12 Step Guide to Buying Your Home
- Step 1: Make Sure You’re Ready to Buy
- Step 2: Figure Out How Much You Can Afford
- Step 3: Decide What You Want to Buy
- Step 4: Find a Realtor® that is Right for You
- Step 5: See What’s Out There
- Step 6: Sell Your Current Home
- Step 7: Add a Lawyer to Your Team
- Step 8: Make an Offer
- Step 9: Arrange a Mortgage
- Step 10: Find a Home Inspector
- Step 11: Close the Deal
- Step 12: Move In
Step 1: Make Sure You’re Ready to Buy.
Owning the roof over your head will bring you great pride, but with that pride comes accountability and sacrifice. There’s the obvious financial responsibility, but your home will also require constant care and upkeep. That’s what real pride of ownership is all about.
Your first home will be the biggest financial obligation you've ever faced. You should already be an experienced saver, and good at managing debt like student loans or credit cards. Ideally, you’ve also saved up some money for a nice down payment. Talk to your financial institution about the Home Buyers Plan too. Our next step will give you a crystal clear picture about how much you can afford.
Markets go up, markets go down and even the smartest experts can’t accurately predict when a market will peak or bottom out. The good news is, if you’re buying a home as a long-term investment (and for long-term enjoyment), you’re protected from short-term changes in the market. Over time, real estate has almost always increased in value.
Step 2: Figure Out How Much You Can Afford.
It’s probably the most expensive thing you’ll ever buy, and there are lots of expenses you might not even know about. Everybody’s total costs are different, but it’s almost guaranteed you won’t have that much money saved up. Hopefully you have enough for a nice down payment. Here’s the reality in detail:
Step 9 is practically bursting with tips on how to arrange your mortgage but for now, we just need to figure out how much a bank will lend you.
Well that depends on how much you can afford each month. This is determined using two lending principals.
Step 3: Decide What You Want to Buy.
By now, you probably have a good idea of what type of home is right for you. To familiarize you with the terminology, here’s a quick overview:
As the name implies, the home is not attached to the home next door. Styles range from a single-story suburban bungalow, to a three-story Victorian.
Two houses that share a common wall. Typically less money than a fully detached home.
A two-storey or three-storey home, with each floor belonging to a separate family. Separate entrances are most common.
Also known as terrace or row housing. Several homes with a common style joined in a row. They usually share walls on both sides. May come with a monthly maintenance fee.
An upscale version of an apartment. Usually located in high-rise buildings with access to common elements. Maintenance fees usually apply. Condos also make a great first home purchase because they’re often thousands of dollars less than a detached home.
You’ll own 100% of your unit, and a share of the common areas. Common areas include the necessary plumbing, electrical systems, hallways and elevators. They may also include lots of fun stuff like a private gym or party room.
Membership has its privileges, and it costs. On top of your mortgage and property taxes, condo owners also pay a monthly fee to operate and maintain the common areas. Be sure to look into condo fees, and how well they’re managed, before signing anything.
Nothing can match the charm and character of an older home. As a bonus, the previous owner may have made improvements and upgrades and you get them with the house, usually for less than the cost of putting them in yourself. However, some may have a little too much ‘character ’ like a leaky roof…know what you’re getting yourself into. You should always work with a knowledgeable REALTOR®, and as we cover in Step 10 never buy a resale home without a Home Inspection.
You will be the very first person to live in your new home. In fact, your new home may be so new, that it’s not even built yet. You have the luxury of customizing your home to your décor tastes. But when you move in, be prepared for constant touch-ups by your builder; dust, mud and unpaved roads if your area is still developing; and shifting and settling of your home (cracks and popping nails) within the first year.
Are you getting out of a two-bedroom apartment because it’s too small? Then your new home should have at least three bedrooms, and probably a second bathroom. REALTORS® call these must-have features “needs”. Features you’d like to have are called “wants”.
Step 4: Find a Realtor® that is Right for You.
In Canada, licensed REALTORS® are members of their local real estate board, a provincial association and The Canadian Real Estate Association. This system of membership ensures the highest level of service and that you are always treated with honesty and integrity. This is backed by the REALTOR® Code of Ethics. Take a look at ‘The REALTOR® Commitment’ to learn more.
