Considerations when deciding which home to purchase

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Deciding on what type of home to purchase can be confusing. With an endless supply of different types of homes available for purchase –from condos to townhouses to fully-detached homes.  The type of home you buy will depend on your lifestyle and budget. You will also need to think about your current and future needs before you start searching for a home.

Size requirements
Is the house the right size for your needs and does it have the right combination of bedrooms, bathrooms, and other living areas?

Lifestyles
Do you plan to have children? Do you have teenagers who will be moving away soon? Are you close to retirement? Will you need a home that can accommodate different stages of life?

Can the home grow with you over the next 5 to 10 years? Find a home that can grow and change with your needs. If you don't plan to be in the home for a long period of time, then certain aspects of the home may not concern you, such as extended stairs or location from other amenities.

Your budget
Budgeting is also an important part of preparing yourself for the purchase of a home. Once you have the money available to make your home purchase a reality, you should weigh the following options to help decide what type of home is right for you:

Condo – A condo makes a great first home because it typically costs less than a townhouse or a detached home, which translates into a smaller down payment. But there are, however, monthly maintenance fees you must take into consideration when budgeting for a condo. Condos are also ideal for those who do not want to maintain a lawn or worry about clearing snow away from walkways and driveways.

Townhouse – Townhouses are typically vertical in design and some even come with attached garages. They blend the privacy of a single-family home with the benefits of the exterior condo maintenance, which is usually done by the homeowners’ association. Many townhouses are built in what is called planned unit developments (PUD), clustered communities that have areas for residential and commercial use, and public areas such as schools, parks, and the like.

If condo life is not your style and you’re not looking for a big yard to maintain, a townhouse may be your best home purchase option.  A townhouse costs less than a fully-detached home and results in cheaper property taxes as well.

Many townhouses also come with monthly maintenance fees unless they are freehold townhouses. In situations where you pay a monthly fee, however, you won’t have to worry about outdoor maintenance or snow removal.

Detached Home –If it’s privacy you’re seeking as well as a larger yard, a detached home is your ideal choice. Still, prices can vary drastically based on such variables as whether you’re seeking a spot in the city, a place in the suburbs, or a more rural location.

Other considerations
The size of the property is an important thing to consider before you head out shopping. While everyone has their dream home in mind, this is not always a practical purchase choice, especially if this is your first home purchase.

When it comes to location, think about which area or neighbourhood you’d like to make your purchase, and which home features are absolutely essential, including what you can live without and what aspects are entirely out of the question.

Take a look at real estate ads for the area(s) you’re interested in to see what’s on the market and the price ranges. Also, drive around a few neighbourhoods and see what’s for sale or visit Open Houses. This can help crystallize what you want or don’t want in a home.

By making your first purchase modest and affordable, you will be putting money towards a mortgage that will build equity in that home. And once you’ve paid down a significant portion of that first home’s mortgage, you will then have more money to put towards an upgrade into your dream home.

Tips on Saving for Your First Home Purchase

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When it comes to buying your first home, a big part of that decision should be based on what your current financial position is and the impact a home loan will have on your finances and lifestyle.

For many first-time homebuyers, saving what is required for a down payment can seem overwhelming. However, sometimes saving for a down payment is as simple as managing your budget differently.

Start with a goal
One of the best ways to save is to have a goal. It will keep you motivated and give you something to work towards. For example, you may choose to save a 10% deposit plus expenses (usually 5%) for your first home. But the more you can save, the better off you’ll be. Find out how much you need to put aside in order to reach your savings goal.

Create a budget
Write down how much money you bring home each month; write down the payment amounts for each of your monthly bills; subtract your expenses from your income to determine how much extra money you have each month.

Develop a culture of saving
Your first priority should be developing a culture of saving. This not only helps you in budgeting and planning for the future but also satisfies banks and other lending institutions that you have a clear commitment to save.

When you go shopping, ask yourself if you really need the item you are thinking of buying. If you don't need it, don't buy it. Put the money into your savings account instead. Remember that small amounts of money can add up to large sums over time.

Start an automatic saving plan
Make saving automatic by setting up an automatic savings plan at your bank to regularly move a specific amount of money directly from your chequing account to a savings account. You’ll be surprised at how much you can save and how quickly the “pay yourself first” approach adds up.
  
