Buying a home is a huge step in life.
Unfortunately, it is not as simple as buying anything else.
Several meticulous steps are involved – you need to be
very careful about such a large purchase – which is
usually one of the biggest financial decisions of your life.
Mistakes can cost you tens of thousands of dollars.
Luckily, we’re here to help!
This free guide will guide you through the steps of buying your own home.
The 6 steps you are about to read in detail are as follows:
1. Planning your purchase
2. Getting a mortgage
3. Hiring your professional buying team
4. Finding your home
5. Putting in an offer and negotiating
6. Closing and moving in
We’ll detail the main things that fit under these 6 steps.
We hope that you’ll find it helpful along the path to buying a home.
Deciding The Key Features You’re Looking For
Before buying a house, you need to consider how this purchase falls into your long-term
Some people tend to look at buying a home as purely an investment; others are looking to
avoid paying rent; some others will give up the return on investment and pay a little more –
simply to have an amazing place to live.
Ultimately the choice is up to you – you have to decide why you’re looking for a home, what
your goals are to get out of it and this will later inform how hard you push your budget and
what you’re looking for.
Types Of Houses
There are several types of home available – you should consider which is the right option for
Single Housing (Detached/Semi-Detached Homes)
Regarded by many as their ideal home; single-family houses are a house that
stands on an unshared land. They can either be detached (not attached to
another house) or semi-detached (sharing a wall with another house)
CondominiumThe opposite end of the spectrum is a Condominium or Apartment. In this case, you’re sharing your home with dozens to hundreds of other unit owners. An apartment has many houses inside one tall building. Each of these houses is referred to as a Condo. The building is usually not an independent property but owned by a governing body – called the Condominium Corporation. These governing bodies are in charge of building maintenance and regulations. Each unit owner is only in charge of their own individual unit and they pay this company a fee every month for the rest of the building.
A townhouse can either be a Condominium (see above) or a single-family home (also see above)
– the latter are commonly referred to as ‘row houses’. The difference is that – if a Townhouse
is part of a Condominium – you are only responsible for your unit and the other costs (for example the roof and property maintenance) are shared between all the unit
owners. A monthly fee is paid in exchange for this.
A single-family (row) townhouse is quite similar to a semi-detached home –
in that you’re responsible for all costs of the building
These are very rare property types. A Co-op is similar to a Condominium in
structure. The primary difference lies in the ownership. The owners don’t
usually own a unit, but they have shared ownership of the total building. This
makes them equivalent to shareholders who lease a part of the building. These
shareholders have the power to reject another person from owning a part in
the building if he/she fails to follow the set rules.
1-PLAN YOUR PURCHASE
Location And Neighborhood
Depending on your needs, you have to decide the ideal neighborhood where you’d like to settle.
A perfect location can differ from person to person.
One person might want to move to a quiet place with a lot of greenery, while another person
would prefer to live close to downtown.
Schools are usually an important consideration for families when deciding where to live. However, equally as important are transportation links and options – something that many people fail to think about when deciding on their location.
You should sit down and make a list of the key features and things you’d like in a home – even
ranking them, so that you know where your priorities are. Here are some examples of common ones:
• Air conditioning
• Central heating
• A big kitchen
• More than 1 bathroom
• A basement you can live in
• A patio/garden
• And so on…
This is really about what’s important to you – so you’re clear on this from the outset.
Number Of Rooms
It’s important to think a few steps ahead.
The number of couples who’ve just got married but move into a 1-bedroom Condo that they
end up selling 1 year later when they have their first baby is astonishing!
Think about what you need now and think in terms of long term.
2.GETTING A MORTGAGE
Before you decide to buy a home, you need to find a lender who is willing to give you the
money for a mortgage.
A mortgage is essentially a loan to buy a home.
While you might think that you are capable of buying a new and much bigger house, the
lender might think you can afford less.
We highly recommend speaking to a professional – either a specialist lender or a mortgage
broker can usually help you – and it’s usually free – to see how much you can afford, what
your options are and even find you a great deal.
Mortgage Brokers work like an insurance broker – they have dozens of lenders that they have
relationships with – so can usually provide top-notch advice and help.
Alternatively, working with a specialist lender can help too.
Key Considerations In Getting A Mortgage
Generally speaking, there are a few key things that a lender will look for in getting a mortgage:
• Your income – this generally dictates how big a mortgage and how much you can afford
– although the other factors play a part too. You can include your partners income in this,
if they will be on the mortgage. A good rule of thumb is that you can afford a mortgage
of around 4-6 times your combined income. However, all the factors below may reduce this.
• Your credit score – if you’ve missed any bill payments in the past, have had problems
paying bills or anything like this it is going to limit what you can afford in a home.
• Your debts – if you have other debts, this is also going to limit what you can afford to
buy. The reason is that a mortgage lender will assume that your income has to also be used to pay off these debts – so they will not lend you as much money.
• The property – lenders are going to be interested in the property – including location, property taxes, condo fees and property type. All of these may limit them in how much they will lend to you as a mortgage.
• Your down-payment – the amount you put down on your home can impact what
mortgage you can get. There are various down-payment programs you can look into to help as well.
