Seven Steps to Buying a Home
We all love lists – lists boil the essentials of any given topic down to a small number of manageable ideas to wrap our heads around. Thanks to Kyle Prevost for pulling this list together.
First figure out what you can afford – the pre-approval
Get pre-approved long before you actually think you might want to buy a house. Start talking to your preferred lender or mortgage broker/agent early in the process. Pre-approved means you’re conditionally approved for a mortgage – up to a certain limit – in advance of actually buying a house.
It speeds up the process substantially once you find the home you’ve always wanted. Basically, the idea is the lender gets all of your paperwork in order and assesses your risk level in advance. That way, nothing is rushed when you start making offers.
As part of the pre-approval process, most lenders will want to do a hard inquiry of your credit score. In many cases, an experienced mortgage professional can review your personal copy of your credit report, together with all the documents a lender is going to ask for, and will be able to offer a very strong opinion on what you will qualify for.
2) Make an offer to purchase
Buying isn’t easy. You don’t simply agree to pay the asking price, tell your bank to send your mortgage money and then walk away with the keys. It is the buyer who starts the dance of house buying by submitting an Offer to Purchase (also known as the Offer to Buy or Agreement of Purchase and Sale).
Some people are comfortable with the do-it-yourself approach, but we strongly recommend you have a real estate agent prepare and present your offer.
3) Negotiation and counter offers
You or your agent will submit your offer to the seller/vendor and cross your fingers. In a perfect world, the seller accepts your offer and you’re off to the races.
More often, the seller will now make a counter offer. A counter offer can include any number of items in addition to the price. It usually includes a time limit on how long you have to accept, or is contingent on the buyer providing specific paperwork.
The counter offer can also include a list of appliances and chattels that form part of the deal.
You as the buyer can simply: sign the counter offer and move on from there• reject the counter offer outright, or • amend the offer and send it back.
This is how official negotiation takes place during the house-buying process. Naturally, the seller can also reject the offer at any point and stop the transaction from moving forward.
If the seller accepts your offer or counter-to their-counter offer at any point in the process, then you (the buyer) are legally obligated to go through with the transaction; therefore, it is crucial you understand all the terms in the offer document.
4) Multi offers
You may live in a market where it has become standard practice to compete with several other avid buyers for the property you want. You may feel pressure to make an offer which has no strings attached – no conditions. This puts a lot of pressure on you to get it right first time, since there is no wiggle room or cooling off period.
Don’t go it alone, and make sure if you are buying in an area where this is possible, that your real estate agent has experience and success in these matters, or the seller’s realtor and the other buyers’ real estate agents will exploit any weakness.
5) Firm up your mortgage approval
Only when there is a ‘real deal’ with an actual property can your mortgage lender tell you for sure if you are approved. Most of the time you will have five business days to get this done, but nobody likes waiting a week!
6) Inspections and walkthroughs
Sometimes a mortgage lender will stipulate a home inspection must be done, but usually it’s at the borrower’s option. Many buyers include the review of the inspection as a condition within their offer.
Careful buyers will schedule the inspection as early as possible to avoid surprises after all conditions are removed. Any issues and resolutions that arise at this point should be negotiated and included in an offer amendment signed by both parties.
7) Closing Day
As part of an offer, a deposit is usually required. This deposit is usually a certified check. This money will eventually go towards your down payment, but for the time being it will be held in escrow.
Closing Day is the grand finale to the whole deal. If everything goes according to plan you will take legal possession of your home on this day. The vast majority of the paperwork should be taken care of long before this point. On the closing date, your mortgage lender should release the money backed by your mortgage loan to your lawyer.
You will provide the balance of your down payment (some of it will already be sitting in escrow from your deposit) and the relevant closing costs to your lawyer.
At this point, the lawyer(s) handling everything will send your down payment and the mortgage cash to the seller (minus commissions, which are sent to your real estate agents – if applicable).
Your lawyer then completes the legal title work, registers the house in your name, and FINALLY hands you the keys to your new home. This typically takes place in the afternoon, by 5 pm of your closing date.