Home Buying Process
1. How Much Can You Afford? And How Much are You Comfortable With?
Unfortunately, money is the starting place. You will only make your life miserable if you look at houses outside your comfort level. The bank or mortgage broker will tell you what you can afford, but you have to take a good look at your life to determine what you are comfortable with or if getting the house of your dreams is worth giving up some of your other activities. Only YOU know the answer to that question.
You will need to create a Net Worth Statement which is really just what you own, less what you owe. Major assets could include: equity in any real estate you already own, vehicles & investments or savings. Liabilities include an existing mortgage, any loans or lease payments, outstanding credit card debt etc.
The lender will also need to know your income and how long you have been with your current employer. If you are self-employed, you will need 2-3 years of tax records for them to average out your income. If you have recently changed jobs, you will most likely need to be past your probation period before they will consider it a dependable source of income.
2. Are You a Good Credit Risk?
Invest the $26 or $28 to get your own credit score, BEFORE going to the bank. It is amazing how many mistakes are on our credit reports. If you check this out 2 or 3 months before you are ready to get into the buying market, you will have time to correct the mistakes.
Hopefully, you have paid your bills on time, but if you haven't, make it a priority. Those couple of days late on paying your Hydro bill can impact your credit score.
Don't go hopping from bank to bank, applying for a mortgage. Each time a bank or mortgage lender does a credit check on you, your credit score goes down. It appears that you cannot get a loan, when in fact, you may just be shopping for the best rate. If you get the credit score yourself, it is does not affect your score. You can also copy it and give it to lenders. Whichever lender you eventually choose will need to do their own credit check, but then you only have one hit on your score.
A good credit score will speed up the mortgage process and will likely get you a preferred interest rate from an A lender.
Don't despair, if, on the other hand, you do not have a good credit score. A good mortgage broker will either help you put a plan together to improve your chances of getting a mortgage and/or will source a B or private lender in the meantime.
3. Pre-Qualified or Pre-Approved?
Sometimes people confuse being pre-qualified with being pre-approved. Yes, you can go online and fill in a few questions to find out roughly what you can afford. This is not a guarantee of a mortgage. You need to be pre-approved or have a commitment letter from the lender. In order to be completely pre-approved, you will need to provide proof of your income (T4's, letter of employment) as well as submit any documentation that confirms the items on your Net Worth Statement.
Keep in mind, getting pre-qualified does not mean you have to use that lender, but it will give you a comfort level to know that you have financing arranged.
4. Choose a Realtor®
There are so many opinions on this topic, which, of course, I am biased. Whether you are buying or selling, finding the right Realtor® can be a game-changer.
A good Realtor® is flexible; he or she will have a plan or process that can be adjusted to suit the needs, skills & interest-level of the buyer. I have some clients who call themselves MLS-junkies. They have the time and can spend hours scouring listings, looking for the "right" home. Other clients depend on me to let them know the moment a house comes up for sale that fits their criteria.
Finding the home is one thing, finding out about the area, restrictions, possible issues and negotiating a favourable agreement is another. When you choose a Realtor® to work with, you can explain your situation/requirements once. You will find, as you spend time together, your Realtor® will get a good sense of what you want and can shorten the search substantially.
Where do you find a good Realtor®?
- Ask friends for referrals and ask them why they liked working with that person.
- Go to open houses. It is a good way to meet a Realtor® without feeling any pressure.
- Social media is a good way to connect with like-minded people. Realtors® included.
- CALL ME! I would love to help you find your new home!
5. Find Your Dream Home
Now the fun begins!
First - make a list of what you want and then make a list of what you need. Instead of thinking of 3 bedrooms, 2 bathrooms, think of how you use your space.
For instance, we have a dining room table that we use 6 to 8 times a year for guests. I didn't think much of it when my husband put it away in order to do a renovation. Eventually, I realized that paperwork was piling up, we weren't doing puzzles or playing cards and it was because the dining room table was gone. Do you need a dining room or is the dining room table the place for kids to do homework? Do you need 4 bedrooms and a den or could a den double as a guest room for the couple weeks of the year that your mom comes to visit?
Also think of where you want to live. How far can you tolerate driving to work? Do you love to hike or is it important to walk to a coffee shop? Do you need to be close to public transportation or a hospital. Is there a particular school you want you children to attend? Those types of decisions will help narrow the search.
We will go over your list to get started. You will likely find that it evolves as we look at houses.
6. Making an Offer
When we find the home that you can picture yourself living in, we will draft an offer. In order to help you make informed decisions about the offer, I will do an evaluation on the home you wish to purchase, as well as review current market conditions with you. Our strategy will be different depending on whether it is a strong sellers' market or a strong buyers' market.
The main components of an offer, are: price, deposit, closing date, inclusions/exclusions and conditions. We will discuss all of these components so that the offer written, represents your desires and needs. Negotiating to an agreement is finding the price and terms that work for both the buyer and seller.
7. Fulfilling Conditions
Once an agreement is reached, my office goes into project management-mode to be sure nothing "falls through the cracks".
- We will make recommendations for the various inspections, but you are welcome to use any inspector of your choice.
- We will also send a copy of the agreement and the listing to your mortgage lender to get the financing underway.
- We will keep you on track for any other conditions that need to be met.
8. Preparing to Close
When all of the conditions have been met and your agreement is finalized, it is time to start packing! There is a lot to think about, so I will give you a list to jog your memory and keep you on track.
The main items to cover are:
- Arrange for the move - interview moving companies or make other arrangements well in advance
- Call the utility companies to transfer your services
- Stay in touch with your mortgage lender to make sure he/she is getting all the info they need from you and moving the process forward.
- Your lawyer will contact you about one week before closing to set an appointment to sign all the documentation. You sign your mortgage documents with your lawyer. Your lawyer will provide you with a list of disbursements or costs associated with the purchase. They usually include:
- Land Transfer Tax
- Legal Fees
- Adjustments for property tax or utilities prepaid by seller
- Other disbursements (faxing, courier etc.)
9. Get the key! Once all the paperwork is done, we can get the key from the lawyer. It is not unusual for it to take until after 3:00 for all the key to be released and there have been times that we are picking it up at 5:30. Try to be patient - you have a lifetime to enjoy your new home!