It’s a big decision and there’s a lot to learn. But if you’ve decided to buy a home, this comprehensive, quick-reference guide provides, in nine key steps, information and tools to find, purchase, and finance a home that meets your needs and preferences:
1) Find A Qualified Buyer’s Representative.
How often do you purchase real estate? Once, twice, three times in your lifetime? So you can hardly be expected to know all the ins and outs of such a major transaction complicated by so many details.
In most transactions, sellers are represented by a listing agent who manages these details for them and acts in their best interests. As a buyer, you also want someone to provide complete and honest representation in your real estate transaction. At CityHouseCountryHome, we represent our buyer clients and protect their best interests. We guide them through every step of the process.
What is a Buyer’s Representative?
Defined most simply. A buyer’s representative (or buyer’s agent) is an advocate for the buyer – not the seller – in a real estate transaction. Real estate laws and regulations vary from province to province/territory to territory, but buyer’s representatives usually owe full fiduciary (legal) duties, including loyalty and confidentiality, to their buyer-clients and must keep their clients’ best interests in mind throughout the entire transaction.
How is CityHouseCountryHome Compensated?
Many buyers wonder if they’ll have to pay more if they use a buyer’s rep. In most cases, home sellers have already agreed to pay a commission to the buyer’s rep. Because buyer’s reps sometimes require payment directly from buyers, this is an important detail we will discuss with you. A property listing will confirm the amount of commission or fee that the Seller has agreed to pay a cooperating brokerage.
2) Assess Your Credit And Finances.
Financial considerations and preparations are central to any home purchase. In addition to helping you make better decisions about what you can afford in a home, a buyer who already has financing in place, is in a better negotiating position when it’s time to make an offer to a seller.
Getting a jump on your financing now can greatly alleviate headaches later. If you’ve already lined up a lender and secured a commitment on your mortgage, the process of closing will go much smoother!
Determine Your Credit Status
Because any mortgage lender will review your credit history, it’s wise to verify your credit rating in the beginning of your home search. Even if you’re sure you have an excellent credit record, there may be blemishes in your credit history that you don’t know about. Identifying and resolving any credit problems to improve your credit rating will provide benefits, such as preferred rates from lenders and home insurers.
We will assist you to obtain a copy of your credit report and Beacon Score is simple. Two major credit bureaus, Equifax and TransUnion, compile consumer credit data.
If you wish to get a head start on this process, to obtain a copy of your report, visit freecreditreportsincanada.ca or canadafreecreditreport.ca. (Note: Sites may include membership offering.)
Pre-Qualification Or Pre-Approval
Typically you will first pre-qualify for a mortgage, then get pre-approved before you find the specific home you wish to purchase. It’s essential to understand the difference, and to clarify which your lender is providing.
Pre-qualification: An informal determination by a lender or mortgage broker stating the amount of the mortgage you can afford.
Pre-approval: A guarantee in writing by a lender to grant you a loan up to a specified amount (subject to receiving full documentation).
There are two advantages of obtaining a loan pre-approval as early as possible in your home buying process:
- Sellers will find any offer you make more attractive if you are pre-approved for a mortgage.
- The length of time before closing can be shorter if you’ve secured a mortgage approval prior to signing a contract to purchase property.
How Much Can I Afford?
Lenders look at a variety of factors when evaluating how much financing you can afford for your home,
but these two are most important:
Your monthly mortgage payment, as a percent of your gross (pre-tax) income.
Your total debt load, including your mortgage payment, relative to your gross income.
Another determining factor is the loan-to-value (LTV) ratio, meaning the amount borrowed relative tothe appraised value of the property. Higher LTVs represent a higher risk to lenders. Lenders can provide qualification details for various types of mortgages, including high ratio mortgages insured by Canada Mortgage and Housing Corporation (CMHC).
If you need help finding a lender or determining affordability, we will suggest providers and direct you to the best sources of information on mortgage programs, including online tools for estimating affordability.
When considering how much you can afford, don’t forget to consider other expenses, beyond your mortgage payment, that could also impact your monthly budget. Most mortgage payments are comprised of four components: principle, interest, tax and (homeowners) insurance, collectively called PITI. (See step 6 for more details on homeowners insurance.)
Beyond PITI, other expenses commonly associated with homeownership include:
- Mortgage Insurance
- Home maintenance expenses
- Homeowners association fees
- Parking expenses
3) Assess Your Wants And Needs In A Home.
