Buying your first home is among the most exciting moments in anyone’s life. While buying a home and making an investment in real estate is enough of an achievement on its own, this landmark occasion traditionally symbolizes many other significant achievements too.

Career success, financial stability, and family planning possibilities are all empowering milestones of personal achievement that are emblematically tied to becoming a homeowner.

However, the home buying process isn’t always as straightforward as some first-time buyers may believe. So, if you’re planning on taking the next big step of your life and becoming a homeowner, here are some things you should know before you start looking at listings.

What You Can Actually Afford

Unlike most things, what you have saved up in your bank account doesn’t directly translate into what you can afford to spend on a house or condo. From down payments to mortgage plans to accounting for things like insurance, monthly expenses, condo fees, and any necessary home improvement costs, there’s a lot of long-term financial planning that goes into buying a home.

That’s why it’s always our advice that you sit down with a financial advisor — whether it’s through your personal banking institution or a private mortgage broker — to calculate what your homebuying budget is.

You Need A Mortgage Pre-Approval

Whatever type of financial advisor you consult with, one of the most important topics of conversation you should expect to cover surrounds your mortgage pre-approval.

A mortgage pre-approval is the maximum loan amount a bank or other lender will give you in order to pay for the remainder of your new home after your down payment is accepted. How large of a mortgage you’re eligible for depends on a few things, including:

• Your down payment
• What your current and recent historic income is
• What your assets are
• Any personal debt you may have
• What your record of employment is
• And, occasionally, what the value of the home you want to buy is (should you already know that)

Remember; a mortgage pre-approval defines the maximum amount (and at what interest rate) a lender will loan you for your mortgage. This doesn’t guarantee you’ll actually receive that amount from the lender, only that you qualify for the mortgage based on your current financial standing.

How Down Payments Work

Unless you’ve done some serious saving, most new homeowners aren’t ready to pay for their homes in full right away. Fortunately, the down payment system makes it possible for buyers to pay a lump sum of a home’s sales price upfront and the rest later on.

Depending on the final sales price of your new home, there will be a minimum requirement for what you have to put forward as your down payment.

For homes in Ontario that sell for less than $500,000, the minimum down payment necessary from homebuyers is 5% of the home’s final sales price. For homes that are worth more than $500,000, the minimum down payment necessary is 20% of the home’s sales price.

However, it’s always to your advantage to pay as much upfront as you can afford. While 5% of a sales price lower than $500,000 might look appealing and affordable to you, sellers are generally more likely to accept offers from bidders who will promise them more cash-in-hand immediately.

The Additional Costs Of Buying A Home

While your down payment and monthly mortgage contributions will account for the bulk of your expenses when buying a home, there are some additional costs you need to factor into your budget as well.

Those additional expenses can include one-time and recurring costs like:

• A professional home inspection
• Title insurance
• Property insurance
• Land transfer tax
• Lawyers’ fees
• Property taxes, utilities, and condo fees

As a general rule for your recurring homebuying costs (mortgage payments, home insurance, utility bills, taxes, and other monthly expenses), it’s best not to let them exceed more than 35% of your total monthly income.

Additionally, should your down payment be anything less than 20% of your new home’s sales price, it usually means you must also pay your lender a mortgage insurance premium. This way, your mortgage lender can mitigate the risk of loaning you funds for an extended period of time.

The Right Realtor® Will Make Everything Easier

While reading all of these need-to-knows will have undoubtedly made any potential new homebuyer at least slightly less enthused about the homebuying process, perhaps our most encouraging piece of advice will help win back some of that initial inspiration.

Although there are many steps involved when buying a home, a knowledgeable and experienced Realtor® should be able to easily and seamlessly guide you through the entire process.

It’s a Realtor’s® job to ensure your home buying experience with them is as enjoyable and stress-free as possible so that you can get back to feeling empowered and inspired about this exciting next stage of your life.

Are you in search of a seasoned and professional Realtor® with local Toronto real estate expertise? Our team of experienced Realtors® has helped countless first-time buyers move into the homes and condos of their dreams. To learn more about how we can help you find your perfect first home, contact us here for a personal consultation.