5 tips on how to prepare to buy your first home in uncertain times

Based on the TD Newsroom article published August 12, 2020

Buying a house or condo can seem daunting even at the best of times. If it's your first time buying a home, it may seem even more challenging with the added layer of uncertainty brought on by the pandemic.

The good news is that getting into the real estate market for the first time doesn't need to feel unnerving. If you have the right advice and some preparation, your dream of homeownership can become a reality.

If you're considering taking the leap, here are some answers to five common questions, answered by a TD Mortgage Specialist, to help you determine your readiness, and to give you insight on what you'll need to know to make an informed decision.

The housing market is always changing, and during the pandemic it's no different.

However, for those needing default insurance from the Canadian Mortgage and Housing Corporation (CMHC), it's important to know that CMHC has recently made a number of changes to their policy. Some of these changes include tightening minimum credit score requirements and limiting down payment  sources where the down payment provided is less than 20 per cent of the purchase price.

If you think homeownership may be on the horizon, it's a good idea to start learning about the housing market conditions and planning your purchase. It's also a good idea to reach out to a mortgage specialist who can help lay out your next steps towards the path to first-time home ownership, according to Mike French, Senior Vice President of Real Estate Secured Lending at TD.

"It’s wise to seek the advice of a mortgage specialist or financial advisor so you understand how to budget for all these variables," French said. "Not only can they help you determine what you need, but they can also be a source of support if you run into any unforeseen difficulties during the buying process."

As a first-time buyer, the Federal Government Home Buyers' Plan (HBP) allows you to withdraw up to $35,000 (or $70,000 per couple - $35,000 each from your respective RRSPs) from your RRSP to put towards your first home, without paying withholding tax or including the withdrawal as income. Repayments must begin two years after you withdraw the funds, and you have fifteen years to completely repay your RRSP. Make sure you meet the Canada Revenue Agency’s (CRA) eligibility criteria and other conditions before you withdraw any funds, so you don't inadvertently incur any penalties.

"Before you start planning open house visits or virtual tours, it's crucial to understand what you can afford by assessing how your lifestyle and other financial obligations will affect the size of your mortgage, while ensuring you can comfortably afford mortgage payments should interest rates rise in the future," French said.

"Take a look at your broader financial picture and assess your financial readiness, such as: how much do you have for a down payment; how would a new home impact your cash flow; do you have any debt or other financial considerations; do you have any money set aside for any unexpected expenses that could arise with a new home."

If you're unsure, using the TD Mortgage Affordability Calculator can help you determine a potential price range for your first home. It will help you understand the size of mortgage that may be comfortable for you to manage after taking into consideration how much you've saved for a down payment, your monthly expenses, savings, and how much debt you might have.

"Test drives aren't just for buying cars," French said.

"As you get closer to buying a home, consider taking your monthly mortgage payments for a test-drive by making an automatic transfer of the difference in amounts between your anticipated mortgage amount and your current housing costs into a savings account for a few months," French said.

"This approach allows you to see how comfortably you can manage the monthly mortgage amount, while also helping you save for a larger down payment."

By proactively creating a monthly budget that includes all expenses you would take on as a homeowner and tucking away that money to see if it's manageable, you can get a sense of how these new payments and expenses could impact your lifestyle over a three to six-month test period. That way, you can get a feel for whether or not it's the right time to make a large investment, better identify where you need to make changes in your lifestyle, decide if you need to adjust your price range, or see if there's anywhere else you can make changes to make purchasing a home more achievable.

Ongoing payments, (for example, mortgage payments, property taxes, maintenance and utilities) and one-time expenses, (including property assessments and surveys; home inspection fees; land transfer taxes; notary, legal and title insurance fees; property tax and utility adjustments and moving costs) are not the only costs to plan for as a homeowner.

'Hidden' or 'unexpected' costs can have a big impact on your ability to afford your mortgage payments down the road, and you don't want to be caught off guard. Costs in this category include possible interest rate increases, unforeseen repairs, changes to the stability or status of your income, and even things like pest control, landscaping and renovation expenses.

"It's always important to build a buffer into your total budget so you can be prepared for unexpected costs," French said.

The Financial Consumer Agency of Canada recommends having the equivalent of three to six months of your regular expenses or income in your emergency fund.

This content discusses current topics of interest in a general and informational manner only and may not be appropriate in all circumstances. Please ensure that you seek advice personalized for your situation from the appropriate professional, consultant or subject matter expert on the topic of interest to you.