For most people, buying a house means purchasing their most expensive asset. In other words, it must be handled with great care if you hope to protect—and capitalize on—your investment.
The home-buying process is often unique to the people who buy homes and to the individual properties and homes that are purchased. While some purchases are straight forward, others can come with many twists, turns and challenges.
The following thoughts and tips are compiled from people who purchased homes. They are presented here so that home buyers, whether first time or seasoned, can benefit from the experiences of others. They may just help you make more informed decisions, maintain control, and reduce the stress that comes with the home-buying process.
Tip No. 1 Understand What Home Ownership Is and Is Not.
Some people mistakenly believe that because they own a home and the land that it is located on they can do whatever they like with what they own. This is not reality. First of all, in Canada we do not actually own the land on which our homes are situated. We own rights to the land as detailed in the land title applicable to our property. Moreover, our property use is regulated by local zoning bylaws and our land titles often have restrictions on them. In addition, there are building codes that apply to the construction and renovation of our homes. Knowing and understanding the rights that do and do not come with land and home ownership is important.
Tip No. 2 Confirm That You are Indeed Ready for Home Ownership.
Home ownership is a big decision that comes with responsibilities. It involves a large upfront purchase and it will involve ongoing maintenance and upkeep to preserve the value of what you initially buy. As well, there are risks associated with home ownership such as fires, floods and earthquakes that should be addressed through the purchase of appropriate insurance that often comes with additional costs.
Tip No. 3 Know Why What is Driving Your Home Purchase Plans.
While this may sound silly, the point being made here is to ensure that you have thought about the reason for your purchase and the consequences of not making the purchase. For example, if you are being relocated by your employer, you may have a limited amount of time to buy a home. Think about the consequences of not finding the home that you want in the time frame that you have set or the one that has been set for you. If you need to find a home in a new location in a short period of time, your motivation will be different than if you have no time constraints. Time is often directly connected to price, especially when others are competing to buy the same home as you. If you must buy, and you find the perfect home for you, you may be more inclined to pay more to secure it than if you have all the time in the world to buy, and you are not set on buying a specific home.
INITIAL FINANCIAL PREPARATION
Tip No. 4 Know and Prepare Your Credit Rating.
If you are thinking about buying a home in the near future, do not forget to ensure that you are doing all that you can to get your credit rating in good shape. Start by asking for your credit report. Your report is maintained by at least one of Canada’s two major agencies (TransUnion and Equifax Canada). Know exactly how good or how bad your credit rating is so that you do not get this news the first time that you apply for a mortgage and then find out that you are not able to obtain one. Scores range from 300 to 900 in Canada and they are produced under brand names such as FICO, Beacon and Empirica. A good credit rating will often mean that you will qualify for a larger loan, lower interest rates and lower monthly payments. Do everything that you can now to improve your credit rating. Pay your bills on time, pay off or pay down credit cards, loans and other obligations that affect your credit worthiness.
Tip No. 5 Understand the Difference Between a Mortgage Broker and Lender.
Most financial institutions will employ mortgage officers and they will be happy to discuss your mortgage options by explaining their products to you. A mortgage broker is not affiliated with a specific institution and they will be able to discuss a range of products from different institutions with you.
Tip No. 6 Shop around for a Mortgage.
Before you start to look for a home, shop around for the mortgage lender or mortgage broker that you will want to deal with. Mortgage brokers will examine a number of options for you in order to find you the best mortgage rates from a number of different financial institutions. Mortgage lenders are limited to what their specific financial institution offers. By shopping around for the best rates, you may save yourself thousands of dollars over the longer term when it comes to taking out a mortgage. Understand the difference between an open and closed mortgage and decide what is appropriate for your financial needs. Remember to ask lots of questions about terms and conditions. You should also ask about pre-payment options and pre-payment penalties should you decide later that you want to pay down the mortgage sooner or pay off the mortgage earlier. While interest rates may separate the different financial institutions, often so do their terms and conditions of the mortgage.
Tip No. 7 Suspect a quote that is too good to be true.
It’s a cliché but it’s true. If something seems too good to be true, it generally is. If one broker quotes you an unbelievable rate and everyone else is in another ballpark, run for the exit. As a minimum, investigate what is being proposed further and through a different source. All lenders have to function in the same economic world, and a rate out of line with everyone else’s is cause for skepticism and concern.
Tip No. 8 Know the law related to financing.
