by Chris Forsyth
on Thursday, December 27th, 2018 at 9:13am.
Looking to start searching for a home and don't know what to expect. I outline a 6 steps to the buying process to help you along the way.
00:00:00 - Introduction 00:00:29 - Step 1 - Pre-Approval / Downpayment 00:05:36 - Step 2 - Wants & Needs 00:08:43 - Step 3 - Start Looking at Homes 00:10:45 - Step 4 - Putting in an Offer on a Home 00:13:23 - Step 5 - Satisfying Conditions 00:16:08 - Step 6 - Don't Borrow More Money 00:18:39 - Conclusion
Step 1 - Pre- Approval & Down Payment
The first thing you would want to start with speaking to a Mortgage Professional to find how how much you qualify for a mortgage loan. In the past early in my career I have had a couple clients who started to look at homes prior to getting a pre approval and when they found "THE" Home they were left disappointed that were not able to receive the funds for this home. By getting the pre approval this will tell you before you start what price range you should be looking at. Another reason is that you will have more power in negotiating for the home as you can prove that a lender will lend you the money especially if you get into a multiple offer situation.
You will also need to determine what you will require for a down payment for your new home. In Canada anyone buying a home to reside in is required to put down 5% of the total purchase price for your down payment. For instance if you are purchasing a home for $300,000 you would have to put $15,000 down towards the purchase up front. If you do not have a down payment saved up you can speak to your mortgage specialist and see if you can borrow money for your down payment. Just be aware if you borrow money for your down payment the amount you are able to qualify for may be reduced. If you are a First Time Home Buyer there is a Home Buyers Program to help you to come up with your down payment. This program allows you to take up to $25,000 out of your RRSP's tax free for your down payment. There is a catch though...You are required to pay the amount back within 15 years starting on the second year after borrowing the money. You get one full year off from starting to pay it back. Be aware that you will have to pay back monthly, so you can not save up for 15 years and pay back on the 15th year. You will need to make sure you can afford the monthly payment. If you miss a payment at any time you will have to claim on your taxes that missed payment as income and you will have to pay taxes on that amount. If you borrowed $15,000 from your RRSP's your monthly payment will be $1000.00/month.
Step 2 - Wants & Needs
Sit down with your REALTOR® and put together a list of what you are looking for in your home. Your REALTOR® will take those items and look throughout the MLS® to cross reference all the homes that meet your criteria.
Let him/her know the following:
Type of home - Single Family / Half Duplex / Townhouse / Condo
How many bedrooms and bathrooms
Other features such as whether you want a finished basement, a garage (attached or detached), stainless steel appliances...etc
When your REALTOR® cross references what you are looking for they will see if you will be able to purchase with the amount your are approved for. At this time if you are not able to get everything on the list then you will have to make some decisions and see what you can live without. Remember if you have to sacrifice things like having a finished basement and a garage you can do those items over time and by doing so you will increase your equity in that home.
Step 3 - Start Looking at Homes
Now that you have a list of homes that you can confidently purchase it is time to look at the homes in person. Your REALTOR® will put together a private tour for you to view the homes that stood out to you as your favorites. You may have a list of only three houses but you may have a list of fifteen houses that you want to see. I recommend that if your list is fifteen houses that you spread your tours over a few days. I recommend that you see no more than five houses at a time. The reason is is that I find that people start to get confused about the houses that they viewed earlier by the time you get to the tenth home and they forget about those features. By viewing a small amount at a time you can go home and take a break and reflect on the homes that you viewed that day and list the top two or three homes you saw that day and compare those with the next days viewings. This will help smooth out the process for you.
Step 4 - Putting in an Offer on a Home
You found your Dream Home!! Now is the time to ask your REALTOR® to help you put an offer o n the home. He/She will sit down with you to determine a price to start the negotiations with. They will show you the most recent sales of comparable homes to find where that home should sell for. They will help you negotiate the terms of the contract for you as well as the conditions you would like to put in the offer. Two common conditions that are put in most offers is Financing Condition and Home Inspection Condition. Your REALTOR® will help you to determine what conditions to put in the contract.
Step 5 - Satisfying Conditions
Conditions are put in just in case these items cannot be fulfilled. For instance from the time that you had your pre approval to the time you put your offer in say something happens to your income source like being laid off from work then that will have an impact on whether the lender will lend you the money by having this condition you can back out of the contract without penalty. Home inspection is a big one because this inspection will give you a really good idea on the shape of the house you are about to buy and will help determine whether the price you are paying to the shape of the house makes sense. If you find items that need to be fixed like a furnace or shingles and you were not expecting to cover the price tag for these items up front then you will have a valid reason to back out of the contract without penalty. If you feel you are over paying because of deficiencies that you find and are willing to fix if the sellers are willing to sell for lower price you can ask for that as well. Remember though that the seller is not required to renegotiate the price but is sometimes a good thing to do because these items will keep coming up on future offers. Let's say everything goes smooth and you waive all your conditions....You are now a HOME OWNER!!!
Step 6 - Don't Borrow More Money
This step is very important! During the time you are waiting to take possession of your home it is recommended that you don't use your credit cards, you don't borrow money to buy a vehicle or purchase furniture on credit. I know a lot of people would like to have all the furniture come on the day of possession however by doing so you are creating more debt against you and your lender may not like that you are getting further in debt. They get nervous that your ability to pay your mortgage may be compromised. It is recommended that you wait till after you take possession to purchase other items on credit.
If you have any questions about these steps please feel free to reach out to me at any time.