You’ve likely read the headlines and you’re starting to get a little fearful: inflation is at multi year highs, interest rates are rising. But if you’re a first time home buyer, this may be your opportunity.
As prices of rentals in Guelph hit record highs monthly, many buyers wonder if they should be putting their rent money towards a mortgage. And, it’s not a bad idea. If you can find the best mortgage rate for you and it’s close to what you’re paying in rent, why take the plunge and become a first time home buyer?
So how do you start the process of buying a home?
Becoming a first time home buyer is a daunting experience – especially in a market like Guelph which has become extremely competitive in the past few years. Below, you’ll find our list of some of the best resources and apps to get you started.
The first step is finding a local Guelph real estate agents who can navigate you through the process. Once you become familiar with the details, it becomes far less intimidating (and, actually fun!).
What tools are first time buyers using to find and view houses?
Since first time buyers are new the market, they generally don’t have a real estate agent. Often times they will receive a recommendation from a friend or family member.
Or, alternatively they turn to the internet or magazine to provide a recommendation of a top Guelph real estate agent (or, we’ve even met new clients at Guelph restaurants!)
Many first time buyers attend open houses in Guelph to get exposed to the home purchase process and better understand what their budget would buy them. Some buyers even use this as an opportunity to informally (and secretly) interview agents.
Another popular tool is HouseSigma, a real estate app that provides sold prices of homes. HouseSigma also predicts sale prices for potential buyers. This app is great tool for first time buyers, because it has much of what you’d be looking for on your own time.
You can also start to familiarize yourself with what prices are in your desired range.
What are some first time buyer tips should be doing before viewing houses?
Looking at houses isn’t actually the first step. Buying a home is far more than just signing a contract to buy and there are a few things you can do to give yourself a competitive edge.
The first step is discussing the process of buying a house with your bank or mortgage lender. This step is inevitable- you either need to do it before buying a house or after. However, in a competitive market like Guelph, it should ALWAYS be done first.
An online mortgage calculator is not sufficient because it doesn’t factor in everything. It provides a top-level estimate of what you might qualify for and what your monthly payments will be. A true pre-approval is detailed process that requires factors such as your credit score, income analysis and more.
Meet with a lender (it’s recommended to meet with a big/ local bank AND a mortgage broker) to understand your options, best mortgage rates and type of mortgage you’d like. Variable mortgage or fixed-rate mortgages? What are the differences?
Mortgage brokers are best for self employed individuals or those with credit challenges that need non conventional loans. They look beyond income limits and can be creative with their financing. Also, if you’re considering a type of property as your primary residence such as a mobile home or cottage, brokers deal with mortgage lenders for this where big banks won’t.
Also, look beyond a lender who has the lower interest rate. Sometimes the terms, penalties and payment options can make a difference here. Need recommendations? No problem, just ask!
Now, once you’re pre-approved you can confidently go shopping for a home! Once you put an offer on a house conditional on financing, your lender can qualify you specifically on this home. They take into account property taxes, the closing date and all other elements of your financial situation such as credit card debt and monthly income. Note that your lender will be pulling your credit report so try to maintain a minimum credit score of 650!
Determine the source of a deposit and downpayment
When talking to first time buyers, many don’t factor in both a deposit AND downpayment. These are two completely different requirements that will require some planning.
Related: our blog post on the difference between deposit and downpayment
A deposit is the amount of money you must provide within 24hrs of having your offer accepted. It needs to come in the form or a bank draft or wire transfer. A personal cheque will not do in most cases. A deposit and then the downpayment are typically the largest challenges first-time buyers face- not the monthly mortgage payment.
This means that the funds have to be accessible in very short notice. It’s recommended that if you are actively looking at homes, ensure you have the funds easily available. The amount of the deposit is roughly 3-5% of the purchase price, but each listing is different.
A downpayment is the amount you are required to pay to your bank versus what the bank is going to lend you for a mortgage. This could be as low as 5% or as high as 20% (you can even pay more if you’d like) depending on the usage and price of the property.
As an example, homes with a sale price over $1,000,000 are required to put 20% down payment ($200,000) in order to get a mortgage loan.
Note that the deposit forms part of the downpayment loan amount.
Closing costs- things to consider when buying a house for the first time
A major concern of first time home buyers are the closing costs related to the transaction. And rightfully so, because you haven’t bought a house before! It’s reasonable to wonder how much more you have to pay.
Closing costs for a buyer include legal fees, land transfer tax, land title search and other miscellaneous fees. There are generally no real estate commission fees as a buyer (these seller pays these). A safe estimate is about 2% of the purchase price will go towards closing costs.
As a first time home buyers, there are a variety of programs that you may qualify for. This includes land transfer tax rebate or other first-time home buyer programs. Details of that are here.
First time home buyers tips related to looking at houses
OK! So you’ve got a pre-approval! You know where you’re getting your deposit and downpayment from. Now it’s time to look at houses!
Know what market you’re looking in
Buyers choose a city or town to live in because it meets their needs. As an example, buyers in Guelph choose Guelph because maybe they just received a new job here (congrats!). Maybe their child is going to the University of Guelph (another congrats!).
Maybe you work in Guelph but like that Kitchener is cheaper than Guelph. The commute is reasonable and it’s worth it for you. However, some buyers who are not familiar with the area may also like the cheaper prices in London but still work in Guelph.