Many people who take out residential loans and mortgages are not always conversant with the law that governs financial institutions in Canada. For example, Section 10 of the Interest Act provides for the right of prepayment in circumstances where principle or interest under a mortgage are payable more than five years after the “date of the mortgage”. The mortgage can be prepaid in full after the expiry of the five-year term, together with an additional payment equal to three months interest. No additional payments or penalties can be charged by the lender. This is important to know if you take out a mortgage term of more than five years and after five years find yourself in a position to pay off the mortgage. As another example, Section 8 of the Interest Act prevents a lender from charging a higher rate of interest following a default on a mortgage or real property than that charged during the term of the mortgage. Remember that laws are regularly updated and changed so it is always wise to stay up to date on the current version of the Act in question. Know your financial rights before you take out a loan or mortgage to prevent surprises down the road.
Tip No. 9 Get financially pre-qualified.
There is a difference between getting prequalified for a mortgage and getting pre-approved for one. Prequalified means that you have been provided an indication of how much money you can borrow for a mortgage after meeting with a mortgage broker (or lender), but you are not pre-approved. By getting pre-qualified you will obtain a sense of how much you may be able to borrow.
Tip No. 10 Know the Standard costs of home buying.
Know all of the standard costs, and the more typical potential costs associated with the purchase of a home. This is an area that a competent real estate agent should be able to help you. In British Columbia, property transfer taxes and legal fees can add up to thousands of dollars. If applicable, mortgage insurance can add to the bill. There are also other costs associated with the purchase, not to mention the costs of moving. By knowing what to expect ahead of time, you can properly plan to make offers within your budget.
Tip No. 11 Do an Initial Number Crunch.
After you get financially pre-qualified and you know the standard costs of buying a home do an initial calculation to determine how much you can afford to spend on a home. Factor in your other expenses (current and planned). This will give you a starting point.
Tip No. 12 Assess your wants and needs.
We all would like to live in the home of our dreams, but we often have to make trade-offs when we are buying a home that is already built and we have a specific budget that we must live within. Think about and write down all of the things that you must have (needs) in a home to be happy with it. Then write down all of the things that you would like to have (wants) in your perfect home. Prioritize your wants. While you may find your perfect home, in most cases you will have to make compromises. The home buying process is generally more enjoyable when you know what you are looking for ahead of time and can focus on finding the home that will meet your needs and some of your wants.
Tip No. 13 Measure your current home.
As part of the preparation for the purchase of a new home, know what you are living in at the moment. Measure the main rooms and make notes on how much furniture will need to be accommodated in the new home. Take these notes with you when you see a home that seriously interests you. Measure the main rooms to ensure that they are large enough to accommodate your furniture. Sometimes homes are staged and furniture is reduced to the minimum amount to make rooms look larger than they are. Do not be fooled by this. It does not matter how the home looks with the seller’s furniture in it. What matters is how your furniture will fit and look in the new home. Modify your wants and needs list accordingly.
Tip No. 14 Consider Today and Tomorrow.
While you may be focused on your current needs and wants do not forget to consider how they might change a few years down the road. A young couple considering having children may find that their needs change when those of the soon to be children are considered. Similarly a couple on the verge of retirement may include different things on the list than they would while still working.
Tip No. 15 Buying Green Pays off Down the Road.
While there continues to be debate on exactly what constitutes a green home, there is consensus that having a green home should save you money, and provide you with a healthier environment. Look for things such as energy efficient windows, heat pumps, furnaces, and hot water tanks to save you money over the longer term. Clean air, water and good lighting in a home is important to a healthy environment. The Canadian Mortgage and Housing Corporation produces a pamphlet that can be downloaded for free called Healthy Housing Practical Tips for Your Home that can be downloaded from the following link. CMHC Healthy Housing Practical Tips for your Home
Tip No. 16 Take a Preliminary Look Online.
The internet is a great tool that will help you evaluate your wants and needs list against your budget. Take a look online to get a sense of what is available in the general area to which you will be relocating. If they are close you are ready to go to the next step. If your wants and needs list is significantly higher than your estimated home-buying budget take another look at the list and trim it down.
Tip No. 17 Search for and engage a Competent Local Realtor.
As a buyer you do not pay for the services of a realtor so why would you not want expert advice to help you with the home-buying process? The challenge is to find a competent local realtor who has expert local knowledge and who will help you find what you need. All real estate agents are not alike. Do not call listing agents. They work for the seller. Connect with and engage a realtor who will work exclusively for you as a buyer on a client basis. Now that you have done your basic homework and have enlisted the help of a local expert you are ready to start the process.
Tip No. 18 Ask Your Agent to Explain Agency and the Local Market to You.
