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Congratulations
on deciding to buy a home! Because buying your first home
can be complicated, we have written this article to guide you through
the steps to home ownership. As well, we have included links to the
major banks. Since every bank is slightly different, it is good to check
them out and decide who you will want to handle your mortgage. We have
supplied you with a Canadian Mortgage Calculator so you have an idea of
what your payments will be. Current interest rates are listed on
the banks' websites to help you make the most accurate calculations.
Banker
or Mortgage Broker. What’s the Difference?
Both of these agents are doing
the same thing. The only difference is that while a banker only
represents the bank that he works for, a mortgage broker approaches all
the banks to find you the best mortgage for your particular needs. There
is no cost to you for using their services, since they are paid by the
banks that they deal with. If you have dealt with the same bank for many
years and feel a certain amount of loyalty, go ahead and approach them
first. Most banks have their own “broker”, but these are not brokers
in the true sense. Just remember that an actual mortgage broker doesn’t
work for any one particular bank.
Pre-approval.
What’s that?
When you begin your search for a
house, you will need to know how much the bank is willing to lend you,
based on your current income and expenses. The bank will want you to
come and see them (and some will even come and see you!) with your
financial information, and will put together this information for you.
You are not committing yourself to anything at this point, and if you
decide that you would like to find a mortgage elsewhere, there is
nothing to stop you from doing so. This is just a guideline so that you
will know in which price range you should shop for a house.
Choosing
a Realtor
Many people, when buying their
first home, choose as their realtor the agent who has the listing
contract for the first house they are interested in. Be aware that when
the realtor acts as both the seller’s agent and the buyer’s agent,
the realtor will give precedence to the best interests of the seller.
Since the realtor is paid a percentage of the selling price, they will
probably not negotiate as hard for you as they will for the seller. One
strategy that works well for most people is to try out several realtors,
and when you find the one who you would like to have on your “team”,
ask them to help you with your search for your home. They should be
happy to send you information and listings on houses that suit your
criteria. You might also be interested in reading our article on How
To Choose A Realtor.
Searching
the Listings
You can easily search the
listings in any area online. The website that contains all the Canadian
MLS listings is www.realtor.ca.
You can easily select your search criteria: price, location, number of
bedrooms and bathrooms, and numerous other choices. Keep your ranges as
broad as you can to view the most listings.
If
you are viewing many, many houses, it is wise to take your camera with
you. Your agent will give you a listing sheet of information about the
house, but there are lots of details to take in, and after a while it’s
difficult to remember which features belong to which house. As a
courtesy, check with your agent first if they are okay with you taking
photos. If so, take pictures of the front of the house first, and
then you will know that the subsequent photos belong to that property.
If you have a video camera, that is also a good tool, especially if you
add commentary as you go through the home. Be sure and take pictures of
the “not-so-good” as well as the things you especially
like.
Flooring,
cabinetry, and appliances are important items to take note of, as well
as things like parking and yard space. It’s likely that if you fall in
love on first sight, you will want to come back and see the house again,
so if you have forgotten a few things, it’s no problem. Many people
walk into a house and the first thing that jumps out at them is the “stuff”
that’s in it. It’s important to look at the actual house, and not
the furnishings or furniture arrangements. Try to picture yourself in
this home, and keep in mind that it’s fairly simple to clean the
windows, paint a room, or even have new flooring installed. However, you
should factor in these costs when reviewing the price of the house. One
thing that can be more difficult to take care of is odors. If you need
to repaint the entire house, replace all the flooring, or worse yet, the
sub-floor (due to pet nastiness), this could be a costly repair. Test
things like water pressure, open and close doors and windows, look under
the sinks for any plumbing leaks or other issues. Any repairs that need
to be made may affect the move-in date, unless you think you can live in
a renovation arena for some time!
Making
An Offer
Okay, you found the right house
for you and now comes the exciting part! When you are certain that
you will be happy with your choice of house, location, price, size and
condition of the house, it’s time to make an offer. If you can, try to
remove all the emotion from this part of the process. It’s the step
that most people find the most stressful and the scariest. In reality,
your real estate agent is the one who will do most of the work, and all
you need to decide is what is the most that you are willing to pay for
this particular house. Once you have that figure in your mind, go ahead
and try to negotiate a better deal.
Negotiating
If you want this house so
badly that you are willing to pay top dollar, your first offer will be
different than if you are slightly out of your price range and would
like to see if you can get the buyer down to your affordability level.
Don’t worry about making an offer too low. If the seller is “offended”
and refuses to come down in price, you can certainly make a counter
offer. Most real estate deals are only reached after a few negotiations,
until both parties are satisfied. Keep in mind that a few thousand
dollars will not make a huge increase in your mortgage payments, and if
you’re nervous about increasing your offer, check out the mortgage
payment calculations again. You’ll probably see that there is nothing
to worry about.
Price
is not the only negotiating tool. If you can be flexible with your time
frame, a seller may look more favourably on you if you allow them to
choose the closing/possession date. For them, it may make a difference
of a few weeks at a hotel, or paying two mortgages, or staying longer
due to work or school schedules.
