Buying your first home; knowing where to start, and all the steps in between can be mind-boggling. And since this may be one of your largest life-time purchases, it can get pretty stressful. These seven distilled steps to buying a home help put some simplified structure around the progression from pre-approval through to closing day.
When buying your first home it’s essential you understand right at the beginning how much purchasing power you have. No point in hanging your hat where your hands can’t reach! Consult a mortgage broker up front; share your personal and financial information, and find out the maximum mortgage amount you will qualify for.
Your broker will also factor in estimates for property taxes, condo fees and heating costs to ensure the pre-approval reflects as much as possible the type of property you wish to buy. Armed with this information, your real estate agent can show you potential properties and districts which suit your budget, and your search begins in earnest.
Buying your first home isn’t easy. You don’t simply agree to pay the asking price, tell your bank to send your pre-approved mortgage money and then walk away with the keys. In recent years, in and around the Greater Toronto Area, the rules of engagement have become skewed in favour of sellers.
In fact, in early 2017, the real estate market was downright ridiculous. Reminiscent of the famous tulip frenzy in Holland in the 17th century, buyers were pressured into buying homes without any conditions whatsoever, and to make offers at prices substantially above the asking price. I have seen and heard of some really tragic stories where first time buyers over paid or bought run down houses without a proper inspection.
Now things have cooled off, and buying conditions seem less chaotic. I strongly recommend you have an experienced real estate agent prepare and present your offers. One who is comfortable in all types of markets, and who will use every super power in their arsenal to protect you, because you are a newbie.
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.
Do not 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, otherwise the seller’s realtor and the other buyers’ real estate agents will exploit any weakness.
Your real estate agent will submit your offer to the seller’s agent and wait. If you are competing with other buyers, the process will be managed by the seller’s agent who will exercise all her skills to maximize the price at the most favorable terms for her client.
If the sellers do not reject your offer, often they will now make a counter offer, and so the process evolves. Once the sellers accept an offer from you, you’re off to the races.
At that point you (the buyer) are legally obligated to go through with the transaction (hopefully with some conditions which give you some time to get all of your ducks in a row); therefore, it is crucial you understand all the terms in the offer document.
Your mortgage pre-approval was all about YOU, not any particular property. The final critical step in the mortgage approval process is the lender’s review of the property itself. Only when there is a ‘real deal’ with an actual property can your mortgage lender tell you for sure if you are approved.
If there are no comparable completed sales around your offer price, an appraisal report might not support your purchase price. In that case, you will still be eligible for a mortgage, but your mortgage lender will expect you to come up with the shortfall.
Also, the property itself might not meet your lender’s lending criteria. This can happen with very old properties which have serious issues (e.g. asbestos content, knob and tube wiring, poor state of repair) With condos, it might be that a condo corporation’s financial statements are very weak. Or that your lender will not finance condos less than a minimum square footage (be careful with micro condos) Or you may have your sights set on a condo building which is not on your lender’s approved list.
Sometimes a mortgage lender will stipulate a home inspection must be done, but usually it is optional for the borrower. 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.
A deposit is required as part of your offer. In small markets, this amount can be quite modest, but in the GTA, this amount has increased a great deal in recent years. 3 – 5% of the purchase price is not uncommon. This deposit is in the form of a certified cheque or bank draft, held in trust at the seller’s real estate brokerage. It will eventually go towards your down payment.
On the closing date, your mortgage lender will release your mortgage loan to your lawyer. You will provide her the balance of your down payment and all relevant closing costs. She will send your down payment and the mortgage proceeds to the seller’s lawyer.
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
Buying your first home is a pretty big deal – to say the least. But with experts on your team and knowledge up your sleeve… you’ve totally got this!
Before you co-sign someone’s loan application, understand you are essentially loaning your personal credit history to that person.