Buying a home is a significant financial investment for anyone – but for a first-time buyer, it can be downright daunting. Between worrying about your credit score, saving for your down payment and trying to determine what you can reasonably afford, there’s a lot to take in.
But the good news is, there are several strategies that first-time home buyers can employ – not only to make the home buying process easier – but much more affordable in the long term.
Here’s what you need to know:
1. Improve Your Finances
First thing’s first. The best way to affordably purchase a home in Edmonton is to ensure you’re financially ready to do so. This may sound like a no-brainer, but we strongly recommend improving your finances as much as possible before moving ahead with your new home journey.
Improve your credit – The higher your credit score, the lower your interest rate. Even if your current score is “good,” taking the time to improve it will make homeownership more affordable in the long run.
Pay Down Your Debt – Your Gross Debt Service and Total Debt Service ratios will determine your ability to qualify for a loan. To afford a mortgage, your total debt load (car payments, credit cards, other loans and housing costs) should be no more than 40% of your gross household income.
Are you ready to buy your first home? Find out with the help of our previous post: Telling Signs You’re Ready for Homeownership
2. Consider a Larger Down Payment
As a first-time buyer, we know that amassing even the minimum down payment of 5% can be overwhelming. Keep in mind, though, the more you put down, the cheaper your monthly mortgage commitment will be. This will require a little more capital upfront, but it will reduce your cost of homeownership.
For example, take a $300,000 home on a five-year fixed term, 25-year amortization period:
Minimum 5% down payment ($15,000) = $11,400 in mortgage insurance with a monthly mortgage payment of $1,190.
10% down payment ($30,000) = $8,370 in mortgage insurance with a monthly mortgage payment of $1,118.
20% down payment ($60,000) = $0 in mortgage insurance (for down payments of 20% or more, you are not required to pay this additional premium) with a monthly mortgage payment of $964.
Note: As a first-time buyer, you’re also eligible for down payment assistance through various first-time home buyer programs.
Determine how much home you can afford based on your current down payment with the help of our mortgage calculator.
3. Get Pre-Approved
Simply put, a mortgage pre-approval is a commitment from a lender to loan you a certain amount, at a specific rate, for a 60-120 day period. Getting pre-approved is also a crucial step if you want to save time and money on your new home purchase:
- You’ll know exactly how much home you can afford
- You’ll benefit from a locked-in (protected) interest rate
- You’ll be able to plan your monthly payments
- You’ll save time and money by looking at homes only within your price range
- You’ll be taken more seriously by Edmonton home sellers and, therefore, be in a better position to negotiate
Here too, you can save money by taking the time to shop around for the right lender, loan terms and interest rates. You may also want to consider working with a mortgage broker who will look for the best (and most affordable) mortgage products on your behalf.
See our previous post: Fixed-Rate vs. Variable Mortgages: Which is Right for Me?
If you do decide to go it on your own, be sure to familiarize yourself with how mortgage rates work while using a mortgage calculator to see how different rates, terms and payment frequencies will affect your monthly payment.
See also: Getting a Mortgage: A Step By Step Guide
4. Buy Less Home Than You Can Afford
Speaking of mortgage pre-approvals, if you want to benefit from affordable mortgage payments, we strongly recommend buying less house than you can afford. This is especially true if you qualify for more than what you originally anticipated.
Experts recommend spending one-third less than your maximum pre-approval amount not just to make your monthly mortgage payments easier but to avoid becoming “house poor.” Of course, cheaper monthly payments will also allow you to invest additional funds toward your mortgage – meaning you can pay your loan off faster (or put more towards your RRSPs, investments, etc.).
5. Opt for a Less Expensive Home
As a first-time buyer, you may not be able to afford the three-story estate you’ve been dreaming of (at least not right away). But your first home is an investment – one that steadily allows you to build equity until you can upgrade to the home you’ve always wanted.
Choosing a more cost-effective, first-time buyer-friendly home style will enable you to both save money and build equity at the same time.
Popular home style options for first-time buyers include:
Average Price: $231,608*
Minimum Down Payment: $11,580*
Apartment-style condos are a favoured home style among first-time buyers due to their affordability and low-maintenance. They’re also available in almost every Edmonton community (including downtown), making them an excellent solution for busy, working professionals (note, you may also be required to pay condo fees).
Average Price: $231,608*
Minimum Down Payment: $11,580*
Townhomes also make a budget-friendly home style for first-time buyers. Like apartment-style condos, they are relatively low-maintenance (especially when governed by an HOA) and can be found in every quadrant of the city. They do, however, differ in that they are typically multi-storeyed and often come with a private outdoor space (and, in some cases, a garage and/or finished basement).
Average Price: $336,314*
Minimum Down Payment: $16,816*
Duplexes tend to cost a little more as they’re generally larger than apartment-style condos and townhomes, and they only share one wall with a neighbour. They’re also more comparable to a single-family home in terms of maintenance, number of bedrooms and bathrooms, yard space, garage space, etc., without the single-family price tag.
