The Process of Buying a Home: How it all works
Preparing a game plan
Save your self-time and money with a buying game plan. Before getting in the car or surfing the Internet, every buyer should establish a buying game plan suited to their specific needs. There are several benefits of meeting with a Banker or Mortgage broker early in the process. This will help determine the mortgage amount you are comfortable with (not necessarily the maximum you can afford!). Most banks offer guaranteed interest rates 60 - 90 days. This can save you thousands of dollars should interest rates increase during your search for a home. Try our Mortgage calculator for a quick estimate of payments. When your Realtor eventually presents an offer for you, a mortgage pre-approval will strengthen your offer to the seller. This could be crucial if you are dealing with a competing offer on the same property.
Take your time establishing your needs and wants to properly prepare a home buying strategy. Home buyers must first examine their lifestyles, needs, and budget. We will estimate all costs related to buying the home including closing costs, taxes, appraisals, survey, loan application fees, legal fees, etc. Home buying can be a very emotional experience. Taking the time for necessary preparation will make the offer process much less stressful!
Interviewing and choosing an agent
The Real Estate Industry is unique. There is no cost difference in hiring a new Realtor or one with several years experience negotiating offers. Generally all commissions payable are the responsibility of the seller. Many buyers don't take the time or know the questions to ask when hiring a Realtor. Buyers that do take the time to find the right agent will have a better experience when buying a home. Do not underestimate the importance of finding a good Realtor!
Some of the general things you should be looking for in a Real Estate agent are:
- Has the Experience to help you find a home and negotiate its purchase.
- Knows the market and market values.
- Is full time and will work hard for you.
- Has the resources to protect your interest.
- Will keep you well informed throughout the process.
- You are comfortable with.
- Will not pressure you.
- Most important - Puts your needs first.
Lets get started
The first thing we can do to save you time, money, and frustration is meet to discuss your needs. Every one wants to rush out and start looking. Remember you have a game plan. By taking the time early we can properly learn your needs. Lifestyle, schools, amenities and recreation are a huge part of buying a home. We want you to be happy long after the moving day.
Once the initial steps have been completed (mortgage pre-approval, discussed needs with the Realtor), it's time to pick out some homes to view. After viewing homes and listening carefully to your comments, we will help determine the ideal home and area for you. Sometimes this process happens very quickly and in other cases it can take several months (or longer) to find the right home.
We have instant access to all listings on the multiple listing service as they come available (not just our listings). We generally know about properties long before they hit the newspapers or other sources. We are constantly searching to find the right property.
Quick Service with the MLS System
Our Real Estate Board has a computerized MLS® system. Detailed searches can be done for specific neighborhoods, price range and other needs. There are also MLS® catalogues available but they tend to be less current. Both computer systems and catalogues are updated regularly.
You can also view MLS® listing advertisements via the National Internet Web site,www.Realtor.ca. It features area maps, colour photographs and other details of all available properties . However www.Realtor.ca only gives basic information about the listed homes.
What to expect when you look at homes
You may or may not see your perfect home the first day.
You may NOT see many homes before you find the perfect home! It is not uncommon for Home-buyers to find the perfect home on their first or second day of viewing.
You MAY be competing with another offer when you do decide to purchase a home.
We do our best to pre-screen every home. However, you may see some homes which do not meet your criteria. Unfortunately, these are often some of the most difficult to forget!
Many buyers instinctively know when you have walked into the perfect home. If it doesn't feel right - it usually isn't. You'll never be pressured to buy..
Often the best properties are new to the market. However don't discount properties that have been on the market for some time.
Our promise: Whether we show you 5 homes or 50 homes, we will do whatever it takes to find you the right home. You will never be under any pressure.
What's out There?
The marketplace offers both resale homes and new homes. We have vast experience with both! Both have several advantages and disadvantages such as warranties, established neighborhoods, mature landscaping, and maintenance issues to name a few. We may be looking at several of each type of home.
Touring and choosing a home
Look first at your needs then your wants:
- What type of heating system does it use?
- What about the roof and foundations?
- What about the plumbing?
- What about power outlets? Different appliances, and power tools use different types.
- These are just a few of several points to consider.
- Don't expect to look at every detail the first visit. Once the search is narrowed to a few homes they can be examined in great detail. Offers are almost always conditional on a professional building inspection.
- Don't let emotion cloud your judgment. Satisfy your needs first. The important thing is to find the best available home. Try not to get too caught up in trivial matters such as colours or fixtures that could easily be changed.
Making an offer on a home
In the offer, you are:
- saying how much you're willing to pay;
- suggesting a closing date;
- proposing a set of conditions; and,
- state when the offer expires.
At this time you'll present a deposit, along with your offer. An appropriate deposit will show your good faith to the seller. The seller's agent is bound by law to bring all offers to the seller's attention.
