Home buying 101
A house is probably the single biggest purchase you’ll make during your lifetime, so you obviously want to make sure the process goes as smoothly as possible. The first thing to consider is what you’re looking for—are you looking for a home that’s ready to move in hassle-free, or would you prefer a fixer-upper you can play around with and make your own?
Once you’ve established what kind of home you want—as well as the features that are most important to you—it’s time to look at the financial side of things. A bank or mortgage professional can help you determine the figures you need to start the home-buying process.
“If you go through a bank, you know you’re using a company you can trust,” says Kim Jansen, an account manager at Canadian Western Bank. “Banks often offer relationship discounts for clients. It’s also an added convenience because you can review your mortgage when you’re doing your regular banking.”
Hiring a mortgage broker is another route potential homebuyers can take. “The biggest benefit to hiring a mortgage broker would be a consumer’s choices in options. What we can do is provide an unbiased opinion that is going to work for their specific situation,” says Brent Parnell, a mortgage broker with Vertuity Mortgage. “The other big benefit is the amount of volume we do with the banks entitles us to better rates. I know on a daily basis what different banks are offering, whereas a consumer may have to shop a bank three or four times to get the lowest rate.”
Before you start your search, you need to know how much you large can afford to spend. You will have to consider factors like how much of a down payment you can make and how much you can put towards housing every month. Those figures can vary according to the financial institution or brokers. Jansen recommends a minimum of 10 per cent of the price of the home as a down payment, while Parnell says five per cent is also a good starting point.
“However, we recommend a person save as much as they can and it’s optimal if they have at least 20 per cent,” adds Jansen. “You should also have an additional two per cent—in addition to your down payment—for closing costs, lawyers’ fees and land title transfer.” As for what you should put towards housing on a monthly basis, Jansen recommends a maximum of 32 per cent of your income before taxes.
To make yourself a more attractive buyer, it is a wise decision to get pre-approved before you make an offer on a house. You will want to check your credit scores, because low scores may prevent you from getting a mortgage and your score can affect how much your insurance company charges you for homeowners’ insurance. You can contact one of Canada’s credit bureaus—Equifax or TransUnion—to receive a copy of your credit report, free of charge.
“My best tip is to do your homework before you even start shopping around. I recommend making a budget so you know how much money is coming in versus how much you spend on debts, bills, recreation and groceries,” says Jansen. “You need to have an honest number because that will make a difference on how much you can pay for a house.”
Parnell also stresses the importance of planning out a budget, which can be easily created with online budgeting tools. “Step one of my home-buying process is for the consumer to sit down with a knowledgeable broker,” he says. “I think people should look over their own expenses and talk it over with a professional.”
To weed through the many homes on the market at any given time, it is also wise to hire an experienced realtor to help with the search. “Anybody buying a home should have expert advice on how to do that and should consult someone who knows what they’re doing in terms of negotiating,” says Stan Newman, a broker and owner of RE/MAX Professionals. “Realtors can offer expertise on the areas the client is looking in and the homes they’re looking at, advice on whether it’s a good or bad investment, if it meets code, explanations of taxes and land transfer tax, etc.”
A realtor can also help you decide what amount to offer and then present it to the seller. Once you’ve made an offer on a house, you can start negotiating—the seller will either accept your offer or counter it, after which negotiations may continue.
“Be open to things you didn’t think you would be open to, in terms of what you really want or need in a home. What you need is important; what you want to have costs money,” advises Newman. “A realtor can help you keep it in perspective.”
If and when you decide on a price, you can start the next step of the home-buying process—the home inspection. You may even want to make your Offer to Purchase conditional on arranging for an inspection, which “consists of a top to bottom inspection of all major systems in the house—structure and foundation, plumbing, heating, electrical, roofing, insulation and ventilation, and the attic,” says Ari Marantz, owner of Trained Eye Home Inspection and president of the Canadian Association of Home and Property Inspectors-Manitoba.
The inspector will identify any major areas of concern, along with general maintenance items and tips. Following the inspection, the homebuyer will receive a detailed report with pictures, diagrams and explanations of issues related to the house systems.
“You can buy a house with unknown problems if you don’t do an inspection and do your due diligence,” adds Marantz. “The best thing you can do is to make sure you take your time and don’t rush things. Too much of the time, I see people who are being pressured from all sides to do things immediately and quickly.”
Indeed, buying a home is a long and often-tedious process, but, with the right supports in place, it can go quite smoothly. Once you sign all of the paperwork, you can move on to the best part—getting the keys to your new home!