Finding a new home can be exciting. But deciding what you truly want and need, and can afford, can be challenging. Making these decisions begins with setting priorities among many different preferences. Most home buyers invariably face trade-offs. We encourage you fill out the form below and submit it to us. It is extremely helpful to define your requirements and greatly assists us in the search process. If you wish to complete the form and keep it for yourself you can find a printable version here.
4) Search For Your Home.
Choosing a home also involves choosing a neighbourhood. Although it’s important to consider future resale value, it’s also important to choose a home and neighborhood that you and your family will enjoy living in.
Viewing and Comparing Homes
Once you’ve decided on a neighbourhood, it’s time to begin viewing houses. Some buyers find it helpful to review their home preferences (Step 3) and prioritize their “needs” versus “wants.” We will set up a comparison table with your highest-priority factors listed first, which will help you objectively evaluate different properties.
But buying a home is more than an objective decision – there is also a certain amount of emotion and intuition to factor in. In addition to meeting your criteria, ideally, a home should “feel right.” If you decide to view homes on your own (an open house, for example) make sure the listing agent knows you are already working with us, and share our business card or contact information, if possible. Be careful not to divulge too many details about your own situation, as this may hurt your future negotiating position if you are interested in the property.
5) Negotiate Terms.
When we’ve found a home that’s right for you, it’s time to make an offer. Depending on market conditions, you may have to act quickly, before another buyer steps ahead of you.
Making the Best Deal
When deciding what to offer for a property, current market prices are the most important factor. We can provide valuable assistance in this regard – counselling you on market conditions, price ranges and negotiating strategies.
To help you make a more informed decision on price, we will prepare a comparative market analysis (CMA) on the property you are interested in buying.
This will give you a better sense of whether the seller’s listing price is higher or lower than prices of comparable properties and help guide your decision of how much to offer for the home.
If the property seems overpriced, the CMA will help you determine a more reasonable price. It is rarely advisable however, to present an excessively low offer on any property. This strategy is more likely to backfire, prompting strong negative reactions from the seller and reducing your likelihood of successfully negotiating a purchase.
Beyond price there are several other factors that can enter into your negotiating position. For example, your bargaining position is strong (the seller will look favorably on your offer) if:
- You are an all-cash buyer
- You are pre-approved for a mortgage
- You do not have to sell your current home, or meet other contingencies, before you can complete the purchase.
With these factors in your favour, you may be able to negotiate a lower price. On the other hand, in a “hot” seller market, if your “perfect” home comes on the market, you may want to offer the list price (or more) to beat out other offers.
We may be able to learn more about the seller’s situation and motivations. Knowing factors such as whether the house is already vacant, how long it has been on the market, and reasons for selling could help you determine how eager the seller may be to complete a transaction.
Making an Offer
Negotiations begin with an initial offer and conclude with acceptance of the final offer. Real estate transactions require a written contract, which conveys an initial written offer. A cheque as a deposit must accompany an offer.
Your offer will specify price, plus all the terms and conditions of the purchase you want to negotiate. We provide a very valuable service by helping you use standard forms that are kept up-to-date with changing real estate laws.
What Does an Offer Contain?
Keep in mind that if the seller accepts your initial offer, or a subsequent counteroffer, it becomes a binding sales contract, known as the Agreement of Purchase and Sale, and serves as a blueprint for the final sale. That’s why it’s important that your initial offer contains the terms and items you want. The more demands you make of sellers, the less favourably they may look on your offer. Some things, however, should be included in most purchase offers, such as:
- Property address (including its legal description).
- Sales price and terms (cash and monies acquired for the purchase through a mortgage).
- Clear title (ownership).
- Date for closing, the actual transfer of title (*if you have a rate lock on your mortgage, make sure closing occurs before it expires.)
- Deposit, whether cheque draft, wire transfer or promissory note, with provisions for how it will be refunded to you if the offer is rejected or kept as damages by the seller if you are found in breach of the contract.
- Prorated amounts for payment of real estate taxes, utilities, assessments and other costs that may be incurred by the seller before closing but not billed to the property until afterwards.
- Who will pay for surveys, inspections, and similar costs associated with the transaction.
- Provincial/territorial requirements, such as environment review, hazard and property condition disclosures.
- Provision for lawyer review.
- Final walk-through inspection shortly prior to closing (if applicable).
- Length of time that the offer is valid.
A contingency is a term or condition that must be met for an offer to become a binding contract. Contingencies always weaken an offer. Yet some are considered normal. Some common purchase offer contingencies include:
- Approval of agreed-upon third-party inspections within a stipulated period of time after the seller’s acceptance of the offer. This allows you to “walk away” from the contract if you find the inspection unsatisfactory. (See step 7 for more information on inspections.)