For more detailed information, see our previous post: 3 Must-Have Home Styles For First-Time Buyers
6. Do Your Neighborhood Research
Even the most affordable home styles will vary according to community. For instance, an apartment-style condo located in Edmonton’s downtown core (i.e. just off Jasper Ave) is likely to cost more than home styles in a more suburban community such as Windermere, Cy Becker or Tamarack.
That being said, if you don’t mind a longer commute, you may want to consider purchasing a home in any one of Edmonton’s popular bedroom communities such as Spruce Grove or Stony Plain. Because real estate tends to be more affordable in the surrounding areas (this includes
reduced property taxes), you may be able to purchase twice the amount of home for the same price.
Find the right community with the help of our free resources: Your All-In-One Guide to Choosing The Right Edmonton Neighbourhood and 6 Questions To Ask Yourself When Choosing a Neighbourhood
7. Become a First-Time Home Buyer AND a Part-Time Landlord
Being a landlord in Alberta comes with many benefits, including passive income, tax incentives, increased financial security and affordable homeownership. While your first home is already an investment, you can take it a step further by purchasing an investment property – in which you both live and rent.
For instance, if you opt to spend a little more on a full duplex, or a single-family home with a rental income suite (such as a separate basement unit), your rental fees will cover at least half (if not more) of your monthly mortgage payment. Not only will this make your mortgage more affordable (or non-existent), but you’ll be also be in a position to pay your loan off in nearly half the time.
Admittedly, this will cost a little more upfront. However, owner-occupied Edmonton real estate investment properties are still eligible for the minimum 5% down payment and you’ll build personal wealth at a much faster rate. Another bonus? When you’re ready to move on, you will already be a savvy first-time buyer/ real estate investor benefitting from two sources of passive income (the upper and lower suites of your previous home).
Check out our previous post: 8 Essential Tips For Buying Your First Investment Property
8. Get a Roommate
We understand one of the (best) perks in owning your own home is having a place to call your own – and the last thing you may want is a roommate. But think of it this way: if you can’t afford that larger, dual-income property mentioned above, this is the next best thing.
- You’ll still be able to offset your monthly mortgage payments, making your home more affordable
- You can put more towards your mortgage and pay your loan off faster
- By putting more towards your mortgage, you’ll build equity quickly
- Your home is still “yours.” While you may have to share your space with someone else, the right candidate can make the experience both easy and enjoyable
If you’re considering taking on a roommate as a means of making your first-home more affordable, keep in mind you will need to qualify for the mortgage on your own (your lender will need to know you’re able to afford your loan when and if your roommate moves out). However, you also have the added advantage of choosing a “roommate-friendly” property with a style, layout and price point that will best suit your interests.
Note: Buying your first home in a student-friendly area such as Belgravia, Glenora, Crestwood (U Of A), or Queen Mary Park, Alberta Avenue, Central McDougall or McCauley (NAIT and Grant MacEwan) is a sure-fire way to attract additional renter/roommate income.
9. Work With a REALTOR®
Last but not least, one of the best ways to make buying your first home more affordable is to work with an expert Edmonton REALTOR®:
They Know What It’s Like – A knowledgeable REALTOR® will have had plenty of experience working with first-time buyers, just like you. They will understand the challenges you face and the concerns you’re likely to have when it comes to your first home purchase.
They Have a Pulse on the Market – An experienced REALTOR® knows the Edmonton market. They’ve studied the local real estate trends and sales data, and they know how much a home should actually sell for. Because they can spot an overpriced property from a mile away, they can prevent you from wasting time, energy and (most importantly) cash on a home that’s incorrectly priced for current real estate market conditions.
They Know What’s For Sale and Where – As licensed professionals, your agent will be able to zero-in on the best homes for sale in the best communities (and most suited to meet your first-time home buyer needs). Whether you’re looking for a short commute to work or wanting to be close to the most popular amenities Edmonton has to offer, your REALTOR® will help you find the right property in the right neighbourhood.
They’ll Keep You Focused – As we mentioned before, we know buying your first home can be nothing short of daunting. That’s why it’s crucial to have someone (unbiased) on your side to help keep you focused on your current wants and needs, your budget and your future goals.
They’ll Do MORE Than Help You Find the Perfect Home – Of course, your Edmonton REALTOR’s® primary focus is to help you find a first home you love, within a price point you can afford. But they’re also well connected. This means they can assist you when it comes to finding the right mortgage broker, lawyer, home inspector, lender, etc.
They Have the Negotiating Skills You NEED – Your REALTOR® has the skills and expertise to negotiate with sellers, sellers’ agents, home builders and more. As a result, they are in a unique position to save you hundreds (if not thousands) of dollars on your new home purchase, vs. going it on your own.
See our previous blogs: Choosing an Edmonton REALTOR®: 8 Questions to Ask and Why and The Top 4 Realtor Myths Debunked
Are you a first-time buyer looking to purchase a home in Edmonton or the surrounding area? We can help! Download your free copy of our first-time home buyer guide: A Step by Step Guide For Buying Your First Home, and don’t forget to check out our many other free first-time buyer resources, including:
- The Terry Paranych Dream Home Finder
- Our Filtered Listings By Property Type
- Our Fully Comprehensive Buyer Guide
- Our First-Time Home Buyer Blog
- The Latest Homes for Sale in Edmonton
- And more!