Borrow from your RRSPs
If you qualify as a first-time homebuyer, you may be eligible for the government's Home Buyers' Plan (HBP). This allows you and your spouse or partner to withdraw up to $25,000 each from your Registered Retirement Saving Plans (RRSPs) to add to your down payment or to cover purchase-related costs.

Best of all, you don't have to pay income tax on the funds, as long as you repay the total amount to your RRSP over the next 15 years. The repayment period starts the second year following the year you made your withdrawals. If the full $25,000 is withdrawn, the minimum annual repayment would be $1,666.

Take a holiday from tax
If you open a new Tax-Free Savings Account (TFSA), you won’t pay any tax on earnings, which will help you compound your savings. You can contribute up to $5,000 a year to a TFSA, and save for anything you like, tax-free.
 
Review your mortgage options
Once you make the decision to purchase a property, the next choice is the type of loan to suit your budget. The two most common types of loans are the variable interest rate loan and the fixed interest rate loan. 
 
You can now choose to pay back your mortgage over 25 or 30 years, instead of the traditional 20-year amortization period. This means you will pay more interest over the long term, but you can reduce monthly payments to get into your starter home. You can always change this later, once your income rises and you can pay your mortgage down faster.
 
Get into a starter house
Try to be as flexible as possible when choosing your first home. Unless you’re status conscious, your first home doesn’t necessarily have to be your dream home. You could settle for a starter home, which you can afford with a small down payment and easy mortgage installments. There are plenty of lower-priced houses out there in need of repair, with some "Do-It-Yourself" projects where you can add more value to the house. Be careful not to buy a place where the cost of repairs will eat up any profits you might make when you sell.

In just a few years you will build enough equity in your starter home to make it easier for you to sell and move into your dream home.

Buying your first home is an exciting process. After all, your home could be the largest asset you’ll ever own. Being able to finance most of its cost will take a load off your back in the future.

Quick Ways to Build Equity in Your Home

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One of the primary goals of homeownership should be the building of equity in your home. Equity is simply the difference between the current value of a property and the balance of all mortgage obligations.

For example, if you have a home that is valued at $375,000 (based on an appraisal or a Comparative Market Analysis) and a mortgage balance of $175,000, you have $200,000 ($375,000 -$175,000) equity in your home. As long as the market remains stable, this is like money in the bank. As your house value increases over time and mortgage payments you make reduce the level of your debt, your home equity increases.

Why Equity in a Home is Important?

Simply stated, the appreciation of equity in a home is one of the easiest and most successful paths to wealth that is available to you. To a large degree, it is almost painless—you make the mortgage payment that you would have to make anyhow and the balance is reduced. The value of the home, meanwhile, is rising. As a result, your nest egg should be growing. The quicker you find yourself at 100% equity—owning nothing on your home—the quicker the route to less financial stress and true wealth.

How to Build Additional Equity?

There are a number of ways to build additional equity in a home, some easier than others but all effective:

1) Higher initial down payment
The most obvious way to build additional equity is at the first opportunity—making a larger down payment at the time of purchase. This extra money is immediately "banked" in the home, making it much less tempting to spend.

2) Extra principal payments
Making extra payments of principal (or just adding money to your monthly payment designated to go to the principal) has a double effect on your equity. First, every dollar you contribute reduces your debt by the same amount. Second, reduced debt means less interest paid, which means that each month more of your payment goes to principal and less goes to interest.

NOTE: Although most loans allow it, check with your lender to see if they accept extra payments of principal with no penalty.

3) Shorter mortgage term
The lower mortgage interest rates that we have seen recently means that for many buyers, they are able to either initially secure a mortgage with a shorter term or, if they are currently in a long term mortgage (such as 30 years) refinance and get a shorter term. Shorter mortgage terms mean that you will be paying down your principal much quicker and therefore gaining additional equity at a much faster rate.

4) Home improvements
When you improve the quality or size of your home, you also increase its value and thus your equity. Be aware, though, that although virtually all home improvement projects will bring some return, some are much more advantageous than others. For example, remodeling kitchens or bathrooms traditionally have brought a greater return than adding leisure amenities such as pools or whirlpools. To get the maximum equity enhancement, make certain that the kind of improvements you want to make will increase the home’s value appreciably.

Purchasing a Home During the Pandemic

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The coronavirus has changed our lives in many ways. With businesses temporarily shutting down, people asked to stay at home and a virus that is easily passed from person to person, it has certainly changed the real estate industry and the business of buying and selling homes.