This may look great in a budget spreadsheet, but traveling from Guelph to London on a daily basis may get old quickly, especially in the winter months. You should narrow down your market before you start looking by being realistic about what your own time is worth and what you can afford.
Be realistic with market pricing and expectations
Buying a house in southern Ontario has been tricky over the past 5 years. Bungalows for sale in Guelph that were selling for $500,000 in 2019 were selling as high as $900,000 in 2021. Now in fall 2022, those prices are back to $800- $850,000. But, who knows what to expect in the new while with Guelph housing prices.
Your Guelph real estate agent should know the price of houses in Guelph, from detached homes, to semi-detached to townhomes and condos. If your budget is $500,000 and you want a magazine worthy detached house in Guelph, the reality is that this is no longer an option. However, there are many condos that are in this price range that offer great value.
Use a local realtor
If you’re buying your first home in Guelph, do yourself a favour and find a good real estate agent in Guelph. The purchase of your first home is not the time to be using family members from another city.
Specifically, those who 1/ are physically in Guelph and 2/ are active and help many buyers in the Guelph market. They’ll know the right neighbourhood, meeting your wishlist and buying (or selling for sellers) the house for the best price.
Beth and Ryan don’t represent clients who want to buy a house in Toronto or London. Why? Because we don’t know the nuances of a city and neighbourhoods and can’t properly advise a client there.
It’s the same in Guelph. Don’t use a Mississauga agent or Toronto agent if they don’t know Guelph. We help many, many out of town buyers buy a house in Guelph with great success.
Be strategic with your offer
This blog heading could change in coming years if the market changes! However, if you’re reading this in 2022 it’s unfortunately a valid heading for buyers.
Pricing strategies for the first time buyer buying a house
In a sellers market, sellers know there is demand for their home. In a buyers market (like we’re approaching), first-time homebuyers have options.
Sometimes buyers think they’re going to “see what happens” and put in offers that are unrealistically low (as in offering $700,000 on a house listed 5 days ago at $850,000). This strategy almost never works and if anything, puts you further away from a successful purchase. The seller will get the impression that you’re not serious about buying a new home.
One of the greatest assets a realtor can provide is negotiation skill. The key is having a realtor who is savvy and confident enough to push for the best deal for you.
It’s hard to put a tangible value on this. However, in the end: it’s the ability to get two sides together (buyer and seller) in a win-win scenario.
Most sellers have an idea of what the true market value is for their home. Sure, they may test the market a little bit to try and exceed this. But buyers also have access to the same information and if their Realtor can negotiate successfully, they will purchase the home around the market value.
There are instances where sellers MUST sell and are more likely to want to negotiate. However, this tends to happen after they’ve tested the market for some time. A key way for a buyer to know a seller may need to sell? A vacant home. This could indicate that the seller has already moved out and needs to sell.
Don’t get emotional about the purchase
First- time home buyers tip here: Don’t get FOMO (fear of missing out) and get too emotionally invested in a particular house. Have limits and stay within them. We’ll also coach you if we think you’ve gone too far.
Remember, your bank will have an home appraisal and want to ensure you’re paying fair market value for the home. In most cases, the appraisal will come in just fine as long as you can justify the offer price with recent comparables.
Buying a house with conditions
In this market, having a seller accept a conditional offer on financing and inspection is completely reasonable. However, less conditions in an offer with a lower price may be more attractive to the seller. Again, it comes back to working with a realtor who is effective at negotiation on your behalf to get you the best deal.
As first time home buyers, let’s assume you’ve sorted out your finances prior to putting in an offer. Your lender may say that you’re OK to go in at a certain price without requiring this condition.
In regards to a home inspection, there may be an option of doing a pre-offer home inspection. This way, you know the state of the home but no longer require this condition.
A first time buyer will generally want to know major issues that could exist within a home.
For older homes some of these issues could be lead paint, asbestos, knob and tube wiring or galvanized steel plumbing. The other major expenses could be foundation cracks, older HVAC equipment (furnace, AC) and a new roof. However, you can resolve most of the above at a cost.
Just make sure you hire a professional!
The only real downside is that you’ve spent $500 on a home inspection with no guarantee that you’re actually getting the house.
First time home buyer: Think of the future
When we bought our first condo in 2007 in Toronto, it was a 690sf tiny space. Why? Because when we bought it in 2005, it was pre-construction and we had no idea how big 690 sf was. However, what we didn’t consider was future needs.
Beth got pregnant in late 2005 and by the time we moved into the property in summer 2007, we had a 1 year old! We then had to sell that property and consider our current and future needs: we planned to have more children.
The first time home buyer tip here is that you should consider your current needs, but also your future needs.
Don’t get us wrong, buying for your current self is fine. If it’s just a single person, you don’t need so much home as 3 bedroom, 1900 sf single-family homes provide. But you should consider your future when you’re looking. And even then, “future” doesn’t mean the rest of your life. It may be 3-5 years, 5-15 years or even the rest of your life.
The other major factor that can be a huge advantage is to look at neighbourhoods that may have a bright future on the way. It’s known as gentrification and it’s when a neighbourhood turns over from bad to good. Those who have the foresight to see this change coming can get in before the public realizes the change.
In the end
The homebuying process can be a fun, rewarding and exciting process! The key to the home-buying process is to do your homework and trust your Realtor.
Also, remember that you need to open accounts for Guelph utilities. You’ll need to do this before moving in!
Not all Realtors are the same, so if you’re interviewing Guelph real estate agents to work with you, you should call us!