10 Steps to Choosing and Purchasing Your Home
1 – FIND A QUALIFIED BUYER’S REPRESENTATIVE
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, DON’T YOU ALSO WANT SOMEONE TO PROVIDE COMPLETE AND HONEST REPRESENTATION IN YOUR REAL ESTATE TRANSACTION? REAL ESTATE BUYER REPRESENTATIVES ARE RESPONSIBLE FOR PROTECTING THE BEST INTERESTS OF THEIR CLIENTS – BUYERS LIKE YOU.
What Is a Buyer’s Representative?
A Buyer’s Representative is an advocate for the buyer – not the seller – in a real estate transaction. Buyer’s Representatives owe full fiduciary (legal) duties, including loyalty and confidentiality, to their Buyer Clients and must keep their Buyer Clients’ best interests in mind throughout the entire transaction.
Why Choose an Accredited Buyer’s Representative (ABR®)?
Not all Buyer’s Representatives are equal. All REALTORS®, members of the Canadian Real Estate Association (CREA®) must subscribe to a strict Code of Ethics, which helps ensure that you will be treated honestly and fairly.
A REALTOR® with the ABR® designation has gone a step further, by completing the Accredited Buyer’s Representative (ABR®) training, specialized education offered by the Real Estate Buyer’s Agent Council (REBAC).
In addition to knowing the dynamics of the local market, REALTORS® with the ABR® designation understand the special needs of buyers. An ABR® can provide you with valued assistance throughout the transaction and help you make informed decisions that will lead to a successful home purchase.
How Is My Buyer’s Representative Compensated?
Many buyer’s wonder if they’ll 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. This is an important detail you should discuss with your ABR® and clarify in the representation agreement.
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 MORTGAGE 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. MORTGAGE OPTIONS AND REQUIREMENTS CHANGE FREQUENTLY.
Determine Your Credit Status
It’s wise to verify your credit rating in the beginning of your home search. Identifying and resolving any credit problems to improve your credit rating will provide benefits, such as preferred rates from lenders and home insurers.
Selecting a Lender
Your goal is to obtain a mortgage loan with terms that are most favourable to your situation. In order to find the best home loan for you, contact several lenders to discuss what they offer, their rates, closing costs and other fees.
Once you have narrowed your options, it’s best to meet with a lender face-to-face. This allows you to ask specific questions and decide if they are the right lender for you.
Rates and Duration
Two of the most important factors in choosing a mortgage are the interest rate and duration. Combined with the amount you borrow, they will largely determine the amount of your monthly payment
The interest rate is the percentage of the loan amount you are charged to borrow money; the higher the rate, the more you pay. Your monthly payment will also hinge on the duration of the mortgage. Paying off the same total loan at the same rate over less time will result in a higher monthly payment.
With fixed rate mortgages, you pay the same interest rate over the term of the mortgage. With a variable rate mortgage, the interest rate can change (increase or decrease) over the term of the mortgage.
Pre-Qualification or Pre-Approval
A pre-qualification is an informal determination by a lender or mortgage broker stating the amount of the mortgage you can afford. A pre-approval is a guarantee in writing by a lender to grant you a loan up to a specified amount (subject to receiving full documentation).
The advantages to obtaining a pre-approved mortgage as early as possible is that sellers will find any offer you make more attractive, as you are a “cash” buyer.
How Much Can I Afford?
Lenders look at a variety of factors when evaluating how much mortgage you can afford. Your monthly mortgage payment as a percent of your gross income and 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 to the appraised value of the property.
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 principle, interest and property tax.
Down Payments and Mortgage Insurance
Buyers can obtain a traditional mortgage by making a down payment on the home purchase, which must equal at least 20 percent of the appraised value of the home.
Buyers can obtain a high-ratio mortgage by making a down payment on the home purchase of at least 5 percent but will be required to also obtain mortgage insurance, which helps protect the mortgage underwriter from default.
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.
Your ABR® can play a key role in helping you sort out your options and offer important insights specific to your local market. Be sure to discuss these and other needs and preferences with your ABR®.