The relationship between a real estate brokerage and a client is called “Agency” and there are three major kinds:
The real estate brokerage and all its REALTORS® represent the seller exclusively and it’s their job to get the best offer on the home. They are legally obliged to tell the seller anything known about a buyer. For instance, if a seller’s REALTOR® knows a buyer will pay more for a property, they must tell the seller.
The real estate brokerage and all its REALTORS® represent the buyer exclusively. They seek out homes that meet the buyer’s needs and help assess the merits and defects of potential homes. They keep the buyer’s information confidential and never disclose information like the maximum amount their buyer is willing to pay. You may be asked by your REALTOR® to sign a buyer agency agreement. In fact, in some provinces,
REALTORS® are required to ask you for your own protection. This agreement ensures that the REALTOR® and the brokerage can look after your best interests.
Sometimes, a brokerage may have an agency relationship with the buyer and the seller. Both the seller and the buyer must give their informed consent, and the REALTOR® must always provide full and timely disclosure of all pertinent information to both parties.
Absolutely! Especially if you’re remaining in the same community. Your REALTOR® is already an expert on your needs, so it can save you a lot of time and energy.
A REALTOR® will review your list of wants and needs to help you determine your price range.
- Answer questions about the markets you’re interested in and help you compare homes and neighbourhoods.
- Use the local Multiple Listing Service (MLS).
- The MLS is the single most powerful tool for buying and selling a home. Your REALTOR® will give you access to exclusive features of the MLS system that the public is not privy to.
- Preview properties to ensure you’re only shown homes that meet your needs and budget.
- Make appointments and walk you through potential homes, answering all your questions.
- Give up-to-the-minute information on financing and explain your mortgage options.
- Negotiate with the seller, smooth out any potential conflicts and draw up a legally binding contract.
One dream, one team. The REALTOR® you select will become an expert on your specific needs and tastes.
Scattering your time and energy amongst multiple REALTORS® will work against your goal of finding your best home. And because most REALTORS® have equal access to the same property listings, there’s no real advantage to having multiple REALTORS®.
Step 5: See What’s Out There.
Start reading real estate ads in local papers, or visit www.mls.ca. Let your REALTOR® know what you like. Visit areas you are considering and get a feel for them. Make note of the surrounding schools, shopping and recreational areas. Keep an eye out for not-so-great things like large industrial areas, railway tracks, high-voltage power lines and airports. Visit during the day and at night.
‘Open houses’ are a great way to see inside the homes of your potential neighborhood. The hosting REALTOR® probably knows the local market inside and out, and will be happy to answer the questions that are bubbling up inside you – don’t be afraid to ask!
If you’ve been very good, you’ve armed your REALTOR® with your Dream Home Checklist. Even if you’ve just talked about it, your REALTOR® knows what you’re looking for.
REALTORS® run an incredible research tool called the Multiple Listing Service (MLS). You can view information about properties listed in MLS systems across the country at www.mls.ca, the public advertising portal. Your REALTOR® will start sending you listings of potential homes right away. You’ll be amazed how fast and easy it is to zero in on your favourite few homes.
If you and your REALTOR® have done your homework, and used MLS listings to scout ahead, you only need to visit a handful of homes to make an informed and wise selection.
Walking through a potential home is a thrill, but try not to lose your head. Don’t let a giant kitchen island or swanky hot tub distract you from your real goal, finding a home that meets all your needs and fits your budget. That’s why we’re arming you with this comprehensive House-Hunting Checklist. Print it out and be sure to take it with you to homes you’re serious about buying. Good luck and happy hunting!
Step 6: Sell Your Current Home.
When there are lots of people looking for homes but not many for sale, this is called a “seller’s market” because the seller has something everybody wants. When there are lots of homes for sale and not many people buying them, this is called a “buyer’s market” because buyers have more power of choice.
If you’re selling one home and buying another, you don’t really have to worry about playing the market. If you sell your existing home for a ‘low’ price, you’re probably also buying at a low price. If you are upgrading to a larger home, this actually works to your advantage. Imagine when your bigger home is on the upswing.
It’s true. Winter sales tend to be slower, and Spring sales are more brisk. Regardless, there are always people looking to buy and sell, and seasonality is only one of many factors to consider.
