Home Buyer`s Bible – A Step by Step Process of Purchasing a Home
The first step of the home buying process is getting a mortgage preapproval, even before starting your home search. This will help isolate your maximum purchase price, and avoid any surprises. Apply online!
Here are some ways to begin looking for your new home:
Work with a realtor – For most buyers, a realtor is key to finding the right home.
Word-of-mouth – Tell everyone you know that you are looking for a new home. Surprising things sometimes happen. For example, you might hear about a home that is just becoming available on the market.
Newspapers and real estate magazines – Check the new homes section in daily newspapers. Look for the free real estate magazines available at newsstands, convenience stores and other outlets. These publications are free and give pictures and short descriptions of homes for sale.
The Internet – Check out real estate websites, such as realtor.ca. These websites give information and pictures of a wide range of properties. Most sites let you search by location, price, number of bedrooms, and other features.
“For Sale” signs – Drive, bike or walk around a neighbourhood that interests you and look for “For Sale” signs. This is a good way to find homes that are being sold by the owner and are not listed with an agent.
Visit new development sites – If you are looking for a newly built home, you can see available models and get information from builders.
Useful Tips for Your Search
-Whether you have a realtor or are looking by yourself, visit lots of homes before choosing one.
-Some things to compare are the home’s energy rating, utility costs, property taxes and major repairs. These will affect your monthly housing expenses. You can ask to see copies of utility and other bills.
-Use the CMHC Home-Buying Comparison Worksheet to make sure you get all the information you need to compare homes.
-Check out the property’s current financing If the existing mortgage on the home is favourable, it may be possible to take it over from the vendor. It may even be possible to get a vendor take back mortgage, to help close the deal.
– Think twice: Even if a home seems perfect, go back and take a closer, more critical look at it.Visit it on different days and different times of the day. Chat with the neighbours. Look deeper — don’t be distracted by attractive surface details.
– Some houses and new homes in Canada have an Energy Rating that describes the energy efficiency of the home. An energy-rated home usually has a sticker with the rating on the electrical panel. The energy rating is on a 0 – 100 scale. The higher the rating, the more energy-efficient is the home, and the less it costs to operate.
Making an Offer to Purchase
After you have found the home you want to buy, you need to give the vendor an Offer to Purchase (sometimes called an Agreement of Purchase and Sale). It is very helpful to work with a realtor (and/or a lawyer/notary) to prepare your offer. The Offer to Purchase is a legal document and should be carefully prepared. These items are typically included:
Names- Your legal name, the name of the vendor and the legal civic address of the property.
Price- The price you are offering to pay.
Things included- Any items in or around the home that you think are included in the sale should be specifically stated in your offer. Some examples might be window coverings and appliances.
Amount of your deposit.
The closing day- The closing day is the date you take possession of the home. It is usually 30 – 60 days after the date of agreement. But, it can be 90 days, or even longer.
Request for a current land survey of the property
Date the offer expires- After this date the offer becomes null and void — that means it’s no longer valid.
Other conditions- Other conditions may include a satisfactory home inspection report, a property appraisal, and lender approval of mortgage financing. This means that the contract will become final only when the conditions are met.
What Happens After You Make an Offer to Purchase?
Imagine that your realtor has helped you prepare an Offer to Purchase. This offer includes all the details of the sale. To be extra cautious (since you know an Offer to Purchase is legally binding) ask your lawyer to look at it before showing it to the vendor. The realtor presents the offer to the vendor. There are three possible responses.
Response 1: The vendor accepts your offer. The deal is concluded and you move on to the next steps in the buying process.
Response 2: The vendor makes a counter-offer. The counter-offer might ask for a higher price, or different terms. You can sign the offer back to the vendor, offering a higher price than your original offer, but lower than the vendor’s counter-offer. If the vender accepts this counter-offer, the deal is concluded.
Response 3: The vendor makes a counter-offer, asking for a higher price or different terms. If a counter-offer is returned to you at a higher price, ensure that you know exactly how much you can afford before you start negotiating. You don’t want to get caught up in the heat of the moment with costs you can’t afford. You reject the counter-offer because the price is still too high, or you can’t agree to the conditions. The sale doesn’t go through, and your deposit is returned.
Convert Mortgage `Preapproval` to `Approval!
