Saving for and buying your first home

May 8, 2017

A home may be the biggest purchase you ever make. Know what to expect.

After years of renting, many millennials look forward to finally buying their first home. Here’s what to expect:

Down payment

Under Canada’s mortgage rules, your down payment must be at least 5% for a home selling for less than $500,000. If the home costs between $500,000 and $1 million, your down payment must be 5% of the first $500,000 and 10% of the rest.

Before you balk at those prices, keep in mind that a starter home can easily cost $700,000 in Canada’s two largest markets, Toronto and Vancouver. Your minimum down payment on a $700,000 home would be $45,000 (5% of the first $500,000 plus 10% of the remaining $200,000).

Also note the federal government enacted regulations in October 2016 to help stabilize Canada’s overheated housing market and keep debt levels more reasonable for Canadians. Among the new rules is an expanded “stress test” (to measure housing affordability) that includes all insured mortgages, not just those where the homebuyer’s down payment is less than 20%.

If you haven’t already made saving for a down payment a priority, talk to your financial advisor today.

If you’ve been saving money in a Registered Retirement Savings Plan, the Home Buyers’ Plan lets you borrow up to $25,000 to buy or build your first home.

Other upfront costs

Once you’ve saved for your down payment, you’ll have to save a little more.

Buying a home means paying for a home inspection. You’ll need to hire a lawyer to draft your title deed and maybe review your mortgage documents, so plan for legal fees. Depending on the province you’re in, you may also have to pay a land transfer tax or GST/HST.

And don’t forget about moving expenses, furniture, new appliances and anything else you might need to make your new house feel like a home. You may have some of these things already, so make a list of what you’ll need and save accordingly.

Monthly expenses

The most obvious monthly expense will be your mortgage. If you’re renting a home now, that should clear up some room in your budget to put toward your mortgage. But there’s more.

You’ll also have to pay property taxes and get homeowners’ insurance, so work these things into your monthly budget. There are additional types of insurance you might also want to consider, like mortgage insurance or title insurance. If you’re not sure what type of insurance you need, your financial advisor might be able to help.

Finally, there are the emergency expenses that come up from time to time, but that you might want to save for monthly. Think of this as your emergency fund. After all, if your furnace or air conditioning breaks down at the worst possible time, you’ll want to have some money saved to get things fixed right away without taking on debt.

Want to learn more about the Home Buyers’ Plan or saving for your first home? Talk to your financial advisor or visit AGF.com.

The contents of this Web site are provided for informational and educational purposes, and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. Please consult with your own professional advisor on your particular circumstances.

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