The best homes for a first-time home buyer are likely not going to be the same as those you’d consider for your “forever” home.
When I bought my first home, I figured I’d only be there for a couple of years; I ended up being there for four. It was perfect for my needs when I initially bought it, then circumstances change.
Due to the rising costs of living and real estate prices, buying your first home has never been as costly as it is now. Even though interest rates are rising, that doesn’t mean home ownership is completely out of reach given that property prices are going down at the same time.
I sat in on a presentation with a mortgage agent recently and found their comments interesting. While talking about housing affordability and the concerns some home buyers have right now because of rising interest rates, they shared this information which I thought was very interesting and insightful –
If you’re nervous about rising interest rates, keep in mind that it’s all relative. You need to look at the big picture! Going back to when I bought my first home in 2007, my interest rate was 5.87% – that is about double what they are right now. A year later, it dropped to 2%.
Now, back to the topic at hand! Let’s take a look at the best homes for a first-time home buyer.
If condos came to mind, you wouldn’t be far off. In spite of their smaller footprint, in some cases, condos remain popular for many first time home buyers. Not only are they less costly than houses, which means you can get into the market more easily, they also come with little to no maintenance.
This said, there are two major factors you want to consider if you’re looking at condos – how much money is in the reserve fund and what are the monthly maintenance fees?
Even if a condo costs less money, maintenance fees, especially in older buildings can be extremely expensive. You want to do your due diligence and run the math to make sure it works within your budget after these fees are considered.
When you buy a condo, you should always include a condition for a legal review of the status certificate. This will indicate how much money is in the reserve fund and if there are any foreseeable expenses in the future that will impact whether or not there will be a big increase to your maintenance fees.
Of course, sometimes things can happen unexpectedly, however, the status certificate is generally a good indication of the financial health of a condominium corporation. Failure to review this carefully could result in overlooking possible increases to your maintenance fees.
In addition to money, you also want to think about rules, amenities etc., If you were thinking about getting a canine companion (or any animal for that matter), make sure you review the condo’s bylaws to see if they are permitted and if they are, if there are any associated restrictions.
If you’re interested in the building’s amenities, look into whether or not they are in good working order and accessible when you want to use them. I know someone who bought a condo and was excited to use their pool, but during the time she lived there, it was closed more often than not so she never got to enjoy it.
The other great aspect about condos that could work for you if you’re still saving for a downpayment is the option to buy one pre-construction. This allows you to stagger out your downpayment in a series of phases. This may make it easier for you rather than saving up one much larger lump sum.
The only thing I’d advise you to keep in mind is patience. In some (but not all) cases, pre-construction condos are more prone to delays than single family homes. So, if you’re banking on being in your new home by a very specific date, then this may not necessarily be the best option for you as a first time home buyer.
Moving along…
If living in a high-rise condo doesn’t appeal to you, an alternative option could be a condo town. You’ll still want your lawyer to review the status certificate if the property is being managed by a condo corporation, but they may not have as many rules/regulations as a building would.
Buying a condo town can give you the feel of a single family home. You don’t have to hassle with underground parking and elevators and you may also have a backyard, which is a big plus for some people.
The reality is that some people simply don’t want to put up with a condo corporation at all and would rather buy something freehold. The best homes for a first time home buyer still include a couple of other options.
If buying a detached single family home is out of reach for you, maybe you’d want to consider a semi-detached property for your first home. Although yes, you’re still sharing a wall with your neighbour, these homes may be the next best thing for you until you can afford to buy detached.
Just like detached homes, semi-detached also come with a wide variety of styles which could include a two storey, backsplit or a bungalow.
Depending on the size of your downpayment and the budget you have to spend monthly, another consideration to give yourself some financial breathing room is buying or creating an income property. The catch? You’ll want to find a home with a separate entrance or one that has the space to add one.
Although separate entrances seem to have lost their popularity some builders as the years passed by, a lot of older homes, especially bungalows, still have them.
As you may have seen, my newest listing in Mississauga has a separate entrance and some of the interested buyers have been considering the home as a rental property investment.
Of course, if the home already has an in-law suite or legal basement apartment, chances are, it will come with a bigger price tag. If it does not, you can work with a contractor to determine the cost to put one in. Make sure you include everything from appliances and materials to labour and incidentals.
An income property is among the best homes for a first-time home buyer due to the simple fact that you can offset your expenses considerably.
Now, although having a tenant pay your mortgage can be an extremely attractive quality, keep in mind that being a landlord comes with responsibility. And, in Ontario, you have to be extremely mindful of the rights tenants have. If you run into issues with a tenant or simply decide that they aren’t the right fit, there are very few ways to get them out without consequences.
In fact, I’ve been working with a potential client for the past six months who has been debating between selling a condo she rents out or her primary residence, half of which is rented out. The tenant in her condo has mutually agreed to leave, but due to the capital gains impact of selling that property, she is leaning towards selling her primary residence instead.
The catch?
Selling a property while it’s tenanted can be complicated and they may not necessarily cooperate with other realtor’s for showings. In addition, if they won’t leave on their own before the property closes, the new buyer would have no choice but to assume them.
As you can appreciate, if a buyer wants to buy a home for their own use, this situation is far from ideal. They can serve them with an N12, which means the tenant would need to leave so the buyer or their family can use the space, but they still need to give them 60 days notice. If the tenant doesn’t cooperate, you will need to wait for a hearing with the Landlord Tenant Board to evict them. This can take 4-6 months (or during covid, was upwards of a year).
Alternatively, another way to get a tenant out is commonly known as “cash for keys”. You can offer them a financial incentive to vacate the property, but if they love the house and don’t want to leave, this can be costly or you may simply not be able to come to a mutual agreement with them.
I don’t want to scare you away from the idea of owning an income property, but it’s very important to understand the pro’s and con’s of this option from all angles.
The best homes for a first time home buyer vary quite a bit. There is a lot to consider from budget and needs to lifestyle and longevity. Whatever you decide, rest assured that real estate is still one of the very best long term investment strategies there are. The sooner you can “get into the game”, the better.
Even with interest rates rising, they are still historically low and with prices going down, there is no better time than now to buy your first home.
If you need help house hunting for your first home, let’s talk. I can be reached at 647.896.6584 or info@serenaholmesrealtor.com. You can also fill out this contact form. For plenty of other great tips, make sure we’re connected on social and you’ve subscribed to my YouTube page.
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