If you’re anything like me, you’re growing rather tired of spending the majority of your hard-earned pay each month on rent. You find yourself thinking that rent is expensive. Paying rent really does nothing to advance your own financials, so really, why bother? If this sounds like your train of thought lately than maybe you’re ready to buy your own home.
It sounds absolutely terrifying, I know. It certainly can be, especially if you lack the information and the “how to’s” of buying a home.
However, when you break it down, buying a home is not actually that scary or overwhelming. Just take it slow and know that you can’t move on to the next step before dealing with the one before.
Can you afford to purchase a home?
Take a good hard look at where you spend your money. Calculate all your bills and debts and see if adding mortgage payments to the mix would be doable for you. Your monthly housing costs shouldn’t be higher than 32% of your gross monthly income and your monthly debt load should be less than 40% of your gross monthly income.
There are even government initiatives that are set in place to encourage first-time buyers such as the First-Time Home Buyers’ Tax Credit. This credit, which works out to a rebate of $750 for all first-time buyers, will help with some of the extra costs of buying a home, including legal fees, disbursements, and land transfer taxes.
Even with this credit, first-time buyers must still save for a down payment. The minimum deposit required in Canada is at least 5% of the purchase price of the home. CMHC insurance is needed in order to protect the lender in case you default on your payments, but it can be avoided if you put down a down payment of 20% or more.
Qualifying and getting a mortgage
Getting a pre-approved mortgage is step two. It’s one of the best ways to determine what your shopping budget will be. Also, look for the best mortgage rates to get an idea of what rates are. A lender will analyze all of your finances and debts and determine how much money it could potentially allow you to borrow.
Before calling a lender, you should know some of these basics to help you feel more comfortable:
- Lenders like consistency — they prefer loaning money to people who worked for at least two years
- Explain every detail about all of your income to help your loan officer or mortgage broker give you the correct information
- Have all of your financial documents at hand so you can give your loan officer or mortgage broker exact numbers
- Be ready to have your credit checked, so be sure to close any open claims with collections before this is done; in fact, check your credit reports from either Equifax or TransUnion
Finding the perfect property
Once know how much you can afford, it’s time to start shopping. You can use builders’ websites, or directories like NewHomeListingService to help you shop more quickly and effectively when it comes to looking at new homes and condos.
Or if you’re feeling really lost and would like to shop with more confidence you can always find a realtor.
You’ve probably already been scoping out listings online and you’ve found a few that you really like and if you’ve chosen to use a realtor, they may have listings that fit all of your needs. Now it’s time to set up some viewings. You may choose to set up viewings yourself at a show home of a builder, or have your real estate agent set them up for you.
You may find yourself getting frustrated after a few home viewings, but remember that this process can take weeks or months. This is your future home so take your time, enjoy the process, and find that perfect place that you know you’ll be happy with for years to come.
Making an offer
When you’ve finally found that home that fits all of your needs, you’re ready to make an offer.
A realtor will come in handy here. He/she will help you come up with an offer that you’re happy with. Once the offer is written, your agent will give it to the seller or the builder, and negotiations will begin.
This negotiation process can take some time and can be stressful. But don’t worry, there are professionals on both sides.
Finally, when an agreement’s been reached, the contract will be revised to the agreed terms and you’ll be ready to finalize the offer. Legal help may be an option that you’d like to consider at this point as well.
Now that the offer’s been finalized, there are a few major milestones – often referred to as conditions of the offer – you must hit before you get those keys and title of homeowner.
The home inspection – The home inspection is important because if there’s anything wrong with the home (plumbing, electrical, insulation issues, etc.), then you can change your offer to reflect any additional costs, putting the responsibility on the previous owner, or builder, before you purchase the home. The new home warranty is an important aspect to consider when buying a property.
Home appraisal – Your lender will often ask a licensed appraiser to visit the home and determine the actual value of the home versus the asking price. An appraiser is generally only utilized by the lender when making a down payment of 20% or more.
Finalizing the mortgage – The lender will transfer the money to your lawyer just before possession day, but only after you’ve finalized the terms and conditions of your mortgage.
Which mortgage to choose?
There are several options to customize your mortgage. You can adjust the amortization period – or the length of time that you will need to repay your loan. This is typically 25 years.
You’ll choose your payment schedule, either monthly, biweekly, or weekly. The more frequent you make payments, the faster you’ll pay off your mortgage and have less interest to pay.
You can have a fixed-rate mortgage, which is a mortgage with a consistent, locked-in interest rate. This is good for buyers who need to know how much their payments are each month.
Or you can have a variable-rate mortgage, which means that the rate can fluctuate during the lifespan of the mortgage term. The interest rate is dependent on the prime rate and can go up or down during your term. This can work in your favour when interest rates fall.
Closing day is the day that you finalize your purchase and take possession of your home. You and your lawyer will go through all of the paperwork he/she has negotiated with your lender. Your lawyer will ensure that you understand everything mentioned in the documents. When everything is signed and the payments have been transferred over to the vendor, you’ll get the keys.
Once you’ve completed all the steps, you’ll become a first-time homeowner and no longer have to pay rent. You’ll have taken a huge step in securing your future.
Flickr: Kurt Bauschardt