Buying a home should be an exciting and fun process. Not only are you looking for a place in order to potentially move out of mom & dad’s home or to stop paying rent, but you are buying an investment into your future. This blog covers a couple of big questions sometimes first time home buyers are nervous to ask, but shouldn’t be! I mean, how are you supposed to know? Its not like they taught you how to buy a home in school (even though that would have been handy).
How do I know if I am ready to buy?
If you are already renting a home, paying for the rent and utilities on a monthly basis by yourself or with a partner, along with being and able to maintain and continue a savings plan, you probably have enough of an income to pay the carrying costs of a similar quality home to what you are renting. The reason I say this, is because a landlord generally charges you more then what it costs him or her to pay the mortgage, condo fees, general upkeep and is still generally bringing in a cash flow of some sort on a monthly basis. Therefore, you end up paying more when you rent then what you would be paying if you owned the property. The other thing to look at if you are renting, is whether or not you have a downpayment. Generally, (but not always) first time home buyers can get financing with a 5% downpayment, assuming you are otherwise qualified to purchase. You also need the total amount of closing costs in your bank account. (Closing costs include the fees you have to pay on closing, such as Lawyer & land transfer tax). If you find yourself in this situation I recommend it is time to sit down with a mortgage professional.
If you aren’t already renting a home, but have been successful at saving money and have a stable job with a comfortable or better income and a good credit standing, you too should sit down with a mortgage professional.
What if I have a stable income & job, but no downpayment?
If you don’t have a downpayment you can look at a couple different options.
- You can go to a financial planner and have them help you out with a savings plan.
- If you are fortunate enough to have family willing to “gift” you the money, (aka they give you the total or portion of a downpayment & closing costs, and you don’t have to pay them back), sitting down and having a conversation with them is always a good start!
- If you have RRSP’s, you can pull a portion of that money out without being taxed, you just have to repay it over a certain period of time. For details on this program your mortgage professional will (or at least should) know all of the ins and outs!
What does being Pre-Approved mean?
When you get pre-approved by a mortgage professional, in broad words it really means, based on all of the information you have given the bank, you should be able to afford a home in this price range for a certain period of time (after this time period, even if nothing has changed you need to become pre-approved again). So to be pre-approved means you can start shopping for homes in the price range the bank has given you. Being approved for a mortgage is different than being pre-approved. Being approved means yes, you will get financing for this specific home at that agreed upon purchase price.
You become pre-approved by going to your mortgage professional. It is normal for them to look at the following information (note: every situation is different and they may require more or different information):
- The past 2 years T4’s & recent pay stub (for salary and hourly employees)
- The past 2 years of T1 generals with corresponding Notice of Assessments (for self employed workers)
- Debt service ratio (amount of debt compared to income)
- Credit score
- Amount of downpayment (or where down payment is coming from)
When you meet with the mortgage professional, there is no reason to be nervous or embarrassed that you wont get pre-approved for a mortgage. If you aren’t approved, they can point you in the right direction and tell you steps towards achieving the goal of buying your own home. If you are pre-approved then its time to reach out to a Real Estate Professional!
Need help finding a good and trusted mortgage professional to talk to? Either ask your real estate agent, or shoot me an email firstname.lastname@example.org.
How do I choose a Real Estate Professional to Represent me?
Once you become pre-approved and want to start looking for homes, either reach out to a real estate agent you know and trust. Ask a friend or family member who as moved recently or start googling real estate agents – trust me, theres a ton of us to choose from. You can even find a lot of marketing online such as Facebook and Twitter to see who you think you would relate to the most (caution though, a lot of agents use automative posts and they don’t even know what is being posted on their pages).
Don’t be afraid to take the time and call a couple agents to set up a meeting and find out who you connect with the best and who you find most knowledgable. A lot of people also meet their agents by calling the listing agent on a property they like or going to an open house. The only thing I would like to warn you about is, if you call the listing agent (the person who has the home you are interested in listed), you have to remember that they have a signed contract with the seller and are representing the sellers best interest. It is best to have a buyer agent for yourself who represents your best interest in the transaction. Make sure the person you choose to represent you lives and practices real estate full time in the city you are buying in! These agents are the ones who will know the new developments being built in the city, have pocket listings (listings other agents don’t know about), and will know of a property coming up soon if the homes currently on the market do not interest you
Remember, you don’t have to use mom and dad’s agent who is to old to even know how to shoot you a text. This process should be about you! So make sure you choose an agent who helps show you that because you’re about to spend a decent amount of time with this person.