- Home Size
- # bedrooms
- # bathrooms
Other Home Preferences
- Floor Plan Preferences
- Specific Home Features
- Specialty Rooms
- Storage Needs
- Preferred Areas/Communities
- Commuting Considerations
- Proximity to Desirable Amenities
- Size & Shape
- Landscaping Considerations
How Long Do You Plan to Live In This Home
4 – SEARCH FOR YOUR HOME
CHOOSING A HOME ALSO INVOLVES CHOOSING A NEIGHBOURHOOD. ALTHOUGH ITS IMPORTANT TO CONSIDER FUTURE RESALE VALUE, ITS ALSO IMPORTANT TO CHOOSE A HOME AND NEIGHBOURHOOD THAT YOU AND YOUR FAMILY WILL ENJOY LIVING IN.
Factors to Consider When Evaluating a Neighbourhood
Depending on your particular needs and preferences, some factors may be more important than others, including:
- Neighbourhood Profile – Population density and commercial development.
- Household Data – Family type, income level, education level and occupation types.
- Crime Rate – No neighbourhood is ever crime free but you can make an educated decision about where to live by researching these details.
Quality of Schools – Even if you don’t have school age children, this can be an important factor for resale value.
- Amenities – What features you want will be determined by the lifestyle you lead. These could include shopping, transportation, parks & recreation, restaurants & nightlife, cultural institutions and green spaces.
Viewing and Comparing Homes
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 are not finding what you want, share your reactions with your ABR® so your searches can be refined.
If you decide to view homes on your own (i.e. an open house) make sure the Listing Agent knows you are working with a Buyer Agent and share your ABR®’s business card or contact information, if possible. Be careful not to divulge too many details about your situation, as this may hurt your future negotiating position if you are interested in the property.
Using Web Sites
The internet has made home searching easier than ever before with sites such as REALTOR.ca®. Its important to remember that REALTOR.ca® and similar sites are not an MLS system. Your ABR® is still an important source for property information and can share listing information with you faster than any public web site.
5 – NEGOTIATE TERMS
WHEN YOU’VE FOUND A HOME THAT’S RIGHT FOR YOU, ITS 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. Your ABR® can counsel you on market conditions, price ranges and negotiating strategies. To help you maker a more informed decision on price, your ABR® can do a comparative market analysis (CMA) on the property you are interested in buying.
The CMA 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.
Beyond price, there are several other factors that can enter into your negotiating position. Your bargaining position is stronger if:
- You are a cash buyer
- You are pre-approved for a mortgage
- You do not have to sell your current home
Your ABR® may be able to learn more about the seller’s situation and motivations. Knowing factors such as whether the house is vacant, how long it has been on the market and the reasons for selling could help determine how eager the seller may be to complete the 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 and a deposit typically accompanies an offer upon acceptance. Your offer will specify price plus all terms and conditions you want negotiated.
Your ABR® will guide you through the structuring of your offer and the negotiating strategy. If you have specific questions relating to topics such as tax or legal advice, your ABR® can refer you to qualified experts for assistance.
What Does an Offer Contain?
Keep in mind that if a seller accepts your initial or subsequent counter offer, it becomes a legal binding sales contract. Because of this, its important that your initial offer, or any subsequent offer, contains terms and items that are agreeable to you.
The more demands you make of sellers, the less favourably they make look on your offer. Some items, however, should be included in most purchase offers, such as:
- Offer Date
- Names of Buyers & Sellers
- Property address including its legal description
- Sales price
- Clear title (ownership)
- Date of closing (the date for the change of legal possession)
- Deposit amount
- Irrevocable date (length of time offer is valid)
- Chattels included (items that are included in purchase price i.e. fridge, stove, etc.)
- Fixtures excluded (items that are attached to property not included in purchase price i.e. ceiling fans, light fixtures, etc.)
