Plan for your first purchase

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BY: JAY BRIJPAUL

A realtor took me to a home he listed, and I bought it without an inspection or financing. The home was in Mississauga and I worked near the Don Valley, traveling by bus every day. I got financing and a first and second mortgage from the realtor’s mortgage broker. The interest rate for the first mortgage was 11.75% and the second was 18.5%. The mortgage broker took $7,000 for his fees to arrange the mortgage.  It was my first purchase, in 1987, and I was introduced to the realtor by a family friend.

Prior to that, I had received great advice from my relatives to buy the best furniture for my apartment so that when I am ready to buy my home, I would not need to buy furniture again. I spent over $3,000 of factory-earned money for my bedroom set when condos were selling for $44,000 and you could buy with 10% down. In short, I did everything wrong as a first-time buyer.

Start by saving. Make a budget and stick to it. You can always buy depreciating luxuries later in life. At that time, I worked in a factory and took all the overtime I could get. Avoid lending money. I did that and lost that friend and the money too. Buy the maximum amount of RRSP to reduce your income tax. For couples, equalize your RRSP purchase. The spouse with the higher income can buy spousal RRSP. When you are ready to buy your home, you can each borrow $25,000 from your RRSP as down payment.

Next, establish your credit. Without credit, you cannot establish a credit report and without a credit report, it would be difficult to get a mortgage. The best place to apply is with your bank. Credit cards are the easiest way to build your credit but be careful. Keep it to a minimum and pay it off before the due date. Avoid co-signing for anyone, even for a cell phone. Many people’s credits have been ruined because of this. If you co-sign to assist a friend with a home purchase, you will lose your benefits as a first-time buyer and the bank may turn you down. It is not difficult to remove your name because the bank must agree for you to do so.

Test the waters. Invite a few realtors and ask them what is involved in buying a home. Mortgage brokers and bankers can also assist. Attend workshops and familiarize yourself with real estate terms. You should have an idea of how much you will need to save for your home purchase. Start looking at various types of properties. You can do so by visiting open houses. You will begin to know the market.

Before you purchase, make sure you are not locked into a lease with your landlord. You might be caught in a position where you must pay your landlord to break the lease. If your lease expires, then you become a month-to-month tenant and will have to give 2 months’ notice from the last day of the month to vacate. Follow the market trends. The market usually slows down during summer and Christmas breaks.

Choose your realtor wisely. Do not choose a realtor based on friendship or referral alone. Choose a realtor with a good track record and knowledge and experience to help you. Are you the type who prefer condos or houses? Buy within your means and remember to do your inspection and make the offer subject to financing.

The journey to a thousand miles begins with the first step. Follow my advice and you will get there and beyond. My passion is to educate you. Good luck.

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