As a first-time home buyer, you’re often faced with a wide variety of decisions. There are plenty of housing options throughout Edmonton, but which one is the right one for you? Those who take the time to really think about their needs are bound to be happier than those who jump into the process. Use these questions as a starting point to help you find which type of home you should buy.
How Much Can I Afford?
The cost of the home is the most important part of the equation. Detached homes are often the dream, but the cost can be unrealistic for younger or first-time buyers. Check out this article  that talks about the average home price in Edmonton. Â
The style of home (and size), neighbourhood, and whether you’re building a new home or buying a resale home all affect the price. However, it’s not hard to see that single family homes are going to be at the top of the pricing scale.
On the other hand, condominiums and townhomes offer the same luxuries of homeownership in a much more affordable price range. What you need to do is find a happy medium – a home that meets both your needs and your budget.
As you work on your monthly budget with expected home costs, remember that you’ll need at least 5% of the purchase price as a down payment and that your monthly mortgage payment will vary based on the interest rate.
Speaking of which…
Do I Have the Down Payment?
As mentioned above, you will need a minimum of 5% of the purchase price of your new home for your down payment. Now, this is usually one of the hardest hurdles for a home buyer, first-time or not. However, it’s fair to say that it can be a lot harder as a first-timer.
Of course, if you can do more than the 5% minimum, you’ll be in a much better position. For this blog post, we’re going to use a purchase price of $300,000 and an amortization period of 25 years (fairly standard in Canada).
Using a mortgage calculator, you’ll come up with 5% of $300,00 = $15,000. But because you’ve done 5%, now you require mortgage insurance. With the numbers above, you’re looking at $11,400 which makes your total mortgage required $296,400, Now, this isn’t necessarily a bad thing, but if we use the same amount with a 10% down payment, then you need to save $30,000 and your mortgage insurance drops to $8,370, bringing the total mortgage required to $278,370.
That’s a difference of $18,030.
So you actually save over $3,000 on your mortgage amount by having a larger down payment. If you can save 20%, then you don’t have to have any mortgage insurance! Anything less than that and you will need to add mortgage insurance into your budget.
As a first-time home buyer, you have options and resources for your down payment:
- the Home Buyers’ Plan
- First-Time Buyers’ Tax Credit
- RRSP’s
- Gifts
The key thing to remember when it comes to your down payment is that more is better, and it’s really not as scary as you think it is.
Do I Understand How My Credit Score and Mortgage Are Related?
This one is a question that trips up a lot of people. While there are a lot of mortgage misconceptions out there, one thing is certain: you need to take care of your credit.Â
Now, you can get a mortgage if you have a lower credit score, but it makes it more difficult and you’ll generally pay a higher interest rate. It’s also important to note that lenders also look at your credit history. Your history report includes things like payment records from credit cards and loans.Â
To improve your score, there are a lot of things you can do:
- pay bills on time AND in full
- reduce as much unpaid debt as possible
- don’t apply for new credit!
Get a copy of your credit report from either Equifax or Transunion and review it. You’ll be able to see any problem areas or things that should be cleared up. Many times, they just haven’t gotten around to it yet! By reviewing it and letting them know, you can make a big difference on your score.
The higher you can get your credit score, the better interest rate you can get. And a better interest rate means lower payments for you!
Can I Handle a Lot of Maintenance?
With great homes come great responsibilities… we’re talking home maintenance here. Are you ready to handle this? Maintenance can include everything from mowing the lawn to shovelling snow to fixing a leaky pipe. If you buy a resale home, you’re bound to experience more difficulties because things are just older. Those who aren’t particularly handy will find that new homes are more attractive because they come with less maintenance and include a home builder warranty.
Keep in mind that when it comes to condominium-type dwellings the association deals with the outdoor maintenance, which can be a big relief for busy professionals. Of course, there’s always the possibility of hiring a professional to do lawn care or snow removal when you live in a single family home, but that’s another expense you need to think about.
How Much Space Do I Need?
It’s true, detached homes tend to have more space than condos and townhomes, both in terms of interior living space (AKA, your square footage) and outdoor patio areas and lawns. That’s what makes them such an attractive option for growing families. However, the more space you have, the more time you’ll have to spend cleaning and taking care of those spaces.
If you’re a single person or a couple without kids, do you really need all that square footage? Especially when going with a more sensible option can save you a lot of money? Look around at different floor plans to get a sense of what different sizes feel like. Consider resale value as well, especially if you’re thinking of this as a starter home.
Do I Want a Highly Personalized Home?
When you purchase a resale home, you’re pretty much stuck with that style. Sure, you might be able to paint the walls, but major renovations = major money. Building a new home allows you to personalize to your exact specifications, even the littlest of details.
However, new build condos and townhomes sometimes still have some restrictions on what you can do with the exterior of the home. Ask before you commit to buy.
Am I Done With Other People’s Rules?
A large part of the appeal of buying your own home is the ability to get away from other people’s rules; whether it’s your parents’ nagging about helping out with chores or the landlord’s refusal to let you paint the walls.
Homes that are part of a community – condos and townhomes, in particular – often have regulations you will need to follow. These might include things like how you use common space areas, where you can park, or how loud you can be after a certain time. If those types of things are going to bother you, you’ll do better with a single family dwelling.
Do I Know What I Need and What I Want?
Surprisingly, many people confuse these two things – needs and wants are very different. You need a functional kitchen, you want a chef’s gallery. You need a decent-sized bathroom, you want the spa-like ensuite.
The good news is that many home builders have taken this into account, and are able to put features into their floor plans to help solve for both!
It’s extremely important you figure out what your needs are, and then your wants (take a look at this handy checklist to help you out). This will make it much easier to compare homes, floor plans and features to ensure you get the home you need for this stage in your life.
What’s the Final Monthly Price Going to Be?
While you’ll undoubtedly look at the cost of the home and the estimated amount of your mortgage, you have to factor other costs into the equation. For instance, if you’re going from an apartment to a house, your heating costs at the new place could be double the amount that you’re used to paying.
There’s also property taxes to take into account. And the larger the home, the higher the taxes. This is something else you need to add to your final pricing. Other things would include:
- utilities (like the heating mentioned earlier)
- internet/cable
- insurance
- maintenance (again, as mentioned above)
The mortgage on a condo might look appealingly low, but you have to remember to factor in the cost of condominium fees could add up to a couple hundred dollars a month.
However, those dues can also include things like heating, exterior maintenance and an on-site gym facility, so you’ll be able to save some money on those costs. While you may not be able to get exact costs on all of those little expenses, you should still do your best to make an educated guess and really compare apples to apples.
No matter what type of home you end up with, proper research is essential. Turn to one of our expert team members to help you make the right decision.
*Originally posted July 5, 2016, updated January 8, 2019.
Photo credit: piggy bank, paperwork
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