After your offer is accepted and all the conditions are met, the offer becomes binding on both sides. If you walk away from the deal at that point, you may lose your deposit. You may also be sued for damages. Therefore, make sure you understand and agree with all the terms of the offer before signing.
Most offers carry some kind of conditions which have to be met before the sale is complete. Some common types of conditions are:
- You getting a suitable mortgage (include the amount, interest rates and any other terms you feel important);
- You selling your current home (the seller may continue to look for a buyer, but will give you the right of first refusal);
- The seller providing a current survey, showing the location of the house on the property owned by the seller and that there are no encroachments;
- The title to the property to see if there are any liens on the property, easements, rights of way or covenants;
- If there is a septic system, having it inspected;
- We will always recommend you have the home inspected by a professional building inspector.
- Any inclusions - basically, what stays and what goes.
The seller may counter your offer by changing the conditions, price, or both. Look at the counter offer in terms of what you're looking for in a new home: how does it fit in? And you can, of course, counter the counter offer.
Strong and Weak Offers
- Reasonable Price
- Few or No conditions
- Meeting possession date requirements of the Seller
- Adequate deposit
- Few inclusions
- Pre approved mortgage
- Too low price
- Too many conditions
- Low deposit
- Too much time required to satisfy conditions
- No Pre-approval
We try to avoid multiple offer situations if possible. However some properties generate a great deal of excitement and the multiple offer cannot be avoided. If we write an offer that is competing with another we recommend:
- Write an offer for the most that you would want to pay for the home - that way you have nothing to regret if you don't get it.
- Remove unnecessary conditions.
- Know that in multiple offer situations it is not unusual for a property to sell for more than the listed price.
A quick way to see how much you can afford is to use the gross debt-service formula (GDS). Here, the Principal, Interest and Taxes (PIT) on your mortgage loan should not exceed 30 per cent of your gross income. Increasingly, financial institutions will factor energy costs into the PIT formula, moving the rule of thumb GDS from 30 to 32 per cent. You can work it out in reverse: multiply the monthly payment on principal, interest and taxes (included any condominium maintenance fees) by 40. So if your monthly payment for these items is $1,000, you'll need a gross annual income of at least $40,000. Discuss your mortgage limit and different types of mortgages with your salesperson or mortgage broker before you begin looking for a new home.
Types of Mortgages
Pre-approval means that you as a buyer, have qualified in advance for specific mortgage amount, contingent upon the lender approving the property. Many financial institutions offer pre-approved mortgages, with your interest rate guaranteed not to rise for a certain period.
Most banks and trust companies offer standard loans using the property as security and require you to make a monthly blended payment including principal and interest. Conventional mortgages require at least 25 per cent of the purchase price as a down payment.
If your down payment is less than 20 per cent, you may still qualify for a mortgage, but you will need mortgage insurance. Canada Mortgage and Housing Corporations (CMHC), a federal crown corporation, and GE Capital Mortgage Insurance Company, a private company, provide insurance for high-ratio mortgages.
Vendor Take-Back Mortgages:
The seller underwrites part of the purchase, as a loan to be repaid by the buyer. These are often used as second mortgages, to bridge any gaps or to make the property more attractive to the buyer.
Open and Closed Mortgages:
Open mortgages allow you to make extra payments on the principal and to pay off the balance at anytime, reducing your borrowing costs. Closed mortgages have less flexibility with restrictions on prepayment. However, interest rates for these mortgages are generally lower. There are also partially open mortgages that have some of the characteristics of both open and closed mortgages.
Just as there is a range of mortgage types, there is also a range of repayment schedules. As well as the traditional monthly payment plan, there are now semi monthly, biweekly and even weekly payment schedules. Accelerated repayment schedules reduce interest charges but require higher payments. You may also choose a shorter amortization period, or mortgage "life". It raises your monthly payments but reduces the amount of interest paid.
Those Extra Expenses
There are several potential expenses at closing such as mortgage broker fees, inspections, survey, appraisal, high ratio insurance fees and land transfer tax (property purchase tax). This tax is often waived for first time buyers (ask us for details).
Before the house can formally change hands, there are still a few things to do. You will need to arrange to meet with your lawyer to sign documents and provide the closing funds a few days prior to closing.
Your lawyer and the seller's lawyer arrange to transfer title of the property from the seller to you on the closing date. The mortgage money is transferred to your lawyer's trust account, and then to the seller. The lawyer also bills any additional expenses such as property purchase tax and details these expenses in the statement of adjustments. The statement of adjustments should be carefully reviewed.
Finally the Realtor oversees the transfer of possession (you get the keys!).
In addition to what is written here, there are good sources of information on how to buy/sell a home from the Provincial Real Estate Associations and Financial Institutions.
The above information is partially taken from of the Canadian Real Estate Association. The comments contained on this site are for information purpose only and do not constitute legal advice. Procedures and laws vary from region to region.