More On Affordability
Sometimes banks will offer a loan more than you need. But does this mean that you should accept it?
It really depends but a common mistake among first time buyers is to take on a large mortgage for a
considerable amount and after paying the mortgage,
they become ‘house-poor’ – a condition where you
cannot afford basic living necessities like food, clothes, and entertainment – because you’re spending all your money on your house.
There will also be some upfront costs as well as closing costs too – that we’ll talk about a little later – so you can’t use all your money in your down-payment. Really, for the full picture on getting a mortgage and all the things you need to consider – again we suggest consulting with a Mortgage Broker or lender – who can offer you professional advice on this for free – we cover this in more detail in the next step as well…
3. HIRE A TEAM TO HELP YOU BUY
Getting A REALTOR®/Real Estate Agent
People who are specialized in finding the right home for you are called Real Estate Agents (or a REALTOR®). They are professionals in their field and make sure that the house you desire is within your demands and finances.
A Real Estate Agent walks you through the whole process including: getting the right home, assisting with the legal offer and valuing the property.
And using an Agent to help you buy a home is completely free.
However, you must take your time to find the right Agent for the job – there can
be a lot of Agents out there who don’t know what they’re doing. The following tips will help you make the right choice:
- Online List Of Agents: The internet will give you a large output of information on several real estate agents. This is in no way a proof of their reliability. Instead, it is best to search for those professionals who are well known in your
- Open House Events: Open houses are an excellent opportunity to meet real estate agents. At such events, look for a person who is showing the house around, speaking respectfully and displaying considerable knowledge. A person sitting at the corner and waiting for you to approach him is not the person you want to be looking for
- Neighborhood Scouting: Going around the neighborhood might be a better idea than browsing the internet. Look for listing signs, especially the timing they go up and come down. An agent who has more listings signs put up can show the ability and trustworthiness of the
- Printed Advertisements: When looking around your neighborhood, don’t forget to search for newspapers and poster advertisements. Real estate agents are known to put up ads in certain parts of a residential area when they want to be known, mainly because they are experts in that particular neighborhood.
Getting A Mortgage Agent/Broker
In Ontario, there are professionals who are both called Mortgage Agents and Mortgage Brokers who can help you with all your mortgage needs.
The mortgage is one of the most difficult parts of buying a home – so we highly recommend you speak to someone – as you’ll essentially have your own professional mortgage advisor by your side to answer all your questions – any time – completely free!
They do charge a fee if you’ve been through bankruptcy or have severe credit issues – however for 95% of people this doesn’t apply to, using a Mortgage Broker is free.
The beautiful thing about hiring a Real Estate Agent and Mortgage Broker to help you is that –
not only is their help usually free – but they will do all the hard work for you!
They’ll find all the other professionals you’ll need – from home inspectors to lawyers to anyone else necessary to help you buy a home. Because they’re in the industry, they are a great resource to find other top professionals out there.
Save the time and effort – if you’ve already hired a good Real Estate Agent or Mortgage Broker, they can do all the rest for you.
4.FINDING YOUR HOME – THE HOME HUNT BEGINS!
Now that you’ve planned your purchase – including what home to buy and where (step 1), assessed your mortgage and how much you can afford (step 2) and
hired your professional home buying team (step 3)
it’s time to get to the fun part – finding your ideal home!
If you have followed the previous steps you will be well prepared and you’ll have expert help by your side – so this should be easy
The Most Important Word When Finding A Home…
If you thought the word was ‘perfect’, you’d be wrong. It is very, very hard to find a home that is
absolutely perfect for you.
The word that is most important is compromise. There will most likely be something you were looking for in a home that you’ll have to give up. What you need to do is decide if that thing is vital or you can compromise and get a home that doesn’t have it.
It is far more likely that you’ll find a home that’s 85% perfect for you than 100% perfect for you.
The ‘Property Ladder’
Thinking about your home in terms of the ‘property ladder’ is a smart strategy – especially in big cities where being able to buy a family home is often out of reach for a first-time buyer.
Instead, think long-term and plan out your strategy. It might look something like this: Condominium (4 years) > Townhouse (3 years) > Semi-Detached House (8 years) > Detached House
Basically, you use the first purchase to get your foot on the ladder, then you step up whenever the timing is right.
Don’t Make Any Major Changes
Now that you’re looking for a home, it’s not the time to make any major changes in your life –
especially financial ones!
Buying a car can change how much mortgage you can afford and could completely scuttle your mortgage plans. So, try to keep your debt down, don’t do anything crazy and not make any major changes will your are looking to find a home – as these could come back to bite you later.
See Lots Of Homes
The best way to know what feels like the right home and help you decide is to see lots of homes – so you have the experience necessary when it comes to pull the trigger on putting in an offer.
Having a great Real Estate Agent can make this less crucial – as they’ll know your neighborhood, price range and what’s going on the market better – so can better advise you.
But you should still see as many homes as you can.
5.PUTTING IN AN OFFER ON THE HOME
Once you’ve found your home it’s an exciting and nervous time – it’s time to put in an offer!
