So, you want to buy a home or condo? But it’s your first time venturing into the real estate market and you are not sure what you need to, right? That is okay, we have put together this guide to help you get into home ownership for the first time. Even if you have bought or sold before, this information should be of use, helping keep you on the right track.
The very first thing anyone should do before beginning their house hunt is speak with a mortgage professional. You don’t have to get into the formal paperwork just yet, but you should discuss your financial details and get them to give you what is called a mortgage pre-approval. This is a basic estimate as to what the lender thinks you can afford, given the information you have shared. You will still need to get a final mortgage approval after you make an offer, but the pre-approval gives you the confidence of knowing what you can likely spend on a home before you start looking. Many lenders also lock in your mortgage rate at this time for a period of 60-90 days protecting you against potential interest rate increases while you look for your new home.
Once you and your lender have determined how much you can afford, you need to start thinking about the next step – where you’d like to live. Questions to ask yourself are: What kind of lifestyle do you have? What neighbourhoods do you prefer? How much space do you really need? There are many options on the market, but before you start searching for the home of your dreams, you should know your needs.
It’s not a bad idea to make a “Must Have” list and start doing some casual research. Talk to friends and family, drive through neighbourhoods, and look in the “Homes” section of the newspaper to get an idea of your likes and dislikes. Your home should fit the way you live and suit your lifestyle. Make a list of priorities, like size and location. Determine what your minimum requirements are in a home. What must the house or condo have for you to consider it? And a “wish list”, things that aren’t essential, but would be nice to have. Remember to be realistic and flexible.
The size of your down payment and the amount you are approved to borrow is what determines the type of home or condo you choose. It’s important to be realistic when you’re thinking about a down payment and setting a price range, since you don’t want to be weighed down with something you can’t afford. At this stage, it’s a good idea to talk things over with your Realtor so you know what type of home is available in your price range.
Once you’ve set a realistic price range, you’ll want to think about lifestyle. Do you prefer a more central community with amenities within walking distance? Or would a newer, suburban neighbourhood suit your tastes better? What are your living space requirements? Do you run a business from your home, and need an extra bedroom for an office? Do you have children, or are planning on starting a family? Realistically – the farther out of the downtown core you go the more affordable the options are – but do you mind commuting? These are all questions you will have to consider before you start shopping for a home.
If you have children, you will want to consider what schools are in the area. Visit the schools in the neighbourhoods that interest you or contact the school board for more information. Look for parks, playgrounds and community centres. Are there other families with children nearby?
Moving into a new home or condo is a wonderful experience, just make sure you are ready for the new area and change of amenities. It takes some getting used to when you move from the city to the country and vice-versa. Your basic conveniences can change dramatically. Be prepared to accept changes or conversely, find a place that has the conveniences you are accustomed to.
Homebuyers often make life-altering decisions with less than 20 minutes of dedicated viewing and investigation. This is how it works. Unfortunately, any errors that occur as a result of a lack of planning can seriously hamper your financial standing and even affect the long-term happiness of your family.
Common Pitfalls of Purchasing:
Paying too much – Without the assistance of a Realtor, buyers often pay more than fair market value. It is not uncommon to hear horror stories where thousands of dollars were wasted because the market value was unknown. Areas are different – what you sold your last home for does not necessarily equate to equal pricing structures in your new neighborhood.
Too much of a fixer-upper – You’ve heard the stories or maybe even made the comments yourself: “It’s only superficial and it won’t take too much money to fix that, we can renovate on the weekends!” Nightmares happen when you take on more than you can handle! Purchasing a fixer-upper can equate to replacing everything and spending more than you would have if you had just bought a home in better condition in the first place.
Wrong neighborhood – Once you locate a home that appears to fit your needs, take a second look. If you originally viewed the property in the evening, drive by during the day. Make sure you like the local amenities – grocery store, school, transit access. Consider your outdoor lifestyle. Do you hold family barbecues or enjoy sitting outside? Will the traffic noise bother you?
Buying outside of your budget – We are all familiar with more money going out than coming in. Children always want the best, regardless of whether you can really afford it or not. It is very easy to buy beyond your means as you count on dual incomes until the new baby arrives. It is better to buy the home you need and can comfortably afford, than experience being forced to sell and buy down – or worse.
Overlooking schools and children – Is your new home close enough for the children to walk to their new school? Is there bus service just down the street? Does the school offer academics suitable to your children’s needs? Or is it right next door and you’ve reached a point in your life where you would prefer quiet solitude?
