First-time homebuyers are usually quite thrilled and optimistic when they first decide to take the plunge and buy property. It’s natural to feel excitement and anticipation and even elation at taking such a big financial step (can anyone say advanced #adulting?). But don’t kid yourself. At some point, in the home buying process, there’s a chance you may end up in complete panic mode. Why? Because as a first-timer, you have never bought a home. Chances are you’ve never bought anything as expensive as a home and when a decision comes with such a large price-tag (and loads of new responsibilities) it’s not surprising a bit of fear (maybe even terror) will pop up.
Just know, you’re not alone. The good news is that many first-time homebuyers have come before you and, as a result, there are strategies that help you focus on the positive without becoming overwhelmed with the possibilities. Fear not! We’ve compiled the perfect plan containing seven steps for first-time homebuyers to follow. The best part? It’s not just educational — it’s fun, too.
1. Define your priorities and goals
When buying a home, your first step should always be to define your needs and your wants. Consider this your roadmap — a map you’ll need when you weigh into the “for sale” sheets and tackle the multiple listing services’ (MLS) map. By understanding your needs, you will have a better chance of not making an emotional decision during critical moments in the homebuying process. Write down your needs, wants and deal-breakers and then keep that list with you when you walk around each property.
One key component of that priority list should be your budget. While your budget shouldn’t change on impulse, it can dramatically change throughout the seven-step buying process. A 2013 BMO study about first-time homebuyer numbers stated that 60% of people have a fixed budget and a maximum spending cap. However, the study also revealed that about 33% of people would spend more if they were to find their dream home. The key is to be realistic about how much you can afford in a property and what a budget increase really means for your current budget and your future goals.
2. Seek pre-approval for your mortgage
The absolute last thing you want to do is start seriously looking at homes before you receive pre-approval for a mortgage. Without an estimate of what you’re able to afford based on a lender’s assessment, you could end up shopping above your snack-bracket and end up very, very disappointed. Another reason to get pre-approval is to avoid last-minute rushes. There’s nothing worse than finding a great home that falls within your budget only to settle on mortgage agreement where you are unhappy with the terms. A pre-approval can avoid this. Just keep in mind that a lot can change between a pre-approval and your final mortgage offer. The rate can increase, or decrease, and the maximum amount your lender will offer can increase or decrease quite dramatically.
Plus, by applying for a pre-approval you avoid the biggest shock of all: Being denied a mortgage with a conventional lender. The big lenders — big banks and a-list lenders that specialize in residential mortgages — approve only highly-qualified borrowers; people with good, steady, regular income and with great credit scores. So, if you are self-employed, a contract worker, a new graduate (with little work experience), or have significant debt, you may find yourself shut-out by the big lenders. This doesn’t mean you can’t get a mortgage, but it probably means you’ll have to pay a higher mortgage rate and this can certainly alter a monthly budget and your maximum house price.
If you are approved, it’s always a good idea to avoid large purchases that may rack up a credit card, incur debt, miss a bill or dip into your savings. All of these financial decisions could dramatically change your credit score and therefore affect your final mortgage approval and lender options. Lenders prefer a credit score above 680, however, will still consider those 600 and above lower risk than others.
The pre-approval will also help understand how much money you need to hold back for closing costs and additional services, such as an independent home inspection.
3. Contact a real estate agent
It’s important to find a professional and experienced real estate agent that you can trust. If you’re not entirely comfortable with them, their advice is no good to you. If they don’t truly listen to your priorities, they are not a good fit. It’s entirely respectable to research, interview and meet with realtors to find one that aligns with your needs. If you are looking for a detached home in a specific neighbourhood, some realtors may be more equipped to serve you than others.
