Buying Your First Property — A Guide for an Informed Decision
Spring often brings thoughts of buying a first home.
Purchasing a first home is an exciting step, but it requires careful planning. From saving for a down payment to choosing the right property and setting a realistic budget, thorough preparation is essential to avoid costly mistakes. Here’s a comprehensive guide to help achieve this goal while maintaining financial stability.
1. Saving for a Down Payment
The down payment is a key element in buying a property. In Canada, it must be at least:
- 5% of the purchase price for a property of $500,000 or less
- 10% on the portion exceeding $500,000, up to $1 million
- 20% or more to avoid mortgage loan insurance, which costs about 4% of the loan amount
Accumulation Strategies
- Systematic saving: Set aside a fixed amount each month.
- Using the FHSA (First Home Savings Account): Save up to $40,000 with tax deductions and tax-free growth.
- Home Buyers’ Plan (HBP): Withdraw up to $60,000 from your RRSP tax-free, provided it is repaid within 15 years.
- Appropriate investments: Place your money in low-risk investments if the purchase is short-term (1 to 3 years).
2. Choosing the Right Property
The choice should align with both current and future needs while respecting financial capacity.
Criteria to Consider
- Location: Proximity to work, schools, public transport, and essential services. Moving to the suburbs for a large backyard and parks for children can be appealing, but commuting time and related costs must be considered.
- Property type: Condo, single-family home, duplex… Each option has its benefits and maintenance costs. In the case of a condo, you’ll need to factor in condominium fees. These are used for building maintenance and repairs, and are the responsibility of the syndicate of co-owners. In a single-family home, we often tend to neglect this aspect. It’s a good idea to set aside a monthly amount for long-term maintenance.
- Condition of the property: A home requiring renovation may be cheaper but comes with additional costs.
💡 Tip: Always have the property inspected before buying to avoid unpleasant surprises.
3. Setting a Realistic Budget
Buying a home goes beyond the listed price. You must account for additional fees and ongoing expenses.
Total Acquisition Cost
- Down payment
- Notary fees ($2,000—$2,500)
- Land transfer tax (“welcome tax”)
- Pre-purchase inspection ($500—$1,000)
- Adjustments for property taxes and condo fees
Monthly Ownership Costs
- Mortgage payments
- Property and school taxes
- Home insurance
- Condo fees (if applicable)
- Maintenance and emergency expenses (budget about 1% of the home’s value per year)
💡 Tip: Test your budget by calculating your payments with a higher interest rate to ensure financial sustainability.
4. Maintaining Financial Stability
Buying a home should not compromise your financial health or other life goals.
Best Practices
- Don’t max out your borrowing capacity: Excessive debt limits financial flexibility.
- Keep an emergency fund: Aim for three to six months’ worth of expenses in liquid savings for unexpected events.
- Continue investing: Don’t neglect retirement savings and investments for other projects.
- Regularly review your budget: Living costs evolve, so financial management should adapt accordingly.
Conclusion
Buying your first property is an ambitious project that requires preparation. By saving a sufficient down payment, choosing your property wisely, and establishing a realistic budget, you increase your chances of success. Most importantly, ensure financial balance so you can fully enjoy this new chapter without unnecessary stress.
Need personalized guidance to plan your home purchase? A financial advisor can help structure your strategy and make informed decisions.