Yard Maintenance – Your own swimming pool, meticulously manicured lawns and beautiful English garden are wonderful things to have – given that you are willing and able to look after them. Do you want to spend the time required to keep everything in top working order? Do you have the funds required to hire a landscaper if need be? In some cases, you may be better suited for townhouse living where yard maintenance is included and the local rec centre offers swimming/exercise programs tailored to your lifestyle needs.
Unexpected Costs – It is not unusual to reach the closing date only to find that hidden expenses have occurred. Such items as land transfer tax and condo fees may be pro-rated, while contents insurance and taxes can be paid monthly or in advance. Avoid stressful discoveries by asking for these figures in advance. Avoid hidden and questionable costs at closing time by asking your Lawyer to list exactly what fees will be charged at closing.
Understanding Market Conditions
The real estate market is always changing. It helps to understand how market conditions can affect your position as a Buyer.
We have been experiencing a Seller’s Market recently and will be for the foreseeable future. Many people have been predicting a switch to a Balanced Market, or even to a Buyer’s Market sometime soon, but the statistics show that not to be the case. Even with housing prices inching ever upwards, interest rates have stayed low, keeping many people in the market.
Starting the Hunt
Once you’ve gone over what you can afford in your preferred location, it’s time to start looking at some properties! Showings (as Realtors call them) are just that – appointments to show you properties you are interested in. Generally home and condo sellers prefer reasonable notice for showing appointments. Who knows what their life is like, if they are working shift work, have children or pets that they may need to arrange to be out of the home for the showing, or need tidy up the dishes, give a quick vacuum, etc. The best thing to do is to be as courteous as possible – especially since you may end up in negotiation for the purchase of their home! Put yourself in their shoes.
Once you’ve gone out and looked at some places, eventually you’ll find something that will be “the one”. Sometimes Buyers want the very first place they see – it is perfect and that is it. Others like to be more selective and look at way more before making a decision. The important thing to remember is that if you seriously want to buy, getting out and looking at everything is very important. Looking at places once a week for three months is not going to be a fair comparison.
Real estate is a time sensitive experience, that’s the really unfair and stressful part of it. If you really want something, go after it sooner rather than later. Too many people want to “sleep on it” over the weekend, “just to make sure”, and often it sells in that time to someone else! This really does happen – and often. If a place is attractive to you, then it is also attractive to other buyers. Generally, once a buyer has been “burned” by waiting and losing out, they will jump on the next thing they really like. Not that you shouldn’t think about it – but just beware that if you wait too long you may lose out.
Once you have decided on a place the next step is to make an offer to purchase. Be warned – the paperwork may seem tedious, but it is there to protect you and your best interests. So get your signing hand ready…stretch those fingers!!
The Major Elements of an Offer:
Price: Depending on the local market conditions, your opinion of value and market information provided by your Realtor – the price you offer may be different than the seller’s asking price. Generally, people try to go in lower than the asking price to save some money. But a word of caution – in this market, “low-ball” offers are not being negotiated, they are being laughed off by sellers, so it’s best to go in seriously or not at all.
Deposit: The deposit shows good faith and will be applied against the purchase price of the home when the sale closes. This is submitted after the offer is accepted. It is generally a minimum of 5-10% of the purchase price – however, often on smaller purchase amounts (under $300,000) the Buyer will put down a deposit of $5,000 or $10,000. The higher the property price the higher the deposit as a general rule.
The deposit cheque will need to be in the form of a certified cheque or money order and must be submitted within 24 hours of the offer acceptance. Real estate offices will no longer accept personal cheques or cash. This deposit money is put into the listing brokerage’s trust account where it is held until the sale closes. There is no interest earned on money held in a real estate trust account. However, if you are putting a large deposit down, you may request for it to be put into an interest bearing account so you may accrue interest. Since most sales close about 30-90 days after the offer is accepted, there is very little interest to be earned unless it is a very large deposit or an extra-long closing.
Terms: Include the total price offered and the financing details.
Conditions: These include “subject to Buyer obtaining a mortgage”, “subject to home inspection”, “subject to condo documents reviewed and approved by Buyer’s Lawyer”, etc. Every property is different and thus every offer is different. Rest assured, these conditions your Realtor suggests to be included are there to protect you. These conditions are particularly time sensitive. So once your offer is accepted, you will want to make your main focus getting these fulfilled within their time allotment since your agreement will hinge on these things being done – if not your agreement can fall apart.