Talk with your REALTOR®! They are experts, and know the price that will make your home look attractive, without making you look desperate.
Many people are able to time their sale and purchase so they happen on the same “closing date”. Buyers can make their offer “conditional” on the sale of their existing home, to make sure they’re not left paying for the upkeep of two homes. When selling, you can try to extend the “closing period” to give yourself more time to find your next home. REALTORS® are very skilled at this sort of negotiation, and can make your transition a lot easier.
In the same way that many people decide not to fix their own cars or do their own dentistry, it’s wise to enlist a professional when selling your most valuable asset. Real estate transactions are complex, time consuming and involve a lot of legal documentation. Finding your new home and changing your life is hard enough! Your REALTOR® is expertly trained and highly motivated to get you the most for your home.
Step 7: Add a Lawyer to Your Team.
There are lots of good lawyers out there. Ask your friends or people at work. REALTORS® will happily give you the names of several good lawyers. They can’t legally recommend just one, but they’ll only refer lawyers experienced in real estate. Be sure you ask how they structure their fees, and get an estimate of the other legal costs you can expect.
How your lawyer will help.
They are there to help you. Ask questions if you don’t understand anything. Explaining legal jargon in plain language is a big part of their job.
Step 8: Make an Offer.
REALTORS® are expertly trained and will prepare the offer for you. Here are some terms you’ll see in the offer:
- Buyer or Purchaser – That’s you.
- Seller or Vendor – The present owner(s).
- Purchase Price – The most important number.
- Deposit – A cheque you write to the seller’s broker, who deposits it in a trust account. This is your way of saying “my offer is serious”. The size of the deposit is up to you.
- Clauses particular to this agreement – Every transaction is unique, and your REALTOR® may add conditions important to you. Making your offer conditional upon a proper Home Inspection is a good idea.
- Chattels included and fixtures excluded – Be sure you know what is included with the house! The washer and dryer, the microwave, draperies, light fixtures. Don’t leave anything to ‘chance’ because chances are, it won’t be there when you move in.
- Irrevocability of the offer – The length of time you give the seller to consider your offer. Usually less than 48 hours.
- Completion date – The glorious day you take possession! Often 30 or 60 days after signing.
- Firm Offer to Purchase
- Conditional Offer to Purchase
- Acceptance of Offer
You’ve signed on the dotted line and your REALTOR® has whisked your offer to the seller’s REALTOR®. This process works best when you don’t meet the seller in person.
Step 9: Arrange a Mortgage.
There are hundreds of banks, credit unions and other lenders out there who would love your monthly mortgage payments. So talk to everybody. Now is not the time to be money-shy! Talk to your banker and call around to other banks. Ask people you know. REALTORS® are very knowledgeable about Mortgages and have lots of good advice.
Mortgage brokers are another great resource. They find low rates for a living, and they usually don’t get paid unless you sign a mortgage through them, so they’re highly motivated to get you the best deal.
You can sometimes take over or ‘assume’ the seller’s mortgage. This is a great idea if the seller is locked into a lower interest rate than you can get right now. Your REALTOR® can help you.
You want as small a mortgage as possible, which means making the biggest down payment possible. Just remember to set money aside for all the fees associated with buying a home. Not to mention moving, repairs, renovations, new furniture...think ahead.
If you’re a first-time homebuyer with money in an RRSP, you can withdraw up to $20,000 without paying any income tax. If your spouse is also eligible, that’s $40,000. Ask your REALTOR® how to best take advantage of this plan.
It’s a tough question. What if you ‘lock in’ for five years and rates go into a period of decline? That could mean you’re stuck paying more than you had to for a long time. But if rates were to steadily climb over the next five years, locking in for five years now would be a great move. For many, a long-term mortgage offers peace of mind in knowing that their mortgage payments will stay the same for several years. Your REALTOR® will have a lot of good advice.
- Letter of employment confirmation – Ask your employer for a letter that confirms your position, your pay and how many years you’ve been with the company.
- List your assets – Your car, stocks, bonds, GICs. Show which assets will be used for your down payment.
- List your liabilities – Car payments, student loans, credit card debt. List all the money you owe, and note how you’re paying it off.