Within British Columbia, real estate agents can provide real estate services to home-buyers on either a customer or client basis. Do not accept receiving services as a customer. If the agent does not offer you a client relationship find another agent. As well, do not accept dual agency as a client. Under dual agency the agent is asking to represent both sides of a potential deal. This is not in your best interests as a buyer. As of the writing of this article this is covered in the publication called Working With a Realtor – Designated Agency. The law and the corresponding agency regulation may have changed. Ensure that you have the most up-to-date version so that you know your rights as a buyer and what the agent will be providing you in terms of the information and advice that you need to buy a home. Other provinces and countries will have similar laws that outline the professional relationship that you can have with a real estate agent. Find out which one applies to having a real estate agent represent you exclusively and most effectively and completely as a home buyer. Get more information from the BCREA brochure on Working with a Realtor that is available as a PDF in the following link BCREA Working with a Realtor Brochure
COMMENCE THE PROCESS
Tip No. 19 Get financially pre-approved.
When you are ready to start looking for a home, get financially pre-approved.. Pre-approval means that you have provided a broker (or lender) with written evidence of your income, expenses, credit and other financial information and the financial institution has confirmed that you will be approved for a mortgage up to a specified amount and under specified conditions. Make sure you get the pre-approval in writing. Once you are pre-approved, much of the work toward obtaining an actual mortgage has been done. Getting pre-approved has two distinct advantages. For you, it means that your shopping experience will be less stressful because you have something in writing from the broker (or lender) stating how much money you will be able to borrow under a number of specified conditions. From a seller’s perspective, your offer will generally carry more weight against competing offers from people who are not pre-approved.
Tip No. 20 Disclose.
Do not withhold things from your mortgage lender, real estate agent or any other professional helping you with your real estate purchase. It is better to address potential problems head on and work out solutions than to withhold something and have it come back to bite you later on.
Tip No. 21 Avoid large purchases during the Mortgage Loan Process.
You have to have a shiny new car to go with that brand new house, right? Wrong! If you need to obtain a mortgage approval to buy your new home, do not do this during your mortgage loan approval process. Large expenditures made before or during this process will jump out during a credit check and they can hurt your debt-to-income ratio, especially if you are taking on a long-term obligation like a car loan. Other major purchases (expensive home appliances, furniture, vacations, etc.) should also be avoided during this timeframe for the same reason. Bottom line – do not do anything while applying for a loan that will diminish your financial health.
Tip No. 22 Avoid changing jobs or retiring during the Mortgage Loan Process.
For the same reasons given in the previous tip, changing jobs or retiring during the mortgage loan approval process is generally not a good idea. Changing jobs within the same field for more money is not necessarily a bad thing, but changing career fields could call into question your ability to repay the mortgage from a lender’s perspective. Be sure to talk to your lender about any changes in your situation like this so that you do not end up with any unpleasant surprises.
Tip No. 23 Remember to set aside money for the deposit.
When making an offer, most sellers will want a deposit to be deposited within some period of time of the offer being accepted. Sometimes they will also want the deposit increased when all conditions are removed. Remember to set aside enough money to cover these possibilities. Losing your dream home to another buyer because you did not have enough money set aside for a deposit would probably not sit well with you or your family.
Tip No. 24 Borrow only what you need.
Most of us would like the nicest home that we can afford but sometimes that will take us a bit beyond our comfort zone financially. Being pre-approved for a larger loan does not mean that you have to take it. Ensure that you have considered all of the other expenses and that your leave yourself something extra for life’s unexpected expenses such as the transmission in your car or truck letting go at just the wrong time. “When it rains, it pours” is a saying that seems so true when unexpected expenses arrive in bunches.
Tip No. 25 New or Resale?
While there may be many homes on the market, they generally all have their advantages and disadvantages. Before starting to look for the home that will meet your needs, consider whether or not you want to buy property and build a home to suit your needs or whether or not you will be satisfied with the purchase of a home that is already on the market. Get to know what the difference in price and time will be when building new versus buying a home on the market If for example, it will cost 20% more to build new in the current market than to buy used, would you not want to know that up front? When building, there are many things to think about ahead of time to ensure that you get the home that you anticipate. A good builder can help you with the process. Consider the total time involved – the wait time to engage the builder and the time it takes the builder to build the home and transfer title to you. Wait times of 6 months to a year for a good builder in a busy market are not unreasonable. Build times vary greatly. If a builder tells you that they can build a home in 8 weeks and another tells you it will take 6 to 8 months find out why there is such a difference. If you are looking for something that is already on the market, expect to have to do some work such as painting after you move in. While you may find the home that meets all of your needs that is in move in ready condition, these types of “finds” are less common that the ones requiring some work. Do not be surprised if some work is needed after you move in.
