Last week I shared some financial tips for new professionals. Now it is time to turn our attention to those making the move off-campus and stepping on to the property ladder.
Buying a home is the most expensive purchase you will ever make. Taking time to do your research is crucial. There are a lot of incentives for first-time buyers, but there are also a lot of hidden/unexpected costs associated with purchasing a home and maintaining it.
Getting a Mortgage
First, make an appointment with a Financial Advisor (FA) at your bank to see what mortgage you would qualify for. There is nothing more heartbreaking than searching for a home, finding one you love, then finding out you don’t qualify for the mortgage. Sometimes an FA will ask if you have looked at any houses and if you have the MLS listing (get very familiar with MLS – www.mls.ca) to use as a starting point. For example, if you’ve seen a couple of houses that you are interested in, one is $225,000 and the other is $325,000, the FA will see if you qualify for the higher mortgage first. You’ll also need to know how much money you have for a down payment. If you have $25,000 to put down, then the mortgage would be $300,000, and the FA will check if you qualify for this amount. If everything comes back clear, you can get the ball rolling (and let me tell you, once the ball starts rolling it moves FAST). If you don’t qualify for that amount, the FA will work with you to find a mortgage that you’ll be able to carry.
If your down payment is less than 20% of the purchase price, the Canada Mortgage and Housing Corporation (CMHC) will apply mortgage loan insurance to your mortgage. Your Financial Advisor will work out what this additional cost will be. This cost gets added to your mortgage total, and is incorporated into your monthly payment.
Your Financial Advisor will also outline what types of mortgages (fixed and variable), terms (1-5 year), amortization (20-30 years) and interest rates are available. This link is a great resource, outlining the major terms associated with mortgages: http://www.tdcanadatrust.com/mortgages/glossary.jsp#M
Finding a Realtor
If you don’t know where to start, ask around. Ask people you know who have recently purchased a home in the area who they used. Also, try going to some open houses. Every open house will have a Realtor on site. You will get a sense of their style (are they too pushy, follow you around the house while you’re looking, or welcome you and let you look around and follow up with you at the end?) and give you an idea of what it would be like to work with them. Most Realtors at an open house will ask you if you have a Realtor. If you think they’re too pushy, don’t feel bad about telling them that you do (even if you don’t). If you seem to like their style, make sure to take their business card, and get in touch with them after the open house. Most Realtors will meet you either at their office, your current home, or a neutral location (Tim Hortons, Starbucks, etc) to discuss your housing needs and what services they can provide. Once you’ve chosen a Realtor, you will sign a contract with them, which basically states that they will represent you in your search for a home. Remember, when you are the buyer, you don’t pay the Realtor’s commission (the seller pays both the selling and buying Realtor’s fees).
Purchasing a Home
Once you’ve made an offer on a home (make sure you’re offer is conditional upon a home inspection) and it is accepted and you’ve had the home inspection completed (and it comes back to your satisfaction), you will have officially bought the home, and be under a legally binding contract. The sellers will want you to remove any conditions (offers conditional upon a home inspection and financing are the most common) from your offer as soon as possible and you can work with your Realtor and Financial Advisor to do this.
You’ll also need a lawyer. This is where having a Realtor is great, as they will have contacts and recommendations. The lawyer will run a title search on your home and property (to make sure there are no leans against it) and organize the land transfer from the sellers to you. Usually, a couple of days before the closing date, you’ll go in to the lawyer’s office to sign a ton of paperwork, so get ready to sign your life away. Your lawyer also arranges all of the finances associated with the purchase of the home, so when you go in to sign the paperwork, you’ll take a draft or certified cheque for the amount of the down payment and the lawyer’s fees. For first-time buyers, expect to pay up to $5000 for lawyers fees. On the day of closing, you’ll go to your lawyer’s office to pick up the keys to your new home! How exciting!
Stay tuned for part two of this post, where I will share information about additional expenses and tips for transitioning to life as a home owner.
*Originally posted on the OACUHO blog.