 - out of reach for Robinson, but since it was a foreclosure, the price was reduced to $199,900. Robinson was floored. It was move-in ready and a five-minute walk to the hospital where she works. She competed for the home and got it for her best offer - $205,000.
"It was important to me to look at buying my first home as an income or investment property," she says. She wanted a house in a prime location, close to the college and hospital so when she moves to a new home in five years, she can keep her property and rent it out.