Once you have chosen an agent, the agent will help set up a search for you so you can see the properties online. From there, you will tell your agent which properties you like the best and would like to see in person. Your agent will then coordinate a time for a private showing, so you can visit the home in person to see how you like it. Remember, you aren’t bugging us by asking to see a property! Its our job to show you the property, and we love doing it!
How do I know what I want in a home?
Once you become pre-approved and you want to start looking for homes, I recommend you put together two lists. The first list being everything I need in a home. For example, I need a backyard of some sort because I have a dog and we need parking for 2 cars. The second list being everything you want. For example, I want granite in the kitchen and it would be nice if we have an ensuite but I could live without it.
Sometimes its hard to differentiate the difference between a need and a want in a home, so personally I look at it as things that are easily changed (once I have enough money to change it, but wont stop me from buying the home) vs. what is hard and costly to change but I would like it in the home to maximize its use. Once you see a couple homes, you will quickly start to realize what is important to you. So either go through a couple open houses, or give me (or your real estate agent) a call so you can check out some different options which will help you figure it out.
How do I know what I can buy for my budget?
Thats where a real estate agent comes in handy! We have up to date information on which ends of town have which products for different prices. Give us a call or shoot us an email so we can go over that information to help you figure it out. You can also find the TrilliumWest data report here, which will give you a ton of awesome info on the Guelph market, including what sells in which areas of Guelph in certain price ranges. By reading a data report like this, it will also allow you to feel more knowledgable and comfortable when you finally decide to put in an offer on a home.
What if I want to build my first home?
Great! We have a ton of awesome builders in Guelph who build a wide variety of homes. Everything from single detached, to high or mid rise condos, and even freehold townhomes! Your real estate agent should know most, if not all of the developments going up around town and would be happy getting all of the information for you so you don’t have to drive around to every model home in Guelph. We can do that, and narrow your search, then go check out the model homes that matter to you. And yes, a real estate agent can still represent you purchasing a home from a builder, even though most builders prices are non negotiable they will be there to support and help you through the process.
Is it normal for my parents to be involved?
Yes!! But its also normal for them to not be involved. All depends where you are in your life and the relationship you have with them. Some parents will be there for every single showing, and other parents wont come see the home until you move into it. Some parents are even able to support you by co-signing on the mortgage or help out with the downpayment and closing costs. Again, we didn’t learn how to buy a home in school so it is natural to go to a family member or close friend for advise.
Honestly speaking though, if you are mature enough to buy a home and live by yourself or with a partner, you are also mature enough to go through this process all by yourself. So don’t be afraid to make your own decision because you will be the one living in the home every day. And hey, your parents might still be living in the home they bought when they were your age and been out of the real estate game for awhile or maybe your parents flip properties and you love their opinion. Parents will only be as involved as you let them be.
Once I find the home I love, then what?
Then the fun begins! Your agent will write up an Agreement of Purchase and Sale. This agreement allows you to submit an offer to the seller(s). It will include the properties address, your names, the purchase price, closing date, deposit, what comes included with the property, a ton of standard clauses (your agent will explain), and other clauses you choose to put in such as financing, inspection, insurance etc.. Then you just have to sign away! But don’t worry, thats it’s our job to prepare that to make sure you are protected in all aspects, and most importantly that you understand exactly what you are signing too. After the agreement is signed, you will submit your offer to the seller(s). The seller(s) can then decide to accept, decline or counter the offer. Your real estate agent will be with you for every step of the way and will recommend the best options for your specific scenario.
Don’t worry, I too recently purchased my first home. If you want help with it you are not alone and I know what the process feels like. Give me a call, text, email, tweet or comment if you have any further questions! There is no such thing as dumb questions, especially when you are spending a couple hundred of thousand dollars. I would be happy to meet with you (even your parents if they want to come), to go over some options for your specific scenario. Happy house hunting!