- Obtaining specific financing terms, such as interest rate and the duration of the mortgage. If you can’t find the mortgage terms you’re looking for, as specified in your offer, you cannot be bound by a contract based on your offer.
- Securing a specific job. If buying this home depends on consideration for a job transfer you’ll want to include this provision.
- Selling your current home. Sellers may view a contingent sale unfavourably, but an accepted offer on your home will improve your negotiating position.
Other Important Questions
What is the deposit? This is a cash deposit you make when submitting your written offer on a property to show your “good faith.” Sellers are understandably suspicious of offers that are not accompanied by such a deposit. The amount expected can vary by the negotiating situation and from market to market.
Your deposit money is typically held by one of listing brokerage or the seller’s lawyer. If your offer is accepted, these funds become part of your down payment at closing. If negotiations fail to result in a sales contract, your deposit money is usually refunded, based on the wording of the Agreement of Purchase and Sale.
What are Seller Disclosures? Be aware that the law regarding real estate is still “caveat emptor” –buyer beware. Generally speaking, sellers are only required to disclose material latent defects, i.e. defects that cannot be discovered in a reasonable inspection and are sufficiently serious to cause hard. Seller disclosure statements (if available in your area) may be useful, but be cautious in relying on them. Buyers should always conduct their own inspections to verify any statements made, and to satisfy themselves that there are no other problems with the house. Make sure you read and understand these documents, because your recourse options will be limited once you sign any disclosures.
What if there are multiple offers? If other buyers are interested in the same property the seller may be comparing your offer to others. Multiple offers do occur, even in a slow market.
If you learn that you in a multiple offer situation, don’t panic and immediately review your offer. You may wish to withdraw your initial offer and resubmit a new offer with changes to your offer price and terms to compete with the other buyer(s) bidding on the property. Stay involved for at least one round of negotiations, but also establish your maximum price.
The Seller’s Response to Your Offer
Remember that sellers have already decided how much money they want from the sale of their property, and have probably planned a negotiating strategy. When your offer is presented, the seller’s options are to:
- If, after reviewing your written offer, the sellers sign their unconditional acceptance, then you will have a binding contract as soon as you are notified of the offer’s acceptance.
- If the sellers reject your offer, you are released of any obligation. The sellers cannot later change their minds and expect to bind you to a contract based on that offer.
- If the sellers like most aspects of your offer, they may present a written counteroffer that includes the changes the sellers want to make. You are then free to accept their counteroffer, reject it, or make your own counteroffer to their counteroffer. This process can repeat itself as many times as it takes for you and the seller to agree on the terms of the Agreement of Purchase and Sale.
A counteroffer becomes a binding contract when either 1) you sign unconditional acceptance of the seller’s counteroffer, or 2) the seller signs unconditional acceptance of your counteroffer. At this point, negotiations are over and the terms of the sale are final.
Withdrawing an Offer
Can you take back an offer? In most cases the answer is yes, right up until the moment your offer is accepted. In some cases, you can withdraw an offer before you’ve been notified of its acceptance. If you want to withdraw your offer after acceptance, be sure to do so only after consulting a lawyer who is experienced in real estate matters. You want to avoid losing your deposit or a lawsuit for damages the sellers incurred because of your actions.
6) Obtain A Mortgage.
If you’ve already done the legwork discussed in Step 2, you are one major step closer to obtaining a mortgage. Still, securing a mortgage is more complex, and often more expensive, then many consumers realize. There are numerous documents and details that must come together in a short period of time.
Closing Costs and the Truth in Lending Statement
There are various costs associated with a mortgage. These might include an appraisal and points, a fee based on the amount of the loan. Depending on the amount of your down payment, you may also be required to pay for mortgage insurance, a policy that protects the lender if you default on the mortgage. To help you see everything you’ll be paying for the home over the length of the mortgage, you should receive a Truth in Lending Statement, which is a federally required good-faith estimate of all the costs associated with the mortgage.
Mortgage Loan Interview Application Checklist
Lender requirements differ, but the following list includes the most common items that you and any co-borrower will need to supply to your lender. If you were pre-approved for a mortgage, you may have already completed some of this process. Your application will probably be approved faster if all required documents are submitted at the same time.
