The biggest hurdle for new homeowners to clear is the down payment. Mortgage payments and property taxes can be boiled down to a consistent monthly payment, but saving up 5% or 10% of a $400,000 down payment represents between three and seven years of savings.
What if you don’t have 5% or 10% of a home’s value saved? There are several options available to you, and you don’t need to choose just one.
Introducing the First Time Home Savings Account (FHSA)
The FHSA is a game-changer for first-time buyers, offering tax-free savings for home-related expenses. Benefits include:
Funds can be used for down payments, closing costs, or other eligible expenses. To learn more about opening an FHSA, reach out to us today.
Tax-Free Savings Account:
You can take money out of your TFSA to pay for down payments. Withdrawing money is—obviously—free of taxes, and you can replenish your account with savings at a later date.
The key to TFSAs is that you can grow them at 5%-7% per year in compound interest with mutual funds, meaning that the money actually works you in the background until you’re ready to pay for a down payment with it.
Family Loans
It’s very common to borrow money from parents to finance a first home, and it doesn’t need to be a huge amount, either. Parents tend to avoid charging their kids interest, making it easier to pay back a loan.
It’s also possible for grandparents to provide sums in advance of their wills. It’s morbid to think about, but it has been known to happen.
Loans from family members might not form a complete down payment on their own, but—combined with TFSA withdrawals and RRSP payments—they could be just enough to get you there.
Create a Savings Plan with a Financial Professional
Working with one will help you create an effective budget to balance your cost of living, savings, and home ownership fund.
Financial professionals will help you boil down your budget and savings plan into a monthly plan that turns your down payment from a an “if” into a “when.” Dont have a financial professional? Reach out we can help!
There’s more to purchasing a new home than just the down payment. You’ll need to consider:
- Home Inspection
- Legal (Attorney’s) Fees
- Cash Reserves
- Land Transfer Tax
- Home Insurance
How Much Does it Cost to Go Through a Realtor?
This is my favourite question to answer because as the home buyer you normally don't pay my fee. :)
There are some rare situations where buyers may pay a part of the fee, but those are rare—and decided in the negotiation period, so you’ll never be surprised if it ever happens. So far in my career I have never accepted a service fee from a home buyer. $0 is a pretty great service fee, right?
Just for transparency, realtors tend to be paid by the seller. The seller’s real estate agent divides the fee with the home buyer’s agent.
How Much Does a Home Inspection Cost in Guelph?
Home inspections will cost around $450 - $550 in the Guelph area. Don’t skip on this, tempting though it may be to save the money—spending the money today will insure that you don’t get caught off-guard by a huge cost down the road.
Home inspectors can uncover a lot of potential repairs-in-waiting. Ask the inspector to keep an eye out for these common problems:
- Faulty electrical wiring
- Clogged drainage or poor grading
- Bad gutters
- A damp basement
- A particularly old or leaky roof
- Weak foundations
- Plumbing issues
- Ventilation problems
- Broken heating and air conditioning
How Much Do Legal Fees Cost for Buying a Home?
Legal fees for home ownership can cost between $1,300 and $3,000, depending on your lawyer.
Don’t fall into the trap of trying to keep legal fees low by cutting corners. Make sure that your lawyer reviews your contract closely, detailing every expense and disbursement.
The down payment isn’t the only cost you need to cover in buying a home, but it is the largest, by far. Use this guide to figure out exactly what you'll need to buy your very first home.
Property Taxes
Use this Guelph property tax guide to calculate exactly what will need to be paid on the property you’ll eventually call home.
Guelph’s residential property tax rate was around 1.2% in total for 2017. That’s about $6,120 per year on a home with a $510,000 valuation (and that’s the average for Guelph). Divide that by 12 months and you can expect to save $510 per month for a home in the city after you’ve purchased it. Property Taxes vary by neighbourhood and area. You can get this information from your real estate agent.
Land Transfer Taxes
Home buyers pay the land transfer tax, but not the seller. Don’t fret about that though, because it will probably save you more money in the long term! Since homes in Guelph rise by about 7% in value year over year, that means you get to keep more money if you decide to sell the home at a later date when it’s worth more.
Here’s what you can expect to pay for a land transfer tax, straight from the Government of Ontario:
- 0.5% on the first $55,000 of the home
- 1% on everything between $55,000 and $250,000
- 1.5% on everything between $250,000 and $400,000
- 2% on everything between $400,000 and $2,000,000
- 2.5% on everything over $2,000,000 if the property has one or two single-family residences
Here’s what that would look like for a home in Guelph, priced at $510,000:
- $275 in tax on the first $55,000
- $1,950 in tax on the remainder up to $250,000
- $2,250 on the remainder up to $400,000
- $2,200 on the remainder up to $510,000
That’s a total land transfer tax of $6,675 on a home worth $510,000.
However, first-time home buyers could also be eligible for a special tax refund that could cover some or all of the amount. It can vary and depending on a few factors.
Not bad for a first-time purchase!
Home Inspections
Home inspections cost around $450-$550 in Guelph. You should really consider getting one before buying a home.
Inspections tell you all about the ins and outs of a home—and that’s important because you’ll have a much better idea of what the home needs to be maintained properly. That can have a huge impact on your financial future.
You may not want to risk not getting a $450 inspection just to find out you need to replace the $5,000 HVAC when you move into the house—or repair a wall, install new windows, reinforce the foundations, or replace the roof.
Higher Utility Bills
It’s important to remember that you’re going to be paying for electricity and water—not just for a single apartment!
Some apartments even include water or electricity in the cost of the monthly rent, which can be a big shock to first-time home owners. Many new homeowners in Guelph go from paying $65 or $75 per month in an apartment to paying $150 or more per month in a detached home.