- Rental items
- Title search date
A condition is a term that must be met for an offer to become a binding contract. Conditions can sometimes weaken an offer, yet some are considered normal, such as:
- Home Inspection
- Sale of current home
Other Important Questions
What is a Deposit? – a cash deposit is typically submitted within 24hrs of an accepted written offer to show “good faith”. The amount expected can vary but is commonly between 3-5% of the total purchase price.
Your deposit is typically held in a Real Estate Trust Account until closing. The deposit can only be released in one of three ways:
- Performance of the contract (the successful closing of the transaction)
- Mutual release (the seller and buyer both sign a legal document agreeing that the deposit is to be returned to the buyer)
- Court order – one or both parties to the transaction (buyer/sellers refuse to do item #1 and/or # 2 and must then go to court and have a judge decide what is to happen with the deposit.
What Are Seller Disclosures? – be aware that the law regarding real estate is still “caveat emptor” or “let the buyer beware”. Sellers are only required to disclose material latent defects (defects that cannot be discovered in a reasonable inspection and are sufficiently serious to cause harm). Its best that buyers conduct their own home inspections, or hire a professional, to satisfy themselves that there are no other problems with the property.
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 slow markets. If you learn that you are in a multiple offer situation, your ABR® will be there to assist you. It is quite possible that you have the best offer so it is important to stay involved for at least the first round of negotiations. Your ABR® will work closely with you to draft your best possible offer should the need arise.
The Seller’s Response to Your Offer
Remember that sellers have most likely established a negotiating strategy and what terms are most favourable to them, including a sale price. When your offer is presented to the sellers, their options are to:
From Contract to Closing
Many details included in the following steps happen quickly or occur simultaneously. Your ABR® is a valuable resource in helping you keep every aspect of your transaction on track, from now to closing.
6 – OBTAIN A MORTGAGE
IF YOU’VE ALREADY DONE THE LEGWORK DDISCUSSED IN STEP 2, YOU ARE ONE MAJOR STEP CLOSER TO OBTAINING A MORTGAGE. STILL, SECURING A MORTGAGE IS MORE COMPLEX AND OFTEN MORE EXPENSIVE, THAN MANY CONSUMERS REALIZE. THERE ARE NUMEROUS DOCUMENTS AND DETAILS THAT MUST COME TOGETHER IN A SHORT PERIOD OF TIME.
This is why its important to be organized and find a competent mortgage loan officer. Your ABR® has already helped other buyers work through the mortgage application process and can also provide valuable assistance on locating a suitable lender.
Applying For a Loan
If you have already made an offer on a house, decided what type of mortgage you want and selected a lender, your next step is to complete the loan application.
There are various costs associated with a mortgage, which can include an appraisal fee, mortgage insurance fee and legal fees to set up the mortgage.
Lender requirements may differ slightly, but the following list includes the most common items that you will need to supply to your lender. If you were pre-approved for a mortgage, you may have already completed parts of this process:
- Government issued photo identification
- Social insurance number
- Copy of pay stubs
- Tax return forms
- Employment verification
- Other sources of income
- Banking records
- Current assets
- Copy of home purchase agreement
- Disclosure of prior bankruptcy, foreclosure or other judgements
While all the forms and paperwork involved in applying for a mortgage may seem excessive, these are necessary steps for meeting various mortgage program requirements and ensuring that lenders are extending safe credit to consumers.
Other Important Considerations
Changing Your Financial Picture – Note that your financial picture cannot change between the time you apply for a mortgage and close on your property, even after you have been approved. If you purchase a new car, make a major purchase using credit or even change jobs during this time, your financial position could change. A change in your financial position could prompt your lender to revoke their mortgage commitment.
Homeowners Insurance – The financial institution providing your mortgage will require you to obtain homeowner's insurance before closing and have you provide them proof of the policy. Costs and coverages can vary so be sure to have your insurance professional explain their policy in detail.