- Social Insurance Number(s) and Birth Date(s)
- Photo Identification Card
- Paycheck(s): most recent pay stub showing year-to-date earnings
- T4 or T4A Tax Forms: for the past two years
- Employers: names, addresses, and telephone numbers of any employers over the past two years
- Accounts: current statements of checking, savings, and other accounts
- Current Assets: Most recent statement of assets such as Registered Retirement Accounts (RRSP), employee retirement accounts, stocks, and bonds. If you own securities, your lender may require a current brokerage statement with names of the stocks, value per share, and number of shares owned. Liabilities: For each outstanding loan, provide the lender with the name and address of the creditor, monthly payment, and the total balance due. Liabilities include auto loans, student loans, credit cards, and other installment debt.
- Current and Previous Addresses: If you currently own a home, provide your new lender with the property address, current market value, current mortgage lender’s name, account number, current monthly payment d outstanding balance. If you rent, provide your current address, the name and address of your landlord or the management company, and the monthly rent. Provide the same information about previous residences. (Usually this additional information is only required if you’ve lived at your current address for less than two years.)
- Sales Contract: Bring along a signed copy of the completed Agreement of Purchase & Sale for the property you are buying, any amendments to the Agreement, a copy of the listing form for the property, the legal description of property, and receipts for deposit money or down payment deposits already paid.
Special Situations: Additional Information Required
Lenders will require some applicants to provide additional information under certain circumstances. Check the list below to see if any of these situations apply to you. Different lenders may have different requirements.
- Self-employed or compensated on a commission basis. Provide your T4A tax forms for the past two years, along with a current year-to-date profit and loss statement. Employment and business locations of self-employed must be independently verified.
- Separated or divorced. Provide a copy of your divorce decree and separation agreement, including details on alimony or child support payments. If you receive alimony or child support and would like the lender to consider these monies as income, provide proof of this income for the past 12 months.
- Old age and/or Canadian pension, disability, or any form of public assistance benefits considered as income. Provide a copy of an award certificate or a check from the issuing agency.
- Bankruptcy, foreclosure or any judgements against you in the past seven years. Provide information about the proceedings. For bankruptcies, documentation should include a copy of the bankruptcy discharge and a schedule of both debts and assets. Judgements against you should include a lawyer’s letter that explains the outcome of proceedings.
7) Prepare For The Closing Day.
Many important details must fall in place before you close on your home. We will help you stay on track. Some of the most important details include:
Complete a home inspection. Assuming this contingency was in your offer, schedule a thorough inspection of the property with a qualified home inspector. We will assist you in identifying several inspectors to choose from.
The inspector should provide you with a written report detailing any flaws found in the home, including information about the severity of his or her findings. If severe problems are found, your contingency clause should permit you to cancel the contract without obligation.
Alternately, you may want to negotiate performance and payment for any significant repairs noted in the inspection. But also remember that no home is perfect and small repairs and maintenance issues should not derail the transaction or require another round of negotiations.
Request lawyer review. If specified in your offer, ask you lawyer to review your sales contract and then schedule his or her participation in your closing.
Finalize your mortgage. Make sure you have supplied your lender with all necessary documents and that your financing is in place for closing day.
Get ready to move. Moving may be the biggest job you face in buying a home. Review Step 9 to get a jump on these preparations.
Attend a final walk-through. A pre-closing walk-through is a final check to ensure that the home is in the same condition it was during the inspection, and to make sure all contracted items, such as appliances, are still in the home.
Prepare to pay closing costs. When you applied for your mortgage, you received a good-faith estimate of closing costs. As closing approaches, your lawyer will advise you how much money you will be expected to bring to closing and what forms of payment are acceptable.
The actual, legal transfer of ownership is called the closing. Possession is typically transferred at closing too.
During the meeting, you’ll sign many documents, including:
- The closing statement, a kind of balance sheet of all the funds changing hands between the parties.
- The mortgage papers, detailing your obligation to the lender
- A truth in Lending Statement
- Any additional documents required as per your lawyer
You will need to provide your payment of closing costs, proof of insurance, and approval of the inspections (if applicable)
After all documentation has been signed and all monies paid, possession is usually transferred and you receive the keys to your new home.
Participants usually include:
- Retains lawyer
- Sets appointment to sign documents
- Review final closing statement
- Pay balance due
- Retains lawyer
- Sets appointment to sign transfer documents
- Review final closing statement
- Documents sent to Buyer’s lawyer for signature
This list contains most of the big tasks you’ll need to do (and some that you won’t) and suggested timeframes. Depending on your situation, you may need to add other things. Print this helpful Moving Checklist and add additional tasks suitable for your move. Keep it handy and check off completed tasks—-it’s quite satisfying!
To save and print, click the ⇩ download button at the top of the PDF file below.
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