Inclusions and Exclusions: These might include appliances, certain fixtures or decorative items such as window coverings, light fixtures, etc.
Closing or Possession Date: This is the day you will take possession of the home or condo. It should be on a weekday since lawyers are needed for the closing and exchanging of keys. Once you get the keys, it is time to move in!
Generally, the seller will either accept your offer right away (which is rare), or they will sign it back to you with their changes. Most sellers are sticklers on only two things – the highest selling price they can get (of course!) and the most convenient closing date for them. But every seller is different, so be ready. When the offer comes back to you with the Seller’s changes it is up to you if this is something you will accept. Offers can go back and forth over small things that unfortunately can make emotions run even higher than they already are. Losing out on a home over $1,000 does happen because the two sides are too emotional and frustrated to give in and either pay a little more or take a little less. Sometimes you have to really think if it is worth fighting over – if so then be prepared to walk away. Know your limit on price range before hand and decide how negotiable you are on your desired price and closing dates.
Once the offer is accepted, it is called an Agreement of Purchase and Sale or a simply a Purchase Agreement. Your next step will be to get your deposit cheque ready and in within the allotted 24 hours. You’ll also need to get in touch with your mortgage professional to let them know of your accepted agreement and get a copy to them. Often your Realtor will fax a copy to your mortgage professional for you. You’ll also need to get in touch with your lawyer (or find one!) and get that process started as well. Your Realtor will help you through the process and advise you of certain issues that are time sensitive such as fulfillment of any of the conditions in your Purchase Agreement. You will likely find this to be a bit stressful as it will require calls to your mortgage professional, lawyer and potentially a home inspector too. If you buy a condo then you will also need to get a copy of the condominium documents to your lawyer for approval by a certain date as well. Make sure to listen to your Realtor when they go over the things that need to be done and the time periods for such and keep on top of everything!! Don’t worry, everything is not as difficult as it sounds, you just need to be focused and get it all taken care of.
Finalizing Your Mortgage
Before you sign off on your mortgage, even before you go for your pre-approval, you need to think about something most people rarely consider – your credit. As a routine part of the mortgage application process the lender will order a copy of your credit history.
Your personal credit history is compiled by credit bureaus which collect information from various sources including banks, retailers and other public records, creating a credit report. Information such as: what credit and debit cards you have, the types of accounts you have at various financial institutions, information about personal loans, mortgages, student loans, etc., is all part of the report. The report shows the creditors’ names, account numbers, the date accounts were started, the current balance as well as a detailed payment history. Generally, credit reports show information going back six to seven years. The report will also show public information, such as marriages, divorces, liens, judgments that have been entered against you, bankruptcies, etc.
The credit bureau does not rate you – it merely provides information on your credit history. The lender will examine the credit report to aid in determining whether to lend you money. If the lender has any concerns about something on the report the lender may ask you for an explanation. Though lenders usually work as quickly as possible in processing mortgage applications – the process can be slowed down if the lender needs to go back to the applicant for an explanation concerning items on a credit history. So, don’t worry, but be prepared to answer questions the lender may have – often a simple explanation will do.
The lender will also use the report to verify other information on your mortgage application, for example: information about your employment status, your address (including the name of your landlord and perhaps rental payment history), etc.
The credit report will also indicate inquiries made by other creditors over the period of the report. This information might be useful to a lender to show what other avenues of financing you might have tried and it may raise questions about why another lender declined you.
Honesty is the best policy – and that certainly holds true when applying for a mortgage. If you think there might be any credit problems – tell the lender up front and ask about the lender’s policy prior to applying for the mortgage. There is no point in trying to hide something that will show up in your credit history. Of course, even if you think your credit record is fine, there may be some items on the report about which the lender may ask you.
By obtaining a copy of your credit report before you apply for a mortgage you may be able to avoid surprises and possible delays that may occur in having to answer questions about your credit history. Because the report contains information about you, you have a legal right to inspect a copy of it. Equifax and TransUnion, two of Canada’s largest credit bureaus, will mail consumers a free copy of their personal credit file – upon request – which takes about three weeks to arrive in your hands. The request can be by mail for free, or, you can order your credit report online for a fee of about $15-25 each. The online version is helpful because you can then print off a copy immediately. For more information go to the website for Equifax: www.equifax.ca, for TransUnion Credit go to www.transunion.ca – they both have what is called “secure sites” so that when your information is on screen it is safe and cannot be stolen or “hacked” by outside sources.