Subjects
and Conditions
As your agent is writing up
your offer, he (or she) will ask you which subjects and conditions you
would like to have included. Conditions and subjects are a way of
protecting yourself from being locked into a deal that you might need to
reconsider. The following is a sample of the conditions and subjects
that are most commonly attached to an offer:
This
offer is subject to the buyer arranging necessary financing at current
interest rates and at a lending institute of the buyer’s choice, on
or before______.
This
offer is subject to the buyer being satisfied with a pre-purchase home
inspection report on or before_______.
This
offer is subject to the buyer’s lawyer approving all documents by
_________.
You
may want to include these conditions as well:
All
attached and unattached goods are to be in good working order at
closing.
All
attached and unattached goods as seen and photographed on ________.
Items
you may want to have included with the house are things like appliances,
window coverings, area rugs, freezers and other items that are not
attached to the house. These items can be used a negotiating tools, so
if you see something you want, don’t be afraid to ask for it, and you
can always make a concession to get a better price.
Important
time considerations
You will need to leave enough
time to make all the necessary arrangements prior to taking possession
of the house. It’s wise to leave at least three weeks for things like
arranging a mortgage, getting a home inspection, and making an
appointment with a lawyer or a notary public. Also keep in mind that
sometimes negotiations take a little longer than you anticipate, and
this will affect the amount of time you will need to make all these
arrangements. Always make sure that the dates will work for you, and if
a long weekend interrupts the process, you should build in some extra
time. And since banks, lawyers, and other professionals are sometimes
closed on weekends, consider those implications.
You
will need to choose your possession date wisely as well. If you are
currently renting, you will have to give proper notice to your landlord
before you move, or you will risk having to pay rent as well as a
mortgage. And finding friends to help you move on a long weekend can be
daunting too.
Deposit
If your offer has been
accepted, you will have to pay an amount of money as a show of good
faith. This money will go towards the down payment at closing. Never
give the money directly to the seller. Make sure that it goes into your
realtor or lawyer’s trust account.
Finding
A Mortgage
When your offer has been
accepted, you will have to make a decision regarding which bank or
broker you will deal with. It is important to start this process as soon
as possible, since you only have a limited amount of time and you may
risk losing the deal. It is always possible to have dates extended, but
should not be necessary. If you do find yourself running out of time,
contact your realtor and explain that you will need to change the
subject removal dates.
If
you’ve decided to use a mortgage broker, give them a call. They will
tell you which bank will has the best current rates. Make an appointment
with your broker, and ask them what paperwork they will need you to
bring along. Keeping organized at this point will make things a lot
easier, so get yourself a notebook and write everything down:
appointments, to-do lists, questions you may, and so on. Keep a file of
important documents such as your offer to purchase, any financial
information like pay stubs for the last three months, bank account
information, credit card information, and a list of any assets you may
have.
If
you are intimidated by this part of the process, remember that a bank
will only make money by lending money, and should be eager to have you
as a customer. Don’t be afraid to ask your broker to explain things in
terminology you are familiar with. Some words and phrases are baby talk
to him and he may forget that he speaks a different language than you
do. The bank will want to have an appraisal done. Some banks will cover
the cost, but only if you ask.
Down
Payment
Your bank will require you to pay
some money towards the purchase of the house. Banks require 20%, but if
you are unable to come up with that sum of money, you may also qualify
to pay less. In that case, the bank will go through an insurance
company such as Genworth
Financial or Canada
Mortgage and Housing Corporation (CMHC). CMHC is a corporation owned
by the Government of Canada who provides mortgage insurance to the
banks. These insurance fees will be added to your mortgage
payments.
Home
Inspection
After you have received approval
from the bank, you should schedule a home inspection. There is no point
in paying for a home inspection unless you are certain that you will go
ahead with the purchase if the inspection is favorable. When you are
deciding on which home inspector to use, ask him about the things that
he does not inspect. Not all inspectors cost the same, so call several
to see what they charge. If you are concerned about the plumbing or
wiring, you may also want to bring along a professional to have those
items checked. There will usually be some things that the inspector will
notice, and he should go over the report with you personally. Putting a
dollar value on necessary repairs will help you to decide if you would
like to re-negotiate the price with the seller.
Closing
Day
You will have to have an
appointment with your lawyer/notary on or before the closing date, so be
sure to set aside some time for this.
Lawyer
vs. Notary Public
This is strictly a matter of personal choice. It pays to shop
around, since sometimes a notary will be a little cheaper. The only time
you will need a lawyer is if a deal falls apart at the eleventh hour and
there is a breach of contract.
House
Insurance
The lawyer/notary may want proof that the house has been
adequately insured, so you will need to arrange for this before closing
day.
Just
a few things will happen at this appointment. You will have to bring
along the balance of the down payment and any fees and closing costs
associated with the purchase. The lawyer/notary will phone you ahead of
time to tell you how much to bring with you to this appointment.
These fees include your lawyer/notary fees, disbursements, which are the
amounts owing for property taxes, etc. and various other taxes such as
property transfer taxes and sales taxes. The lawyer/notary will pay the
seller. He will register the home in your name, and now you are a home
owner! You will receive the title to your home in a few weeks, along
with copies of all the documents and paperwork. You will receive the
keys from either your realtor or the lawyer/notary. |
