Once you make the decision that you’re ready to buy a home an overwhelming amount of information will come your way. Banks will want to know whether you’re financially prepared and realtors will want to understand your needs. With all this need for facts, figures and documentation how do you sort out what you really need to do when buying a home? We’ll tell you. Here are the five most important things to do when buying a home, in chronological order.
1. Get your finances in order
One of the first steps is to find out exactly how much home you can afford. The best way is to check your budget. How will increasing monthly housing costs hurt or hinder your ability to pay the bills? Zolo-founder and West Vancouver agent, Barry Allen reminds buyers that there is more to home-buying than the cost of a mortgage. “I would take a really deep dive into the financial side of things,” said Allen. “That way there are no unexpected surprises.”
But don’t stop at your own budget. Check your credit score. You can get a free check and overview from the two largest credit agencies, Equifax and Transunion, or check out free credit score checks offered at various times through various institutions (such as Credit Karma). You want to confirm that your score is at least 680 or above and that there are no outstanding debt issues that would prevent you from getting a mortgage loan.
2. Make sure you have pre-approval
If you are buying a home, having pre-approval before jumping into the house-hunting game is important. Very important. Not only will pre-approval help you to accurately gauge the maximum purchase price you can accurately afford, this pre-approval will also provide a rate guarantee. This is particularly important when rates are expected to rise. Typically, most big mortgage lenders, such as banks, will provide 30- to 120-day rate guarantees — great for borrowers seeking homeownership in a volatile market. “There is no point looking for a home if you cannot get financing for it,” said Vancouver-based mortgage broker Atrina Kouroshnia.
3. Shop your lender often
While getting a pre-approval can alleviate some of the financing stress when buying a home, it doesn’t mean you’re done with this part of the home buying process. Remember, a lot of things can change (both good and bad) between the time that you are pre-approved and the time that you move. Perhaps interest rates dropped or you came into a significant amount of money that you can add to your current down payment stash. No matter the reason, it’s key to keep an eye on rates and to determine if the pre-approval rate is the best rate at the time you are expected to close the deal.
Another reason why it’s important to shop your lender is because most if not all mono-lenders — lenders who specialize in mortgages and who typically offer the most competitive rates in the market — won’t offer pre-approval. Mono-lenders offer some of the lowest rates because they won’t take on extra paperwork, such as pre-approvals. To make sure your pre-approval rate is competitive, talk to your mortgage broker. A good broker will know whether or not they are better rates in the market and will alert you to this when it comes time to finalize the loan terms.
Just remember, a great rate isn’t the only facet of a good mortgage. You have to get the right product, with the right payment structure in order to maximize your options.
4. Prepare for short-term and long-term ownership goals
If you are a first-time home buyer, it’s always good to buy a home that you can grow into. But this isn’t always an option when you are searching in hot markets with high prices. Kouroshnia recommends buyers understand their first purchase might not be their forever home. She says it’s best to get into the market and move up when the timing is right. “Aside from timing, life happens, and that means most people do not stay in the same home forever anymore,” said Kouroshnia.
If you are in the process of moving to a larger home or downsizing to a smaller property, consider where you want to be and what you want to be doing over the next 10 years. Although goals don’t always happen quite the way we imagine, it’s never a bad thing to assume that the home you are buying is where you will be staying for as long as possible. This way, your must-haves list can prepare you for life changes whether they come sooner or later than expected.
Along with your mortgage and monthly expenses, the critical area that buyers need to do a once-over before buying is closing costs. Perhaps you’ll want to steam the rugs and paint the walls when you move in? Or you need to buy some yard tools or a new furnace. Whatever the reason, you’ll need to consider where you’re going to get the money from to pay for these additional expenses. “You don’t want to end up with a credit card from the Brick filled with furniture bills,” said Allen.
There’s also a misconception that the only closing costs you’ll need to consider are legal fees and land transfer taxes. “That’s a common misconception,” says Allen. “Depending on when you buy a home you might have to write the lawyer a cheque for $14,900 in property taxes right before you close,” said Allen.
The key is to keep in mind that there are various costs that you need to budget in order to avoid starting home ownership with rising consumer, high-interest consumer debt.
5. Plan ahead — far ahead
Most realtors will encourage a buyer to purchase a home that will fit their needs for more than just a couple of years. One reason is that the transactional costs of home ownership are expensive. There’s real estate commissions, legal fees, mortgage fees as well as moving fees — all of which can add up to tens of thousands of dollars. As a result, homeownership is really about honing our ability to plan ahead. Whether it’s looking to the future to see how you will use the home if there is an added family member or planning ahead for the movers, each of these tasks requires strategic planning and execution.
In Realtor Allen’s experience, most people spend four to six weeks packing up their place either to sell or to move. “Just the process of moving can take up a lot of time,” says Allen. He suggests sitting down with friends and family to decide what your plans are well in advance so that you’re not overwhelmed with any stage of home ownership, whether it’s moving, mortgage or moving up or down on the property ladder.
Now, with these five important steps, you should be better prepared before taking the big step of buying a home. As a result, the home buying process should be a lot less stressful and a lot more manageable. Remember, the process of buying a home doesn’t have to be overwhelming.