7 – PREPARE FOR CLOSING DAY
MANY IMPORTANT DETAILS MUST FALL IN PLACE BEFORE YOU CLOSE ON YOUR HOME. YOUR ABR® WILL HELP YOU STAY ON TRACK. SOME OF THE MOST IMPORTANT DETAILS INCLUDE:
Complete a Home Inspection – assuming this condition was in your offer, schedule a thorough inspection of the property with a qualified home inspector. Your ABR® can assist you in identifying several area inspectors to choose from, if needed. The home inspector should provide you with a written report detailing any flaws found in the home, including information about the severity of findings. If severe issues are identified, your home inspection condition could permit you to cancel the deal if you are not able to resolve the issues with the seller. Remember, no home is perfect and small repairs and/or maintenance issues should not derail the sale.
Finalize Your Mortgage – Make sure you have supplied your lender with all the necessary documents and that your financing is in place for closing day.
Start Preparing for Your Move – The list of tasks needed to be completed is quite lengthy and its suggested that you start making the necessary arrangements as early as 8 weeks from moving day. Your ABR® is an excellent resource who can assist you with compiling a list of tasks and suggested timelines for completion, prior to your move.
Attend a Final Walk-Through – A preclosing walk-through is a final check to ensure that the home is in the same condition it was during the home inspection and to make sure all deficiencies identified in the home inspection have been corrected or addressed. The timing of the final walk-through will vary, but your ABR® will usually arrange this a day or two before closing day.
Prepare to Pay Closing Costs – As closing approaches, your lawyer will advise you how much money you will be expected to bring to closing and what forms are acceptable.
8 – CLOSE
THE ACTUAL, LEGAL TRANSFER OF OWNERSHIP IS CALLED THE CLOSING. POSSESSION IS TRANSFERRED AT CLOSING TOO. ALTHOUGH UNLIKELY, THE SELLER MAY REQUEST TO CLOSE THE SALE BUT RETAIN POSSESSION AND PAY RENT TO THE BUYER UNTIL VACATING THE PROPERTY.
On the day of closing lawyers typically would meet at the Land Registry Office to exchange documents, money and keys. In today’s digital age, this is happening less frequently as many lawyers are performing the close online.
After all documentation has been signed and all monies paid, possession is usually transferred and your lawyer will give you the keys to your new home!
9 – MOVE
YOU FOUND YOUR NEW HOME AND NOW HAVE THE KEYS. NOW ITS MOVING DAY. YOU SHOULD, HOWEVER, BEGIN PLANNING FOR MOVING DAY WELL IN ADVANCE.
Costs, Insurance, Packing and Income Tax
First-time and even repeat buyers are often surprised by the variety of expenses associated with moving, including everything from packing materials and utility connections to insurance for your valuables and the actual cost of the movers, or a truck rental. You can eliminate or at least reduce many of the surprises and hassles of moving by investigating moving companies, estimating moving costs and making a moving checklist. As mentioned earlier, your ABR® can assist you with compiling a list of tasks and suggested timelines for completion, prior to your move.
When selecting a moving company, ask family and friends for recommendations. Call at least two companies for estimates, which should be prepared at no cost/no obligation to you. You can expect professional movers to come to your home, discuss your move in detail and provide recent references. Check their references, including the Better Business Bureau, especially if you didn’t find the mover through a personal recommendation.
Before selecting your mover, confirm that the company is insured and provides coverage for your belongings. Three of the most common forms of insurance coverage are basic liability, declared value protection or actual cash value and replacement value. You may need to buy more or specialized coverage for certain items such as antiques, musical instruments and works of fine art. Contact your homeowner’s insurance company to see if your policy also covers moving.
If your move is work related, many of your moving expenses may qualify for income tax deductions if your employer is not pay for the moving expenses. Be sure to save your receipts and consult a tax professional for details.
Start Packing Early
Over time, many of us accumulate many things, so you might begin with a general assessment of your possessions; disposing of clothes, furniture and other things that you no longer want or need. The less you move, the less it costs. You way want to consider holding a garage sale or donating some of these items to a charitable organization.
10 – CELEBRATE
CONGRATULATIONS! YOU’VE WORKED HARD TO ACHIEVE THE DREAM OF HOMEOWNERSHIP. YOUR ABR® WISHES YOU MANY YEARS OF HAPPINESS IN YOUR NEW HOME.