It’s final, isn’t it? You’re going to be a homeowner soon. However, you feel overwhelmed about your next move and the steps to take in buying a home in Toronto & Ontario, CA. This home buyer’s guide is designed to help you pick the home you want without a sting of regret.
Before you proceed to learn the steps to buying your home, here are some useful statistics:
- The first step home buyers take when buying a home is looking online (48%), followed by contacting a real estate agent (18%) (NAR).
- The primary bedroom with a private primary bathroom and a fenced-in backyard is the most desired home feature for most buyers (63%) (Coldwell Banker).
- The most common reason for buying a new home was to prevent remodeling, plumbing, or electrical problems (44%) (NAR).
The 10 Home Buyer’s Guide
Before getting excited about home hunting, there are some other vital steps to make home buying a more straightforward process. Prepare for everything by following these steps before moving into your new home with delight.
1. Organize your finances
You might have heard this so often that you already know what to expect. However, this step is crucial, and this step alone could either help or prevent you from buying your desired home. Unless you plan to buy it all in cash, you will likely need a mortgage loan.
Both the lender and the seller are concerned with your ability to pay. To assess that ability, they need the following financial information:
Take care of your credit score first if you plan to buy a home in the next year. Mortgage lenders primarily use credit scores to assess whether you’re a good payer or not. Ideally, the higher your credit rating, the higher chance there is to secure a loan.
Although the required credit scores vary in general, the minimum credit score to be approved for a mortgage is 650.
Another thing you should prepare for is the condition of your assets. This served as an assurance to lenders that they had assets to pull off if you failed to pay. So have your accountant prepare your financial statement and get it ready.
Debt-to-income ratio (DTI)
Big paychecks don’t mean anything if almost all of them go to pay off your debts. If you want to get a mortgage in Canada, you usually need a debt-to-income ratio of less than 42%.
Monthly gross income – $2,800
Monthly debt payments – $900
900/2,800 = 0.32, or a DTI of 32%.
This means that 32% of your monthly gross income is allocated to your debts.
2. Get pre-approved for your mortgage.
Getting pre-approved for a mortgage gives confidence to the home seller in selling their home to you. It also means they’re not wasting their time talking to you as you have a higher chance of paying for the house at the asking price. However, before getting pre-approved for a mortgage, you’d better first take care of the first step.
Additionally, you should already have saved for a down payment at this point. Down payments usually come in around 5% to 20% of the home’s total asking price.
3. Apply for home buyer incentives (if buying for the first time)
First-time home-buyers have their perks. If you’re a first-time buyer, you can actually enjoy some mortgage perk assistance to make buying your home more affordable.
People who qualify for the First-Time Home Buyer Incentive can lower their monthly mortgage payments without having to take on more debt.
The First-Time Home Buyer Incentive is a government-backed shared-equity mortgage. It has the following features:
- A 5% or 10% discount is available for purchasing a newly constructed home.
- A 5% discount when purchasing a resale (pre-owned) home.
- A 5% off for a new or resale mobile/manufactured home purchase.
4. Talk to a realtor
Talking to your trusted realtor makes the home buying process more straightforward. They are trained professionals and are ready to provide you with their professional opinion and even help with negotiation between you and the buyer.
Here are a few things you can benefit from when talking to a realtor:
- They help you save time looking for the best houses that suit your price range.
- Decipher paperwork and transactions.
- Request and review seller disclosures.
- Knowledgeable about the real estate neighborhood.
5. Identify the home you like and schedule a tour
Now that you have a list of the homes you want to buy, scheduling a tour comes next. In this step, examine the home’s overall features to see if anything needs fixing. Look at the furniture, electrical and plumbing, floors, lighting, and roof. Examine if the house is precisely listed just like the photos or if it’s just a Photoshop trick.
On the other hand, if the house has many defects and you can see there’s a lot of work to be done, you can negotiate the price.
6. Make an offer
When making an offer, it’s important to consult with your realtor and consider the house’s overall condition and your budget. This is a bidding war, and if you really want the house, be creative about finding ways to meet the seller’s needs. For example, if you meet the seller’s price, ask if he’ll throw in a few home appliances.
Once you’ve agreed on a price, the seller’s agent will prepare a purchase offer that includes a projected closing date (usually 45 to 60 days from the acceptance of the offer).
7. Get the contract ready
In this step, you will need your lawyer or agent to check the document to ensure the deal is dependent on the following:
- Your mortgage application.
- A property examination that reveals no significant flaws
- The ability to undertake a walk-through examination 24 hours before closing.
8. Secure a loan
The next step is to call your mortgage lender and move quickly on your agreed terms. This is when you decide whether to go with a fixed interest rate or an adjustable mortgage rate.
Fixed interest rate
This arrangement has a fixed interest rate over your mortgage loan term on a 15 or 30-year term. The longer the mortgage term, the smaller the monthly payments become and vice versa.
Adjustable mortgage rate
There’s no fixed interest rate for adjustable-mortgage rates. The fluctuation in interest rates depends on the condition of the market.
9. Hire a home inspector
In addition to the mortgage lender, hire a home inspector. Be there during the inspection to learn more about the condition of the home. If it turns out that the home has many more defects than you anticipated, then have your lawyer or agent speak with the seller about it.
If the seller does not agree to further negotiations, such as lowering the price or fixing the home’s condition before closing the deal, you may walk away from the contract without a penalty.
10. Close the deal
This is the end goal. However, before you can move to your new home, there’s a lot of paperwork to do. Your lender will send you a final HUD Settlement Statement about two days before the actual closing that details all of the charges you can expect to pay at closing.
After you finished all the paperwork, you’re now ready to move into your home, your things, and even your pets!
The Bottom Line
May your home buying experience be good by following our home buyer’s guide above. You don’t need to worry about the whole process. Use the necessary resources you have. It’s always better to have a plan to get the home you want without a fuss.