- Social Insurance Number – And your chequing account number, and your lawyer’s contact information
- Information about the house you want to buy-The home is your security on the mortgage, so the lender wants to know all about it.
Face your new financial responsibilities head-on, and you may even dodge some of them. And then won’t you look smart!
New Home Warranty- In most provinces new homes are covered by a new home warranty program. The cost to the purchaser for this warranty is approximately $600. Should the builder default or fail to build to an agreed-upon standard, the fund will finish or repair the deficiencies to a maximum amount. For more information on Ontario new home warranty visit http://www.tarion.com.
Step 10: Find a Home Inspector.
This is an increasingly standard condition on any resale home. If the seller doesn’t want you closely examining the home before you take possession, you have to wonder why.
Make sure your inspector is a member of a provincial association of home inspectors. It’s your guarantee they have the training and experience for the job. Your REALTOR® can recommend several home inspection companies to choose from.
Lots of stuff. Plumbing and electrical systems, the roof, visible insulation, walls, ceilings, floors, windows and the integrity of the foundation. They check for nasty stuff like lead paint, asbestos, mould, outdated and dangerous wiring, and they’ll look for evidence of pests like mice or termites. A good inspector should make you feel like you’re watching a CSI detective.
There’s no better way to get familiar with your new home than being part of this checkup. If any problems are detected, you’ll see them firsthand, and you’ll also learn some maintenance tips from a genuine pro.
Their report will summarize the condition of your home. If there’s anything that needs work, the home inspector will provide an estimated cost for the repairs.
New does not equal perfect, and construction quality can vary greatly from builder to builder.
Repairs and corrections will probably be covered by a provincial new home warranty program like Tarion, so bad news doesn’t necessarily mean it will cost you.
Step 11: Close the Deal.
- Immediately begin satisfying any conditions of the agreement that require action on your part. Your REALTOR® will fill out the documents stating that the conditions have been satisfied.
- Have your lawyer begin searching title to the property. This can take a while, so make sure you give ample time.
- We recommend a home inspection to avoid any unpleasant surprises on move-in day.
- Well before closing, get your homeowner’s insurance. Your insurance broker will give you a ‘binder’ letter certifying that you’re covered. You can’t get a mortgage without this letter!
- Contact your lender and have them finalize your mortgage documents. Have your lawyer review them before you sign.
- Your lawyer will transfer essential utilities like hydro and water, but you’ll have to make sure telephone and cable companies switch their services to your name.
- If you rent, you must give notice to your landlord, or sublease your apartment.
- Begin planning your big move! Where are those cardboard boxes? Book your moving service early to avoid scheduling problems.
- Send out your change of address information and fill out a card at the post office.
- Contact the Ministry of Transportation about changing your driver’s licenses.
- A day or two before closing, you’ll meet with your lawyer to sign the closing documents.
- Your lawyer will tell you in advance what certified cheques you’ll need to seal the deal.
The big day arrives
Step 12: Move In.
Unless you have major repairs or renovations planned, you probably want to move in the day you take possession. If you intend to move at the end of the month, contact a moving company or truck rental company now. Most people move during this time and there aren’t trucks and movers for everybody. If you can move mid-week or mid-month, a moving company might cut you a deal. Keep in mind, the closing process might not have the keys in your hands until early-to-mid afternoon. Verify with your lawyer and schedule your moving times accordingly.
We’ve all heard moving horror stories. Go with an established, insured mover, so your items are protected. If any damage does occur by the movers, call the moving company immediately to notify them.
Nobody will take the same care you will. Start early and spread it out over many days. Label all your boxes by room so the movers know where to put them, and label anything that’s fragile. Smaller breakables should be driven to your new home by you to ensure they are safe from breakage.
A new home is a new lease on life, and a chance to liberate yourself from stuff you simply don’t need. If you haven’t used it or worn it in the last year, you don’t need it. Have a garage sale to make some extra cash for your move, or give your items to Goodwill or United Way. You won’t have to pack and unpack it, and it will become someone else’s treasure.
The boxes are mostly unpacked and you’re settling in nicely. You will now feel a strange urge to begin making changes and improvements right away. That old carpet has to go; a bigger deck would be great for entertaining...slow down! Take time to get a feel for your new home, and more importantly, your new budget. Take a deep breath and enjoy what you have, your new home.