Tip No. 26 Start Online but View in Person.
While viewing homes online bear in mind that online listings can often make a home appear quite differently than what the home will look like when viewed in person. Smells, the feel and warmth that a specific home may exude in real life cannot be replicated online. Use all of our senses to assess a home that you view in person and trust your instincts.
Tip No. 27 Get to know the Local Real Estate Market.
While many different things can and often do affect real estate markets, all real estate markets are local. Even when a particular real estate market like the Comox Valley may be exhibiting some sort of trend, a specific neighbourhood may be displaying the opposite trend. It is important to understand the type of real estate market that you are buying into so that you do not over pay. It is also important to know the kind of homes that are typically found in a specific neighbourhood so that you do not purchase one that is lacking some of the major features incorporated into all of the other homes in the area. For example, most homes in a particular neighbourhood are rancher style homes with 3-4 bedrooms. One home just came on the market at a price slightly below the market. It is a two story home with 2 bedrooms. How well might this home sell in relation to the others when it comes time to sell it in a buyer’s market? Your realtor should be able to help you and provide you with the information and advice that you need o the local market.
Tip No. 28 Look for your new home objectively
This is easy to say and sometimes hard to do. When you start looking for a home try and remain objective about what you see compared to the list of needs and wants that you prepared. Home buying can often be an emotional experience. While an emotional attachment to your home is understandable, too much of an emotional attachment to a home when you are a buyer can result in too high an offer and/or something important being overlooked in the home. By remaining objective about the homes that you see, you will often be better off than if you “fall in love” with one too early in the buying process. Be prepared to walk away if your best offer is rejected.
Tip No. 29 First Impressions are Important
First impressions of the home and the surrounding neighbourhood are important. When you first drive into the driveway, the overall welcoming impression for most people is very important, from the colour of the front door to how the house fits on the lot. The same can be said for the impression you get from the home when you first walk through the front door. Trust your senses and instincts.
Tip No. 30 Create a Contenders List.
Normally looking for a home is a process of elimination. Take the ones that you know do not work for you off the list right away and do not spend much time looking at them. Spend your time with the ones that are real possibilities. Create a list of contending homes and try to reduce it to a handful or less. Once you have a short list of contenders, it is time to get more serious.
Tip No. 31 Take a second or even third look.
The first time that you view a home, details often get missed. If the home is a serious contender do back for a second look and have a list of things to confirm. On more rare occasions You may even want to go back for a third look to make sure before you write an offer. If you first viewed the home at night, go back in the daytime the next time so that you can see details that may not have been obvious.
Tip No. 32 Measure the Home.
While a potential new home may have all of the features you need for the price that you are willing to pay, check to make sure you can get all of your furniture up and down stairs, through doors, etc. Also check to see how much room there is in the garage. Will your vehicles fit? Do not rely on listing information for room sizes etc. Measure to make sure the home will meet your needs.
Tip No. 33 Consider the Home Day/Night All Seasons.
Before committing to an offer on a home ensure that you see if during the day and at night. Does it have enough natural light coming in when the weather is dark and dreary? Will there be issues when it rains or snows? Slope of yard and access are example associated with the latter points.
Tip No. 34 Confirm Neighbourhood and Location.
Buying a home is also about being comfortable that an area or neighbourhood also meets your needs. How fare are you away from the amenities that are important to you? Does the commute work for you? Does the neighbourhood work for you? Buying the most expensive home in a neighbourhood or over-building in a specific area may not bring the best resale value when it comes time to sell.
Tip No. 35 Have Your Agent Prepare the Offer.
Once you have selected the home that you plan to go after, sit down with your agent and discuss price, deposit, dates and terms and conditions. Offers without conditions should be rare. Most people need a mortgage and therefore the offer will be subject to obtaining a mortgage approval. Other conditions are often necessary to check out things associated with the home. Real estate agents do not know everything about every home you view but they should know where to go to get additional information for you during the condition removal process.
Tip No. 36 Understand before signing.
Most offers to purchase contain conditions that are for the benefit of the seller, buyer, or both parties. Ensure that you understand all of them before submitting an offer or responding to a counter offer. Do not just leave this to your real estate agent. If the agent cannot explain what they all mean to your satisfaction, get a different agent who can. Sometimes we may be in a hurry and are tempted to sign documents without thoroughly reading them. Do not do it. Once you have a legally binding contract, you are bound by what is written in the contract. This applies to your mortgage documents and the Offer of Purchase and Sale, and any other real estate related documents that you may be asked to sign. The courts do not accept ignorance of the contents as an excuse for not following through on a written contract. If you do not speak or read the language of the written contract well, get someone to interpret it fully for you. Once again, the courts do not accept language as an excuse for not understanding what you sign. Do not sign unless you understand the document fully and agree to its terms and conditions.