Pretty much all offers will have a conditional clause in the offer stating that the offer is conditional upon the buyer obtaining a mortgage – unless you are buying the place with cash!! Since you’ve already been pre-approved, you’ll need to provide your lender with some additional documents in order to finalize your financing.
These will include:
1) A copy of the listing of the property. If the home is still to be built, the mortgage lender will need to see the builder’s plans and details on size and location.
2) A copy of the Agreement of Purchase and Sale and waivers for any conditions as mentioned above.
3) Documents to confirm employment, income and source of pre-approval if from a different lender.
If you are buying a house I strongly recommend that you include a conditional clause in the offer for the home to be inspected by a qualified Home Inspector. He or she will then go through the home with you on an inspection visit to check all the various systems (heating, etc) in the home plus he or she will check the roof condition, the foundation for any cracks or visible drainage problems as well as many other things. You’ll get a report a few days later to keep detailing out the findings of the inspection and often with helpful information too. Many condo buyers question as to whether or not to use a home inspector. To be honest, it is up to you and your Realtor to discuss this matter. Normally people purchasing condo apartments do not use home inspectors since the building itself is maintained by the condominium’s property management – which is part of what condo owners pay maintenance fees for. Condo apartment owners are generally only responsible for the maintaining and upkeep of their particular unit envelope (inside of their suite). However, it depends on the particular unit. If you are buying a loft conversion or a condo apartment with extensive internal renovations, having an inspector look the place over might be a good idea for your piece of mind.
If you purchase a condo – and being in Downtown Toronto that’s likely what you’d be doing since there are mostly condos here – your Purchase Agreement will also have a conditional clause for your lawyer to review your condo documents. This means your lawyer will be checking to see what the financial standing of the condominium is. He or she is looking to make sure there are adequate funds in the reserve fund and also check to see if the condo has any major repairs coming up (such as a leaky swimming pool or repairs to the parking garage, etc) that might require the owners to pay what’s called a “special assessment” in addition to their usual monthly maintenance fees. Once all the conditions in your Purchase Agreement have been fulfilled and your Realtor has forwarded the signed paperwork to the seller confirming this, your agreement will be firm and binding. You will then be waiting for the closing date to come up so you can move in!!
In your Purchase Agreement your Realtor will usually allow for what’s called a “buyer’s visit”. This is a date that you and the seller agree on for you to go back and visit your soon-to-be home or condo again about a week or two before it closes. This can be for measuring purposes, or just to take a look and make sure everything is in order – no new damage, no changes that have not been agreed upon in writing, etc.
On your closing date you’ll need to see your lawyer to sign the last couple things and receive the keys to your new place! Many lawyers will suggest you come in a couple days before the closing date to go over the paperwork with you when it’s less stressful. Then all you’ll need to do on closing day will be to pick up the keys from your lawyer’s office. Usually most closings happen in the afternoon – generally before 3pm.
Once you get the keys, the place is yours. Congratulations! Now on to moving….
FYI: Some One-time Costs and Monthly Expenses
In addition to the actual purchase price, there are a couple other expenses that you might be expected to pay for.
The largest one-time cost is your down payment. It usually represents between 5-25% of the total purchase price of the property. Just a note – if you are short on down payment funds, you may qualify to buy with zero down – ask your mortgage lender to find out!
Book the movers at least one month in advance – even if you are planning on renting a truck and doing it all yourself, the same advice applies! Especially in the summer months when there are so many people moving. You can choose to have the movers pack everything, or just the breakables, or you can pack it all yourself. It’s a good idea to obtain estimates from several different companies.
If you are renting, be sure to give necessary written notice to your landlord (60 days) and make arrangements for the return of any monies you have on deposit. For your new home, make arrangements for the gas and electric utilities, telephone and cable TV, internet access to be connected on the day the sale closes.
- Fill out the address change/mail forward package at the post office at least 3 weeks before moving day – trust me on this one!
- Cancel any contracted services and pre-authorized account debits for such.
- Inform gardening, dry cleaning, newspapers, magazines, diaper and other home services. Arrange for service at your new address if desired.
- Obtain a letter of introduction from your current bank to help establish new accounts if needed. Transfer trust or bank accounts and securities.
- Cancel or transfer social, athletic, civic, religious or business affiliations and memberships.
- Arrange for transfer of medical, dental, prescription and optical records.
- Change the address on your driver’s license effective the day of the move.
- Collect all items “out” for cleaning, repair or storage. (e.g. dry cleaning).
- Make any special arrangements for the moving of your pets.