Once your Offer to Purchase has been accepted, forward the signed purchase agreement to me and/or your lender. Your lender may ask you to get a property appraisal, a land survey, or both. You may also be asked to get title insurance. You will then be educated about the various types of mortgages, terms, interest rates, amortization periods and, payment schedules available. Depending on your down payment, you may have a conventional mortgage or a high-ratio mortgage.
Types of Mortgages
Conventional Mortgage- A conventional mortgage is a mortgage loan that is equal to, or less than, 80% of the lending value of the property. The lending value is the property’s purchase price or market value — whichever is less. For a conventional mortgage, the down payment is at least 20% of the purchase price or market value.
High-ratio Mortgage- If your down payment is less than 20% of the home price, you will typically need a high-ratio mortgage. A high-ratio mortgage usually requires mortgage loan insurance. CMHC is a major provider of mortgage loan insurance. Your lender may add the mortgage loan insurance premium to your mortgage or ask you to pay it in full upon closing.
Some helpful definitions
Mortgage Term– Your lender will tell you about the term options for the mortgage. The term is the length of time that the mortgage contract conditions, including interest rate, will be fixed. The term can be from six months up to ten years. A longer term (for example, five years) lets you plan ahead. It also protects you from interest rate increases. Think carefully about the term that you want, and don’t be afraid to ask your lender to figure out the differences between a one, two, five-year (or longer) term mortgage.
Fixed Mortgage Interest Rate– A fixed mortgage interest rate is a locked-in rate that will not increase for the term of the mortgage.
Variable Mortgage Interest Rate- A variable rate fluctuates based on market conditions. The mortgage payment remains unchanged.
Adjustable Mortgage Interest Rate- With an adjustable rate, both the interest rate and the mortgage payment vary, based on market conditions.
Open or Closed Mortgage- A closed mortgage is a good choice if you’d like to have a fixed monthly payment. With it you can carefully plan your monthly expenses. But, a closed mortgage is not flexible. There are often penalties, or restrictive conditions, if you want to pay an additional amount. A closed mortgage may be a poor choice if you decide to move before the end of the term, or if you want to benefit from a decrease of interest rates. An open mortgage is flexible. That means that you can usually pay off part of it, or the entire amount at any time without penalty. An open mortgage can be a good choice if you plan to sell your home in the near future. It can also be a good choice if you want to pay off a large sum of your mortgage loan. Most lenders let you convert an open mortgage to a closed mortgage at any time, although you may have to pay a small fee.
Amortization- the length of time the entire mortgage debt will be repaid. Many mortgages are amortized over 25 years, but longer periods are available. The longer the amortization, the lower your scheduled mortgage payments, but the more interest you pay in the long run. If each mortgage term is five years, and the mortgage is amortized over 20 years, you will have to renegotiate the mortgage four times (every five years).
Payment Schedule– A mortgage loan is repaid in regular payments — monthly, biweekly or weekly. More frequent payment schedules (for example, weekly) can save some interest costs by reducing the outstanding principal balance more quickly. The more payments you make in a year, the lower the overall interest you have to pay on your mortgage.
Closing day is the day when you finally take legal possession and get to call the house your home. The final signing usually happens at the lawyer or notary’s office. These are the things that happen on closing day:
Your lender will give the mortgage money to your lawyer/notary. You must give the down payment (minus the deposit) to your lawyer/notary.
You must also give the remaining closing costs.
Your lawyer/notary Pays the vendor Registers the home in your name Gives you the deed and the keys to your new home.
When planning your move, friends or relatives may be able to recommend a professional moving company. Don’t forget to ask the mover for references. Ask the mover for an estimate and outline of fees (do they charge a flat rate or hourly fee?).
Changing the Locks -When you move into your new home you’ll want to change the exterior door locks for security. After all, you want only the people you choose to have the key to your new home. You can change the locks yourself or call a locksmith to do the job.
Cleaning- Both your old home and your new home should be given a thorough cleaning at moving time. Whether you’re buying cleaning supplies and doing it yourself, or hiring someone to clean for you, the costs can really add up. Plan for this expense.
Decorating- You might want to re-paint, replace some light fixtures, refinish the floor, re-carpet, or do any number of other decorating tasks. Plan your budget, and consider postponing some projects for a period of time.
Appliances- If your offer to purchase didn’t include appliances, and if you don’t have your own, you will have to buy them when you move into your new home. Some appliances might have installation charges.
Tools and Equipment- When you own your own home, you can no longer call the landlord to do repairs. You’ll need to own some basic hand tools and possibly some gardening and snow clearing equipment.
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