Don’t get caught off-guard! This can make a world of difference in your monthly budget after buying your new home. Make sure you can afford the energy bill and still enjoy the space. When buying a home talk to your real estate agent. They may be able to ask the sellers agent for a years worth of bills. This will defiantly help with your budgeting.
Small and Big Repairs
Any good financial planner will tell you to keep a savings account for mid-term costs. You may in fact need to increase the size of that savings account to account for a home.
Renters don’t need to pay for regular home wear and tear, but homeowners definitely do!
So, how much should you save? The safe rule is to save about 1% of your home’s value every year. That doesn’t mean you’ll need to spend that every year, but it will give you plenty of wiggle room when big repairs roll around.
Use this fund for anything and everything to do with long-term upkeep:
- Window replacements
- Wall repair
- Repainting
- Carpet replacement
- Electrical repairs
- Air conditioning repairs
- Chimney cleaning
- Duct clearing
- Home renovations
Homeowners Insurance
Homeowners insurance varies with the cost of your home, your own history, income, and so on. Only a bank, insurance company, or credit union can give you an estimate for your specific situation.
The average rate for homeowners insurance in Ontario is $780 per year. However, the average rate for homes between $300,000 and $700,000 sits at $924 per year. That means you should set aside $1,000 per year—or just under $84 per month.
Good news! Just about any area in Guelph will generate a good return. On average, the city will generate over a 7% return every year. Conservatively, you could expect at least a 5% return.
The university, proximity to Kitchener-Waterloo, and the offices for the Federal Government really help stabilize the Guelph real estate market against fluctuations in Toronto.
Having said that, I think that homes in the East end are going to see very high growth. It’s only 10 minutes from the downtown core, and has access to tons of parks and walking trails in the area (including a 20 minute drive to Guelph Lake!). You can also commute to Toronto from the East end via Brock Road
That’s just my opinion for high returns, though. The other ends of Guelph have distinct advantages for your lifestyle, and they’re all likley to grow in value steadily (remember, 5% annually!).
Remember these key points:
- The North end has much more affordable housing, making it a great area for first-time home buyers in general (especially if you work in the city).
- The South end has a ton of new developments, access to the 401, meaning faster commuting access to Toronto with new, shiny buildings.
- The West end has reasonably priced homes, is the closest end to Kitchener-Waterloo (where many commuters work), and access to the Hanlon Parkway, running North and South along the city.
You can’t go wrong, but think about which area would suit your financial situation and commuting needs best while you’re out there hunting.
Buying a home under the age of 35 is hard—and I would know, because I’m in that same situation.
My own budget maxed out at $320,000 for my first home, leaving me with the options of purchasing a condo or an old house. There are advantages to both, but let’s look at the numbers.
Option 1: Buying a Condo in Guelph
Newer condos cost more money than old ones, obviously. You’ll find a lot of those in Guelph’s South end.
A big part of what makes them more expensive than a regular apartment is the condo fee that all owners pay. It raises the price of your monthly payments, but those payments take care of maintenance that owners of detached homes need to pay for themselves.
Condo fees cover these costs:
- Building insurance
- Common elements (cleaning common areas)
- Exterior maintenance (mowing lawns, shovelling walkways in winter, etc.)
- Parking
- Property management fees
Condo fees do cover a lot of services that you don’t need to look after yourself, so take that into consideration if you’re a busy professional or a commuter.
Option 2: Buying a House in Guelph
All of those things covered by condo fees become your own responsibility as a home owner (although you can count on parking to be available with the house, except in a few very rare circumstances).
Older homes can be found in certain areas of Downtown Guelph and most of The Ward. That’s not a bad thing, as it puts your home within walking distance of shops, restaurants, and the lively core.
These areas aren’t “recreated” neighbourhoods, either—they’re original! The South and West ends have lovely new homes, but the buildings found Downtown and in The Ward probably won’t ever be built in that style again. These homes might need more maintenance, but will carry a lot of value if and when you need to sell.
Newer town homes will take less effort to maintain, but they don’t have the same originality, either. It’s a trade-off between property value and the time you can put into it.
Getting pre-approved for a mortgage is pretty much a necessity to make a bid on the home you want quickly enough in Guelph’s real estate market. It also gives you the ability to calculate your mortgage costs before you commit to buying anything, which is obviously important for you.
Consult with someone you trust to get information and insights from one of these places:
- Banks
- Insurance companies
- Mortgage companies
- Loan companies
- Trust companies
- Credit unions
Come prepared with these 5 pieces of information to help those organizations give you an accurate estimate for a mortgage rate:
- Credit Report (if you already have access to it via a credit monitoring company, if not wait until you go to the bank most of them will pull this for you for free)
- Capital (your assets’ worth)
- Collateral
- Capacity (the house itself)
- “Character” (your job and how long you’ve held it, length of residence, etc.)
This means getting a credit report, listing all of your owned assets, providing salary information, and a demonstration of your past commitment to jobs.
The changes to the mortgage rules require ALL buyers regardless of downpayment to face a financial stress test to make sure that they don’t default on mortgage payments.
When a deal has less than 20% down, it is insured through CMHC, so you likely can get a lower rate.
This change will likely affect the size of the home that first-time buyers can afford, so come prepared with back-up options!
Remember is always good to talk to a mortgage professional. This is only a guide, the mortgage brokers are the experts.
If you’ve read all of this and are committed to buying a home, then that’s great! Take these next steps and we should have a quick meeting to talk about your budget, preferences, and options.
Add these things to your to-do list:
- Check your credit
- Talk to as many organizations you can about a mortgage rate and loan rates, remember not every pre approval is the same
- Create a new budget based on those unexpected costs and repair budgets
- Talk to your family and financial planner about loans, if you need them
- Get a mortgage approval or pre-approval
- Think about which area of Guelph will suit your needs best