Tip No. 37 Ensure that everyone to be on Title is on the Offer.
All of the eventual owners of the home should be party to all parts of the real estate buying process. There are fewer complications, and it may save you time and money later. Even if someone has to be away during a part of the process, there is a solution. A power of attorney can be used effectively for one party to sign on behalf of another when the other party cannot physically be there to sign documents.
Tip No. 38 Get it in writing.
All agreements related to the real estate purchasing process should be in writing. While it sometimes may be tempting to sweeten an offer with the addition of something not contained in the written offer, do not do it. If the agreement does not directly relate to the real estate transaction, write up a separate offer. This also pertains to other things such as the mortgage pre-approval. Make sure the details are provided to you in writing, and that they address the mortgage rate, terms and conditions, and for how long the rate is locked in. Even when it is not intentional, people’s memories can fail them or become fuzzy on details. Having it in writing avoids unnecessary headaches later on.
Tip No. 39 Inspect.
Conditional offers will often contain subjects related to inspections. Home inspections are a basic consideration for every home purchase. Good home inspectors can find things you may miss. Some have instruments such as thermal imaging that can see things that the human eye cannot. Home inspections are important. There are also many other types of inspections that could be done on a specific home and/or property. If a home is not connected to municipal water and sewer systems, septic and water (quantity and quality) inspections may be prudent. There are many other types of inspections that could be required to adequately investigate the condition of a home and/or property.
Tip No. 40 Investigate.
In addition to inspections, there are other conditions that provide for the investigation of a home with agencies such as municipal authorities. If a home has had major alternations without the required permits, a suite added with a permit, or the property used for unlawful purposes, are these not things that might interest you as a home buyer? Your insurance company likely will. In BC, sellers are required by law to disclose latent defects associated with home or property but the buyer is responsible to investigate patent defects. Your real estate agent can help you with this process but at the end of the day, you, as buyer, are responsible for your decisions and “Buyer Beware” is part of the real estate buying process. A review of the title and Property Disclosure Statement are fairly standard conditions but there may be a need for others associated with a specific property.
Tip No. 41 Shop for home insurance early.
Smart buyers will start shopping for home insurance when they have an accepted offer. There is a lot to do when you are buying a home. If you wait until the last minute to find home insurance, you may find that there is no time to shop around for the best deal.
Tip No. 42 Time is of the essence.
“Time is of the essence” is a phrase that you will find in most, if not all, real estate contracts. This means that you should get things done – such as the removal of conditions in an offer – in a timely manner. Do not wait until the last minute to get things done. For example, if you have agreed to get a home inspection done within 7 days, do not wait until the last day to arrange for the inspection. Unexpected delays can, and do, happen. If you have agreed to do something in a specified amount of time and you do not get it done by then, there can be complications you generally would rather avoid. The same holds true for turning in documents for mortgage purposes. Do not put off until tomorrow what you can do today.
Tip No. 43 Make sure that your home qualifies.
Even when you are pre-approved for a mortgage, the home you purchase must also be approved. There are two considerations. The first is financial and the second concerns the home itself. If you pay much more for your home than the financial institution appraises the home for, they may not give you the full amount of what you are expecting to mortgage. In essence, the home must also qualify for a mortgage. It is also important that the home not have any major things wrong with it that could jeopardize it qualifying for a mortgage. When talking to your mortgage specialist, ask about what kinds of things in your area may fall into these categories. While most homes do qualify, occasionally some do not. Before you remove conditions and buy the home, ensure that the mortgage approval includes approval of the home at the price you have agreed to pay.
Tip No. 44 Condition Removal Means SOLD.
The removal of conditions on an offer means you, as the buyer, are committing to buying the home. Ensure that you are satisfied with the inspections and investigations before you do.
Tip No. 45 Lawyer or Notary for Title Transfer.
The transfer of the title of the property from the seller to you and of the money paid by you to the seller is the job of a lawyer or notary. Know which one you need based on what you are buying.
There are many more tips that can be passed on. Please feel free to contact me if you would like help buying your next home. As a real estate agent, my goal is to be as helpful as I possibly can to area buyers so that they know they will have peace of mind when they hire me to help them find their new homes. I hope this special report provided you with the information you need.