First-Time Home Buyers: The Good, the Bad, the Ugly

Buying your first home comes with a very long list of daunting fears, threats and what-ifs and an equal amount of heartening rewards, benefits and opportunities.

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Knowing what your clients are going through is one thing, but truly understanding their apprehensions and anxieties is how you’ll stand out in their mind. Remember, a genuinely empathetic realtor is one whose name is recommended time and again.

 

Much of what the first-time buyer experiences, stems from their lack of knowledge and understanding, say Realtors. Yes, they know they’d like a house or a condo, but they understand little about mortgages, condo fees or perhaps sales commissions. As a real estate or mortgage professional, you’re handling a big learning curve with these buyers so you need to be patient and thoughtful.

“First time homebuyers often are not that educated on the process of buying a home and often turn to family, usually parents for advice,” says Crystal Tost, an agent with Remax Realty Professionals in Calgary. “While parents are good advice givers they too are not always knowledgeable on real estate matters.”

For agents who commonly deal with first time buyers, that’s a typical scenario. To circumvent parents’ lack of knowledge, clients could study their local market online. But Tost recommends interviewing a number of agents and finding one that really suits your needs. “Often I hear about clients that used their parents’ agent, but they have nothing in common with the younger client,” she says. “It’s wise to find your own agent that you feel comfortable with.”

Saskatoon’s Kari Calder of Century 21 Fusion agrees.

“I’ve had more than one dad come along who has killed deals on purchases because they think the prices are too high for what you get. They are stuck in the ‘old Saskatchewan’ and unfortunately would rather see their kids waste $10,000-plus a year in rent than building equity.”

For Brampton broker Arlene Samuel, who with her realtor father Edison Samuel offers free seminars for first-time buyers at Remax Real Estate Centre, first-time home buyers have insufficient know-how when it comes to closing costs and home inspections. She finds they tend to hyper-focus on getting their money together for the down payment and they tend to forget the one to two per cent of the price of the property (or roughly $5000) needed to close the deal.

Not only do first timers have no idea where to start, says Durham and York region realtor Tara Rosen, they also don’t know that going from bank to bank will pull up their credit bureau and that hurts their credit if pulled too often. But with a mortgage broker, they can shop around at different banks with no ill effects.

Rosen highly recommends getting pre-approval first as it saves a lot of stress. However, it’s no surefire recipe for success as she has seen pre-approved buyers be turned down from CMHC if they’re putting down less than 20 per cent.

“Getting qualified is a lot harder this year, than it has been in previous years,” Rosen says. “They have really become stricter.”

Buyers need to snap to it when it comes to understanding their credit score. Clients might receive pre-approval for a mortgage amount and then three months later they purchase a new truck or rack up their credit cards so that their chances of being approved for a home are much reduced.

“Usually, I would recommend people pay off any loans because you’ll have more to put on the down payment,” says Samuel. “Or clean up your bad or sliding credit, wait two or three months and then proceed.”

Many of the clients Samuel sees are under the false assumption that they need to have 20 per cent for their down payment instead of five. That misconception is one thing she and her father address in their seminars.

Tost agrees that affordability is a huge challenge in the market place across Canada especially for first-time buyers. “What you could buy 10 years ago for $200,000 is now $400,000 so finding the best place for your money can be challenging,” she says. “You will want to also find the best location and investment possible since this is your first place.”

Sometimes buyers are pre-approved for a certain amount but they soon realize what they want and where they want their first home is not affordable, says Rosen. “However, I can usually recommend other areas that they would qualify for and let them know, their first home is usually a five-year plan.”

Calder says this advice is especially true for her older first-time buyers, who need to be reminded that their first place is a starting point and that it takes time to work up to their dream home.

“I have several young buyers who have been hesitant about purchasing but once they did they have never regretted it,” says Calder. “I let them know that I was one of those buyers a few years ago so it helps them to know that it is normal to feel scared, excited, stressed, and ecstatic all at the same time.”

Naturally, there are a good numbers of pluses with becoming a first-time buyer, the most commonly mentioned one centres on the financial aspect of building your wealth through real estate. As a first-timer, no longer are you beholden to your landlord, helping him pay off his mortgage and being cash-strapped at the end of the month.

Calder points out that her clients that started out in their early twenties will be in very good financial position by their thirties because longevity is on their side.

Another great benefit, adds Calder, is the opportunity as a first-timer to advance your home status.

“I have many buyers who start in condos and then work their way up to houses and finally to their dream home but they would not be able to get their dream home if they didn’t start small.”

Rosen recommends the CMHC-approved Purchase Plus Improvements program, which helps qualified home buyers pay for home improvements immediately after taking possession, with one manageable mortgage and a low down payment. So if the home needs $10,000 in upgrades, a contractor comes in and does a quote on the work, which is submitted to the financial institute and is rolled into their mortgage. On closing, the lawyer holds that money so the contractor can be paid.

“This is a win-win for all,” Rosen explains. “The contractor knows for sure he will be paid but more importantly the buyer will have the work done and not worry about where they will get the extra money and that the contractor won’t get paid until the work is done so they will do it as quickly as possible and with good workmanship.”

Other opportunities unique to the first-time home buyer include being able to use their RRSP savings without penalty as a down payment on a house and receiving a rebate of up to $2,000 on their land transfer tax.

“It helps a lot of first time home buyers with closing costs,” says Samuel, “because you can use that money for movers or paying property taxes.”

No doubt about it, first-time home buyers are a unique market. What has your experience taught you? Do you have any funny, eye-opening stories to share? What are the positives and negatives of dealing with this group? Share your experiences.