People still need to buy or sell properties even while COVID-19 is an issue. The reality is that the real estate market operates continuously because people start new jobs, welcome new additions to the family, or don’t renew their lease because they intend to buy a starter home.

Since mid-March, the local government has put in place a few guidelines to prevent the spread of COVID-19. It is important to respect these guidelines during the home hunting and buying process.

Online listings

These days, you can search for properties online first to see what properties are available on the market and even take a first tour of the property remotely when the 3D virtual tour is available. 

The information in the online listing allows potential buyers to quickly determine whether the property meets their needs and budget, thus preventing needless visits.

Once the listing has been viewed carefully, it's time to contact the seller. Whether by phone, email, or video call, it’s important to double-check the information in the listing and to ask the owner as many questions as possible. So, the buying process begins from the comfort of your living room!

 

Planning a safe visit

Once questions have been answered and it’s clear that the property meets your needs, it’s a great idea to do the first tour via video call. This can complement the 3D virtual tour or compensate for it if it isn’t available in the listing. It also lets the owner show the potential buyer how rooms are set up or view aspects that aren’t as easily visible in photos.

After the initial steps above, it is possible to make an appointment for a visit. During that visit, certain hygiene measures issued by the public health department must be respected.

Once the buyer settles on a property, it’s possible to use technology to negotiate the terms of the offer to purchase remotely.

For many buyers, making an offer from virtual showings alone is a big concern. Some buyers are not comfortable unless the contract is subject to a second physical showing of the home before the deal is finalized. This is an important step in order to avoid buyer’s remorse.

Finally, it is important to keep in mind that the COVID-19 impact will be felt in the economy for years to come. Assess both of your current risk areas as far as your ability to make the mortgage payments and stay in the current area without needing to leave to find a new job and see if you are okay with the commitment.  

October marks four straight months of record home sales in Kitchener -Waterloo. How does your home compare?

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 KITCHENER-WATERLOO, ON (November 4, 2020) ––There were 691 residential homes sold through the Multiple Listing System (MLS® System) of the Kitchener-Waterloo Association of REALTORS® in October, the most ever recorded for the month. October’s home sales represented an increase of 28 per cent compared to the same month last year, and a decrease of 9.6 per cent compared to the previous month. The previous ten-year average number of residential sales for October is 471.

 

“This is the fourth month in a row we have set a monthly record number of home sales,” said Colleen Koehler, President of KWAR. “Demand for homes in October continued to strongly outpace supply in Kitchener-Waterloo and area.”

 

Total residential sales in October included 417 detached homes (up 25.6 per cent from October 2019), and 94 condominium apartments (up 34 per cent). Sales also included 134 townhouses (up 26.4 per cent) and 46 semi-detached homes (up 48.3 per cent).

 

The average sale price of all residential properties sold in October increased 19.4 per cent to $635,301 compared to the same month last year, while detached homes sold for an average price of $742,596 an increase of 21.7 per cent. During this same period, the average sale price for an apartment-style condominium was $395,627 for an increase of 14.8 per cent. Townhomes and semis sold for an average of $499,641 (up 15.6 per cent) and $539,434 (up 16.6 per cent) respectively.

 

The median price of all residential properties sold in October increased 19.2 per cent to $595,000 and the median price of a detached home during the same period increased 20.5 per cent to $686,000.

 

“Consumers buying/selling real estate continues to be one of the few shining lights to help Ontario’s economy recover from the pandemic,” said Koehler. “We’re continuing to see more buyers than sellers, including additional buyers migrating here from out of the region looking for the quality of life this region offers.”

 

There were 783 new listings added to the MLS® System in KW and area last month, an increase of 16 per cent compared to October of last year, and 11.5 per cent more than the previous ten-year average for October.

 

The number of Months Supply (also known as absorption rate) continues to be very low at just 1 month for the month of October. The previous ten-year average supply of homes for October was 3.2 months, and in the past 5 years, the average supply for October was 1.8 months.

 

KWAR’s president says the market we have been experiencing is extraordinary. “While our association does not track where buyers are coming through the MLS® System, I can say unequivocally we are seeing strong demand from GTA buyers. What people want and need in a home, and where they want to be located has been redefined in a very short period. Waterloo region is quite rightly, a highly desirable place to own a home.”

 

The average days to sell in October was 13 days, compared to 23 days in October 2019.