New Home Buyers Experience
Buying a new home over an old home is becoming increasingly popular in Canada. Over 33% of the homes sold in Canada are new homes which buyers generally prefer due to factors like lower maintenance costs, higher quality of material used etc. While buying a house most of the people are motivated by their financial stability and their desire to stop paying rent. Over 52% of respondents in a survey by Leger preferred places near green spaces and 49% preferred places near their work places. The process for buying a home is lengthy and requires the determination of financial stability, getting a mortgage pre-approval, looking for houses and negotiating and closing the deal. During the process, people face a lot of difficulties including imposition of government regulations, hidden costs, lack of knowledge about contracts etc. which have been examined in detail in the report. Despite this, the number of respondents who feel that they can buy their own home has increased to 55% from 46% in 2017.
NEW HOMES OVER OLD HOMES
Nearly 33% of all homes sold in Canada are new and more than 52,500 buyers preferred buying new homes to old ones in Ontario alone. There are a lot of reasons for the preference like greater flexibility in customizing the home as per individual tastes, higher energy efficiency ratings which mean lower utility costs, better building materials translating into higher levels of safety and quality and lower maintenance costs as a whole.
PRIORITIES WHILE BUYING A HOME
People keep in mind a variety of factors while deciding which house to buy including size, location, neighborhood etc. According to a survey by market researcher Leger, over 52% of respondents prefer homes near green open spaces, 49% gave preference to proximity to work, 43% to proximity to retail stores and 35% to proximity to public transit. The least popular preferences were proximity to restaurants (21%) and proximity to community centers (19%).
For most people the decision to buy a home depended on their financial stability, their need to buy a bigger place due to family expansion plans, and their desire to stop paying rent and own their own home. Even interest rates were not the primary factor in the purchase decision if all their other needs were being met. Low interest rates were considered a bonus but high interest rates were not a deterrent.
THE PURCHASE PROCESS
STEP 1: The first thing to do before buying a house is to determine if home ownership is the right choice. Pros and cons of owning a home versus renting a home need to be analyzed and 5 questions need to answered. Are you financially stable and have the required financial management skills to manage the purchase? Can you take the responsibility of all the costs associated with owning a home and can you devote enough time to maintain your home? Finally, are you new to Canada? The answers to these questions will determine if a person is ready to buy a home.
STEP 2: The second step towards owning a home is to analyze your financial situation. It is very important to ensure financial stability before deciding to make a big purchase. There are 2 rules to determine the amount of money a person can spend on housing.
A. The housing costs per month are under 32% of gross monthly income.
B. The debt obligations including mortgage of a month are less than 40% of gross monthly income.
Various other costs need to be calculated before deciding on the soundness of financial stability like the upfront costs (includes the down payment, home inspection and appraisal fees, insurance costs, land registration fees, legal or notary fees, moving costs, repairs or renovations if any and GST/HST/QST on a newly built house), the monthly spending with the added costs of home ownership and lastly the credit score.
STEP 3: The third step is to initiate the mortgage pre-approval process. A mortgage pre-approval helps narrow down the house search by providing an idea about the affordability, the likely interest rate and indicate the kind of monthly installments on the basis of the documents that are submitted. These include government issues photo-ID, contact information of employer, address proof, income proof, down payment proof, savings and investments proofs, details of current debt obligations and the person's credit score.
STEP 4: After all the preliminaries are completed, it is time to look for the perfect home. All the factors like size of home, location, proximity to place of work, neighborhood etc. need to be kept in mind. The decision to buy a new home or an old one is also made in this stage. It is essential that long term requirements are kept in mind while deciding to purchase a particular home. Real Estate Agents and other professionals like lawyers are enlisted to help with the negotiating and buying process.
STEP 5: The final step of the process is making an offer and closing the deal. After deciding on the house, the process of negotiations start and an offer is made that should include all necessary conditions before that need to be met before the contract becomes binding. Once the offer is accepted, it is time to complete the financing documentations by providing details of the property, tax assessments and home inspection report etc. After all the legalities are taken care of, the lender provides your lawyer with the money, who then pays the seller, registers the home in your name and provides you with the deed as well as the key to the house.
CHALLENGES FACED WHILE BUYING
Buying a house is deemed to be an extremely stressful process according to a survey by Mortgage Professional Canada. Toronto has been found to have the highest levels of stress followed by Vancouver. The lowest levels were in Atlantic Canada and Quebec. The stress was associated with a variety of factors including the buying decision, financing, etc. The buyers also face a lot of challenges while buying a home. These include:
1. Hidden Costs — Buying a home has some other associated costs that need to be kept in mind. For example:
Deed Transfer Tax which is a mandatory tax and each Nova Scotian municipality sets its own rate.
Legal Costs which can range from anywhere between $800 to $1500.
2. Government Regulations — A lot of new government regulations are introduced that pose as challenges for people wishing to buy their own homes. For example, the recent "stress test" employed by OFSI, which requires home buyers to prove that they are financially qualified by showing that they can pay higher interest rates. It can either be 2% over the rate they qualified for or over the 5-year mortgage average in Bank of Canada. According to a survey by market researcher Leger, about 25% of buyers compromised on the size of the home, 18% on the location, 17% on the style of the home and almost 33% decided not to buy a home altogether.
3. Emotional Attachment — A lot of people find it difficult to separate the emotional aspect from the home buying experience, which eventually leads them to make irrational decisions. It is essential to first evaluate the finances part before deciding to buy a house.
4. Lack of knowledge about contracts — While buying a home, a contract is signed between the buyer and seller which contains all the conditions and requirements that need to be abided by. Often when people sign these contracts without getting legal consultation, they run the risk of entering into contracts with fine print containing clauses they might not understand or agree with. Therefore, this lack of legal knowledge makes it imperative for people to enlist a lawyer for overseeing the paperwork.
5. Lack of knowledge about seller's tactics — Often people like the house being shown so much that they move to immediately close the deal. But more often than not, these show houses have upgrades which are additional costs to the buyers. It is important to be aware of these costs before deciding to buy the house. When buyers are buying a house based on brochures or sales material, many a time, the floor plan includes the size of balcony and bathroom. In these cases buyers enter into contracts misguidedly and there is nothing much that can be done about it afterwards.
Despite the challenges faced by the people, the number of people who feel that they can buy a house that meets their needs has gone up to 55% from 46% last year according to the survey by Leger.
Over 33% of the homes sold in Canada are new homes which buyers generally prefer due to lower maintenance costs, higher quality of material used, greater flexibility in customizing and higher energy efficiency ratings. Over 52% of respondents in a survey by Leger say that they prefer their houses to be near green spaces and 49% vote for proximity to work place. Interest rates are not the biggest motivators for buying homes for almost all the people. The process for buying a home is lengthy and requires the determination of financial stability, getting a mortgage pre-approval, looking for houses and negotiating and closing the deal. During the process, people face a lot of difficulties including imposition of government regulations, hidden costs, emotional attachment to homes, lack of knowledge about contracts as well as seller's tactics. Despite this, the number of respondents who feel that they can buy their own home has increased to 55% from 46% in 2017.