Are you a first time home buyer or seasoned home owner looking for a change? Either way we’ve got a practical list for you to follow to help make a difficult purchase a little less confusing.
Do you dream of a place to really call your own? Before you start picking out colour schemes and kitchen cabinets, there are many practical factors to consider first. For most people, buying a home is not only an emotional decision, but a financial one as well. Unlike renting, buying a home is an investment that can appreciate over time, giving you more financial security later on in life. It will probably be the most substantial purchase you’ll ever make.
But the satisfaction of making that big purchase can sometimes be spoiled by the confusion and hassle that comes along with it. Read on for some helpful tips on how to make the process easier.
Making a Wish List
Before shopping for a home, you need to determine your needs and wants. Develop a predetermined shopping list of features you are willing to compromise on and ones you aren’t. To properly prepare a home buying strategy, you must examine your lifestyle and budgeting priorities. The decision between a condo or house, detached or semi-detached could have just as much to do with personal preference as it does with expense. Once you have figured out exactly what you want in a new home, your next important step is to ensure that you are financially qualified to make such a substantial purchase.
Particularly for a first-time home buyer, it’s absolutely critical to find out what kind of mortgage you can afford, even before you start looking. Too often, arranging a mortgage is left to the very end, forcing borrowers to scramble for financing. “It’s important to understand what the parameters are with such a wide range in the housing market right now. You really want to understand where you fit in,” says Gillian Riley, Vice President of Mortgages for Scotiabank. “I think it’s very prudent.”
The Down Payment
The first question to ask yourself is how much of a down payment can you afford. Depending on the interest rate environment, you may be able to spend a lot more (or less) than you imagined. But it’s vital to remember what you have saved isn’t necessarily what you want to use, as there are extra costs that come in to play as you go through the entire purchase, including emergency funding. While a conventional mortgage down payment is 20 per cent of the value of the home, there are mortgage options now that can offer you a 0 per cent down payment.
After you’ve considered how much you can afford for a down payment, the next step is contacting a bank or mortgage broker about getting qualified. Based on personal information you provide such as your income, debt and assets, you can receive a pre-approved mortgage, including an interest rate commitment for a set length of time.
Don’t forget to work with the lender to find the right type of mortgage that suits your needs. You’d be surprised to discover what’s negotiable. “Some people want an open mortgage, some people need a closed mortgage. We take people through a needs-analysis assessment where they’ll be asked questions about their borrowing strategies and what’s important to them,” says Riley. “Then we would move in to what would be the right solution for them.”
Once you receive a pre-approved mortgage, you can confidently negotiate the purchase of a home. It’s a no-cost, no-obligation deal that lets you know before you go house hunting how much you can afford to buy based on how much you can afford to borrow.
Finding the Right Agent
When looking for a home, one of the most important factors you’ll have to consider is location. “First find a location and then start talking,” says Pat Smith, a Realtor with Royal LePage, who specializes in the central Toronto area. Once you’ve determined a few options for where you want to live, the next step is finding the right real estate agent.
Real estate agents are like matchmakers, bringing buyers, sellers and homes together. Agents must be on top of the market – in terms of sales, listings and house prices in the area. But most importantly, real estate agents need to make their clients feel at ease.
While employing a real estate agent won’t cost you anything (he or she gets paid by the seller), you may be asked to sign an exclusivity agreement with the agent, which Smith says is entirely up to you. “The best advice: Get an agent that you can get along with and who will work with you. You don’t have to agree to anything for a while, just look around if necessary,” says Smith. “Make them work for you.”
To find a good agent, let the referrals speak for themselves. Ask friends and family to recommend agents they’ve dealt with in the past.
Making an Offer
A good real estate agent will also be an experienced negotiator, with an understanding of how flexible a certain seller will be. But before making an offer, do your research. Find out how long the property has been on the market. If it’s a new development, find out how much others have been selling for.
In many cases, a deposit is made and you may be advised to sign a “conditional” offer. When buyers and sellers strike a deal, loose ends often need tidying up before the buyer will proceed, such as financing or selling your existing home. For resale homes, you should never make the offer final without a proper home inspection, conducted by a licensed engineer to look for any major problems with the house that could end up costing you down the road.
Once these conditions are met, you should be prepared to make the offer “firm and binding.” If not, the deal is off and you get your deposit back.
Finding the Right Lawyer/Notary
Don’t wait until after the deal is struck before choosing a lawyer/notary. Then you lose the valuable input he or she can provide scrutinizing the offer before you sign the deal. When looking for a lawyer/notary, make sure he or she is a real estate specialist. To find the right one, remember that quality and experience are the key, not just the price. Since a lawyer/notary’s role is part advisor and part confidant, a good rapport with him or her is a must. As with finding a good real estate agent, ask friends and family if they have anyone to recommend.
Closing the Transaction
Unfortunately for first-time home buyers, closing costs are often an unwelcome surprise. Besides the basic purchase price, you will face a long list of expenses before taking possession of your new home: legal fees, land transfer tax, title insurance, disbursements, adjustments and insurance policies to name a few.
For a resale home, these “extras” can easily add 1-1/2 to 2 per cent onto the basic purchase price. For brand new homes, that figure can easily reach 2-1/2 per cent. The time to check out these charges is before the offer is signed, not afterwards.