Whilst this is exciting, it is the most crucial step of buying a home – where the most mistakes are
made and where you can lose a lot of money if you’re not careful. However, if you’ve followed all our steps above you’ll already have a great Real Estate Agent by your side to help advise you through the legal process required in putting in an offer.
All home offers come with a deposit at the time you put the offer in. This is a show of faith – to show that you are serious and less likely to re-neg on your offer.
The amounts can vary by market – so your Real Estate Agent can advise you on an appropriate amount.
The closing period refers to the time between you putting in an offer and getting the keys to your home. It is often at least 30 days, with the norm being around 90. The reason for this is to give you time to get everything in line – getting the mortgage finalized and funds in place can sometimes take 3-4 weeks by itself.
Once you’ve submitted a deposit, the money goes into ‘escrow’. This essentially means that it’s held by a third party – not related to the buyer or seller of the home.
They hold the money until the deal is ready to be complete – for example, the conditions and clauses (see next section) have all been completed.
One of the most important consideration is what clauses to include with your offer. Clauses are ‘adjustments’ to the offer that give you leeway in the contract, time to carry out certain events or simply protect yourself legally. Your Real Estate Agent will know dozens of them but the most common are:
- Home Inspection – giving you a certain number of days to carry out an inspection on the property. These are almost essential for a detached or semi-detached home. Keep in mind that a buyer is responsible for paying the inspection fee, which generally varies between $200 and $500.
- Condo Certificate Inspection – if you’re buying a Condominium or a Townhouse (Condo), then this clause allows you time to inspect the finances of the Corporation – to make sure they have enough money to cover repairs to things like the roof, lifts, common areas and so on.
- Financing Inspection – this is to give you time to secure a mortgage – to make sure you can actually get the funds to buy the home.
Negotiating And Counter Offers
Having your first offer accepted can happen – but is pretty rare (depending on your market). So you can then enter a period of negotiation and counter offers back and forth between you and the sellers.
Some of the items to be negotiated can be the clauses (outlined above), the closing period, the deposit and (of course) the amount.
Another common item to think about as a buyer are repair negotiations. An inspection can reveal problems with the house. These could be major or minor ones.
Regardless of how they seem, they should be part of the negotiations. It is important to keep in mind that these inspections could also be crucial for the lender
6.CLOSING THE HOME AND MOVING IN
Once all the negotiations are complete and you have an accepted offer on a home, it’s not time to
celebrate yet – there is still work to be done!
Firstly, you need to take care of the clauses – if you included any – to clear any outstanding issues on the offer.
Even after this, there are still steps to be done.
Sort Your Mortgage
If you’ve followed all the steps in this guide you’ll be lucky – as you’ll likely
be prepared for this and even have a mortgage professional to help.
Do not wait until the last minute to get your mortgage sorted – you want to get the ball rolling weeks in advance on this. Getting a mortgage is not easy and requires a lot of paperwork.
There are also several important closing costs you’re going to incur that you need to make sure you have funds for:
- Lawyer/solicitor fees – can vary depending on the market but are usually around $1,000-$1,500.
- Land transfer tax – a fee paid to the Government (local and provincial) for the transfer of the land. This is dependent on where you’re buying. There are also rebates (refunds) available for first-time home buyers – make sure and discuss this with your Mortgage Broker and/or Real Estate
- Home inspection and other costs – if you included a clause for these in the
Preparing For Closing Day
You need to make other preparations for closing day – in addition to the mortgage.
Before this – as we’ve previously mentioned – it is once again important not to make any major purchases or major financial decisions that could impact your ability to get a mortgage.
On closing day, you’ll meet with your lawyer (your Real Estate Agent or Mortgage Broker will be able to recommend one) and go through all the paperwork – including the mortgage, the down-payment (minus the deposit), the title deed, the title search and all the other closing costs.
Your lawyer will have the final mortgage paperwork and also (usually) the keys to the home. You’ll
usually pay the down-payment to them, who will relay it to the bank.
Firstly, you should keep saving – after moving in, there may be further expenses to deal with – such as painting the walls or getting a new heating system. It is recommended to have emergency funding so that you are not caught off-guard.
You should also prepare for regular maintenance and checkups – buying a house now means that it needs to be kept in tip-top shape. Regular maintenance allows you to keep their expenses minimal by taking care of the problem in its initial stage itself. If you let a problem grow out of hand, that’s when it costs you big.
Don’t rely on your home for retirement: just because you have bought a house, it does not mean that the house is ready to be sold during your retirement. You might be surprised that saving for your retirement will bring you more profit than selling your home.
Finally, this is a big moment – so take the time to celebrate
Buying a home isn’t a walk in the park – that’s for sure.
However, when you break it down to the 6 steps we outlined in this guide, it doesn’t seem quite as daunting.
Remember: millions of people buy a home every year – and most of them haven’t had the advice available in this guide!
The most important thing is to make sure you follow these 6 steps and don’t make
costly mistakes when buying your home.
Whilst it is stressful and one of the biggest investments of your life, there is nothing better than the feeling of sitting in your own home that you own.
We wish you the best of luck in your home search!