Are you thinking about buying your first home? Not sure how it all works? Don’t know which neighbourhood is right for you? If you answered yes to any of these questions and you are considering buying a home in the Cowichan Valley, you’ll find the following information very helpful. Our associates at the Kim Johannsen Group are local real estate agents that want you to be well informed before you make the biggest decision of your life.
There is so much information you should be aware of when buying your home in the Cowichan Valley. There are also many real estate agents in the Cowichan Valley that you could choose from to help you with your purchase, but our group is well known for working with First Time buyers and treating them so they will become repeat customers: there is a reason we are the #1 selling real estate agent team in the Cowichan Valley!
From the South end in Mill Bay to Ladysmith, these areas all have great opportunities for first-time home buyers depending on your lifestyle and budget. Depending on your budget, there are many great opportunities for first-time homebuyers to break into the real estate market. The most common types of homes you will encounter include single family homes but there are some townhome condominuims and duplexes as well.
There are many great pockets to live in within these neighbourhoods and one of the best things you could do is to drive the streets yourself and get a personal feel for the areas on your own. Of course your best “first move” would be to secure the knowledge of a Real Estate Team who is local to your prefered location. For example, real estate agents in the Valley will have better knowledge of the schools, transportation, activities and house prices in our area.
How Much Can I Afford?
Knowing how much you can afford to spend on your first home is extremely important to know before you start looking. The last thing you want is to fall in love with the perfect home, only to find out that you can’t afford it. You should always obtain a pre-approval from a mortgage lender before you begin viewing homes. Knowing how much you can spend will help you narrow in on the best homes that suit your needs. It will also improve your chances of getting your offer accepted by the home sellers.
The most widely used calculation for determining how much you can afford is known as your Gross Debt Service (GDS) ratio. This basically means that your housing costs shouldn’t be more than 32% of your gross household monthly income. Housing costs include the principal and interest of your mortgage payment, annual property taxes as well as heating expenses. If you plan to buy a condominium, it will also include half of your monthly maintenance fees. You can use our mortgage calculator to give you a better idea of what you can afford before you attempt to obtain a pre-approval.
Another Calculation your lender will consider is you Total Debt Service (TDS) ratio. This basically means that your entire monthly debt load shouldn’t be more than 40% of your gross monthly income. This includes all the housing costs in you GDS plus other debts such as car loans and credit card payments.
Down Payments and Mortgage Insurance
The minimum down payment required to obtain a conventional mortgage is 5% but the more you have to put down, the better. Home buyers who have less than 20% of the purchase price as a down payment will have to obtain mortgage loan insurance from companies such as Canada Mortgage and Housing Corporation (CMHC). You should discuss these costs with your mortgage lender to determine the exact costs you will have as they vary depending upon the ratios.
In addition to having enough money for a down payment, you’ll want to make sure you have enough money to cover your closing costs and you’ll probably want to furnish your home as well. Closing costs will vary from home to home but you should expect anything from 2% to 4% of the purchase price. Your lender will also want to see that you are able to cover all related costs involved. The following will give you a rough breakdown of what you can expect to pay.
- Deposit: This amount is negotiable and can range from $5,000 to $50,000. The deposit is usually submitted with an offer to purchase and forms part of your down payment to be paid at closing.
- Legal Fees: You Lawyer/Notary will cost you about $1000 to $2000.
- Appraisal Fee: Your mortgage lender might require an appraisal of the property at your expense which would normally cost between $250 to $350.
- Mortgage Loan Insurance: If your total down payment is less than 20% of the purchase price, your mortgage will be considered high ratio. Your premiums will depend upon your loan-to-value ratio and may be added to your mortgage in most cases.
- Property Transfer Tax: A pre-determined percentage of your purchase price. First-time home buyer do not have to pay this tax.
- Adjustments: Your lawyer will make adjustments on your closing statement in regards to mortgage interest or taxes and utilities that may have been pre-paid by the sellers.
- Home Inspection: It is normally recommended that you hire a certified home inspector to inspect your home as a condition forming part of your offer to purchase. This will cost you $300 to $500.
- Title Insurance: Your lawyer will arrange this which protects you from any defects to the title of the property and will cost approximately $350.
- Survey: Your lender may require you to provide an up-to-date survey and if you cannot get one from the seller, you might have to pay $1,000 to $2,000 for one. Although in most cases, title insurance will suffice.
Other Home Ownership Costs
- Home Insurance: You will also be required to purchase a home insurance policy which will cover the cost of replacing your home and its contents.
- Property Tax: Amounts will vary but you should expect about .6% of your home’s appraised value (annually).
- Appliances: Depending on what comes with the property.
- Window Treatments: Many first-time homebuyers can overlook this cost if they are not included with the house.
- Service Connection Fees: You will usually have extra charges for setting up your cable, telephone, gas, electricity and other various utilities.
- Strata Fees: If you are purchasing a condominium you will have monthly maintenance fees to pay.
- Moving Expenses: Will vary depending on distance, size of truck and whether or not you hire a company to do it for you.
- Miscellaneous Expenses: You should also expect many more miscellaneous expenses such as decorating, gardening equipment, tools, repairs, etc.
As you can see, there are many expenses involved when buying a home and these costs are not listed here in an attempt to scare you, but rather to help you become better prepared. The advantages of homeownership far outweight its disadvantages. After all, you’re putting money back in your own pocket, which is surely better than throwing it all away to rent. Apart from all these costs, there are certain government programs that you should be aware of.
Home Buyers’ Tax Credit (HBTC)
As of January 27, 2009 qualified home buyers are eligible to claim $5,000 for the Home Buyers’ Tax Credit on their personal tax returns. To qualify for this amount, the closing date for your home must be after January 27, 2009 and you (and your spouse or common-law partner) must be first-time home buyers. For more specific information visit the Canada revenue website.
Home Buyers’ Plan
The homebuyer’s plan allows first-time homebuyers the opportunity to withdraw up to $25,000 from their Registered Retirement Savings Plan (RRSP) to purchase a qualifying home. Your RRSP contribution must remain in your account for a minimum of 90 days before being withdrawn. Generally, you must begin repaying the funds the second year after your withdraw them. You will have 15 years to pay it back with 1/15th being due each year. If you fail to repay any amount for a specific year, that amount will be added to your income.