Some fundamental questions to ask your realtor include their previous work experience and their most recent educational updates, current markets and home prices and what their existing client base is within your market. Generally speaking, Realtors who cap their clients to a specific number typically devote more time to customer-service than agents who try and take on as many clients as possible. Dylan Nihte, a growth manager at Zolo, says that there needs to be synergy between all parties for what is usually the largest financial decision in a person’s life. “The right agent will be a person who puts your best interests at the forefront of the real estate transaction,” says Nihte.
4. Start to look around
It’s a good idea for first-time homebuyers to view as many properties as possible that first day or two out. This helps you get a better idea of what you want and need and what the market will give you in your price range. While you’re touring and visiting listings, take pictures of the home (just don’t post them!) so that you can easily compare each property. If possible, take a clipboard and make notes.
Shortly after you leave a viewing or open house, rate the property. Use a scale from 1 to 10 (with 10 the highest score). This will hopefully help you jog your memories of the property later when viewing the pictures. Remember, it’s okay to be picky when making a financial decision as substantial as this.
5. Revisit your favourite property
After you’ve completed the first-round visit with each potential home, it’s a good idea to revisit your favourite properties, if possible. While this can be hard to do in a hot market, consider relying on notes and pictures to do the revisit. When doing this revisit, bring your original list of top priorities and make sure that the home matches up.
The most common mistake first-time homebuyers make, at this stage, is getting emotional over superficial things that are easy to change. Remember that you can alter paint, flooring, and fixtures before your move in, or shortly after if it aligns with the budget. If this second tour doesn’t give you the clarity you need to choose one home over the other, sleep on it. There is always another home for sale and if something doesn’t feel right, maybe it’s not.
6. Make an official offer on your dream home
The most intense part of buying a home is making your first offer. Suddenly, the weight of this enormous decision is on your shoulders, so it’s entirely reasonable to have second thoughts. It’s at this stage that first-time homebuyers will benefit most from the advice of an experienced real estate agent. This agent can walk you through the process and help you understand what to expect. They will also help guide you to the best offer to present during this negotiation phase and even make suggestions on how to sweeten the deal for the seller while staying within your own budget needs. For instance, maybe a different closing date will help or allowing the seller take their appliances will get you a better deal. Just keep asking your agent questions and don’t be afraid to negotiate, if your agent says it’s worthwhile. Of course, this is when critics weigh in and state that all agents care about it getting the highest commission possible and there’s truth to this, but it also neglects an important fact. A commission can’t be paid unless a deal is reached. That means it’s in the agents’ best interest to look after your best interests. If an agent thinks there’s negotiation wiggle room, they’ll take it. And if they don’t, they’ll say so (and say why).
7. Closing the deal
It always surprises first-time homebuyers that the home buying process doesn’t end when the deal is accepted. In fact, a 2015 survey conducted by the Canadian Mortgage and Housing Corporation (CMHC) found that 38% of first-time homebuyers incurred unexpected costs during the homebuying process. To avoid nasty surprises, it’s best to talk to your professional real estate team about what to expect once you close the deal. For instance, a good real estate agent will remind you that you are responsible for paying lawyer fees and property taxes, as well as land transfer taxes (taxes that can be quite steep depending on where the property is located in Canada).
Once you have a list of expected closing costs it’s a good idea to make note of your closing date and to stay in close contact with your mortgage broker or bank lender shortly before this date. Your lender will require a variety of documents. To make this transfer of information painless, ask your mortgage broker what information you need to collect and then keep this information in a file or binder where you can find it easily.
If you used RRSP money to purchase the home, remember to get the necessary paperwork from your lender so this documentation is complete and finalized before your closing date. Neglect to do this and you may be short tens of thousands of dollars on the closing day.
Finally, make sure you have an emergency fund set aside for those unexpected last-minute costs, such as pizza on moving day or gas for the truck rental.
Now, if you used our first-time homeowners’ plan and sought out advice from experts in the real estate industry, then more than likely you’ve entered into homeownership shouldering a mortgage that you’re comfortable with and moving into a house that truly fits your needs. Congratulations!