Diving into real estate is definitely an intimidating process due to the knowledge and cost required. It’s understandable to be cautious, the more questions you ask, the better. In our collective centuries of experience, these are the concerns we hear most from first-time home buyers.
When Is The Best Time To Buy?
It seems everyone has an opinion about the “right time” to buy real estate. And the decision becomes especially challenging in a constantly altering market. If housing prices are falling, people tell you to wait until the market “bottoms out” before buying. If prices are going up, you feel inclined to buy now to avoid being left behind. Even the self-proclaimed experts can’t accurately predict when a market will reach a peak or drop. Buying a home isn’t just about finding a comfortable place to live for several years or longer, but to also build some equity along the way. Think of a home purchase as a long-term investment. No matter when you buy into the cycle, you will always do well over the long term. Rather than trying to “outguess the market,” your decision on timing should focus on current market conditions, and most importantly, your current financial situation.
Am I Ready To Buy A Home?
Have you demonstrated the ability to save money? Are you pleased with what you have saved so far? Are you ready to change your spending habits to enable you to deal with the additional costs of maintaining a home? Are you prepared to enter into a long-term commitment for your security? Is pride of ownership important to you? Would you enjoy taking care of your home? If you answered yes to the majority of these questions, you’re probably ready to own a home. It is a big step, but if you’ve spent time budgeting and doing the preliminary research then you are ready to start.
What About My “Dream Home?”
Most first-time buyers want their idea of a dream home immediately. But, as we search for available homes online, the reality of price eventually sets in. Our dream home probably sells for a lot more than we had hoped and the down payment alone is potentially more than we earn in a year. The best way to deal with this reality is to match your financial capabilities with a home that meets as many of your needs as possible. Because of this, many first-time buyers purchase what is commonly known as a “starter home.” There’s nothing wrong with this approach. In fact, it’s good sense to start with a home that won’t stretch your budget too thin. This way, any excess savings can be put toward reducing the principal amount of your mortgage, helping you to build equity that much faster and perhaps eventually allowing you to purchase your dream home.
Should I Buy Or Sell First?
There is no easy answer to this question. If you purchase a new home before you sell your home, you may find yourself owning two homes at the same time.
On the other hand, if you sell your home first, and don’t find a new suitable home before you move out, you could be living in a hotel while paying storage costs for your furniture. On top of those expenses, you would also factor the cost of moving your belongings twice. The ideal situation is to time the sale and purchase to happen on the same closing date and with a little planning, this is possible, and very common. Firstly, you want to determine the market conditions in not only your neighbourhood, but that of the area you’re hoping to move to. If it’s a seller’s market, it would be advantageous to go find a new property first. Once that is locked in, you will then likely have an easier time selling your home and having the closing dates match as negotiations are in your best interests. If the market conditions favour buyers, you would be best to sell your home first and negotiate a longer closing date when possible. This allows you time to then find a new property and negotiate your closings to coincide with one another. Another common approach to use in a buyer’s market or in a balanced market, is to make your offer to purchase “conditional” upon the sale of your present home. This means that if your current home doesn’t sell, you are not obligated to complete your next purchase. In most markets, it remains difficult to convince the seller to accept an offer of this type as they have taken their home off the market, and if you are unable to sell your home, they are back at square one.
What Is Bridge Financing?
Let’s pretend your current home is for sale and during your search for new houses, you’ve actually managed to find your “dream home”, but the seller is not willing to accept a conditional offer on the sale of your existing home. In this scenario you may be forced to commit to your purchase or risk watching your dream home slip away. One way around this, is to arrange bridge financing through a financial institution. If your lender is confident that your current home will sell in a reasonable time frame, they may consider advancing you the money to purchase your new home, using the equity in your current home as security. You would in effect own both homes for a short period, and the added costs are usually negligible. For example, bridge financing on a $400,000 home for 30 days at 2% is only $800. The added benefit of this method is that you aren’t forced to move everything on one day, oftentimes resulting in a much less daunting experience. You definitely want to arrange this with your lender ahead of time before signing any agreements to purchase.
What type of programs and rebates are there for first time home buyers?
Home Buyer’s Plan: This exists only for first time home buyers. You can borrow up to $25,000 from your RSP for each purchaser who qualifies. If you haven’t put your allotted annual amount into your RSP but instead have money in your GIC, mutual funds or in cash, you can usually top up your RSP based on your unused contribution limit.
Land Transfer Tax Rates for Ontario:
New home buyers in Ontario may qualify for a rebate of all or part of the land transfer tax. The specifications for this refund are:
- Purchaser must be at least 18 years of age
- You can not have owned a home or interest in a home anywhere in the world
- Your spouse can not have owned a home or interest in a home anywhere in the world while he or she was your spouse
Some important items to note:
- The method of acquiring the home (eg. purchase gift or through inheritance) is not relevant to qualifying for a rebate
- You cannot re-qualify as a first-time home buyer
- If you claim an immediate refund at the time of registering your home, this may offset any tax that would have been payable
- If you do not claim the refund at registration and do so afterward, the tax must be paid at registration and you must submit your refund request to the Ministry of Finance
Here’s how to calculate your potential rebate:
- Effective January 1, 2017, the tax rates for land transfer tax will depend on the date of the agreement of purchase and sale
- As of now, the tax rates on the value of the consideration are as follows:
purchase price of home marginal tax rate for $55,000 and under is 0.5%, $55,000.01 to $250,000.00 is 1.0%, $250,000.01 to $400,000.00 is 1.5%, $400,000.01 to $2,000,000.00 2.0%, over $2,000,0000 is 2.5%
- Land transfer tax rebates for Toronto: As of March 1, 2017, first time home buyers in the City of Toronto may qualify for a tax rebate up to $4,475
The purchaser must:
- Be 18 years of age or older
- Occupy the home as their principal residence no later than 9 months after the date of conveyance (transferring property to another owner) or disposition (how the exchange is arranged)
- Not have previously owned a home or had any ownership interest in a home, anywhere in the world, at any time
- Be a Canadian citizen or permanent resident of Canada or have become so within 18 months of conveyance or disposition
- Not have a spouse who has owned a home or had ownership in a home, anywhere in the world, while they were the purchaser’s spouse
- Have submitted the claim for a rebate within 18 months of the purchase