Home Buying 101
Whether it’s your first time or your fifth, shopping for a home can be exciting, confusing, overwhelming, and frustrating, all at the same time. Why? Because chances are you’re likely spending the most money you’ve ever spent at one time and when a decision comes with such a large price-tag (and loads of new responsibilities) it’s not surprising a bit of fear (maybe even terror) will pop up. Here are some strategies that will help you focus on the positive without becoming overwhelmed with the possibilities.
Define your goals and priorities
When buying a home, your first step should always be to define your needs and your wants.
- Where do you want to live? The city and even the neighbourhood may be determined by whether you need access to public transit, or if you have kids, how good the area schools are.
- What type of home do you prefer? Detached, semi-detached, townhouse, condominium?
- Budget. Be realistic about how much you can afford and what it means for your current budget and your future goals.
Meet with your lender to pre-qualify
While idly shopping for a home may be pleasant, serious homebuyers need to start the process in a lender’s office, not an open house. Potential buyers benefit in several ways by consulting with a lender and obtaining a pre-approval letter:
- It’s an opportunity to discuss loan options.
- The lender will obtain a credit report and alert the would-be buyers to any problems.
- Buyers learn the maximum they can borrow and therefore have an idea of their price range.
- Sellers are more willing to negotiate with people who have proof (pre-approval letter) that they can obtain financing.
- The mortgage rate will be locked in against increases (if a fixed rate term is selected) and it can go lower if rates go down.
Contact a real estate agent
The web has made it possible to do a lot of the legwork yourself, but there’s no substitute for an experienced professional. An expert negotiator who knows the market can save you time, money and heartache by helping you make the right offer and playing hardball when necessary.
It’s important to find a professional and experienced real estate agent that you can trust. If you’re not entirely comfortable with them, their advice is no good to you. It’s entirely respectable to research, interview and meet with a number of realtors to find one that aligns with your needs.
Select and view properties with your Realtor
It’s a good idea to view as many properties as possible that first day or two out. This helps you get a better idea of what you want and need and what the market will give you in your price range.
Offers and negotiation
This is how the offer process typically works:
- An offer from a Buyer is made in writing through his or her real estate agent and then presented to the Seller’s agent.
- The Seller may accept or counter the offer. The counter-offer may be in reference to the price, closing date, or any number of variables. Offers can go back and forth until both parties have agreed to terms or either side ends the negotiations.
- In the case of multiple bids, you and your agent will execute a strategy to offer the best price and terms.
- You will work closely with your agent to identify the offer that best satisfies your needs.
Firm Offer to Purchase
Usually preferable to the seller because it means buyers are prepared to purchase the home without any conditions.
Conditional Offer to Purchase
Usually means there are one or more conditions on the purchase, such as subject to home inspection, subject to financing or subject to sale of buyer’s existing home. The home is not sold until all the conditions have been met.
Do you have your money ready?
You will need to present a deposit with your offer or within 24 hours of acceptance of the offer. The amount varies based on the home’s purchase price and the market.
According to CMHC and Genworth Financial, you should have at least 1.5% of the purchase price for Closing Costs in addition to the down payment (have around 2.5% to be on the safe side). The costs vary among provinces and cities. Although your lawyer will provide a more realistic estimate for your situation, typical closing costs include:
- Fire or home insurance.
- Title insurance fee. Title insurance is an insurance policy that protects property owners and their lenders against losses related to the property’s title or ownership; e.g. the previous owner had unpaid debts from utilities, mortgages, or property taxes secured against the property.
- Legal costs and lawyers’ fee.
- Land transfer tax. Provincial land transfer tax is based on the purchase price. First time home buyers purchasing a new or resale home may be entitled to a refund. If you purchase a property in Toronto, the city charges it’s own land transfer tax in addition to the provincial land transfer tax.
- Closing adjustments. Prorated debits or credits of various bills (depending on what the Seller has prepaid) such as property taxes, utility bills, and other charges.
The term ‘closing’ refers to the preparation for the transfer of ownership of your new property from the seller to you. What happens on Closing Day?
- Your lender will transfer funds to finance your mortgage to your lawyer.
- The lawyer disperses funds according to the Statement of Adjustments.
- If you have a balance owing on your Statement of Adjustments, be prepared to provide your lawyer with a certified cheque in the amount of the balance owing at your last meeting with your lawyer, prior to closing (anywhere from a week or a couple of days before Closing).
- Once the mortgage and the deed for the property are officially recorded by your lawyer, you become the legal owner.
Congratulations! All that’s left is to arrange to pick up the keys, per your lawyer’s instructions.
Sorry about the dry read but they are just facts and there’s really no way to make this fun. Unless of course, you work with us to buy or sell. If you want a more detailed synopsis of the process and how we can help, contact us for a copy of our Buyer’s Guide.