As your personal guide and trustworthy agent, I strive to give you the best of the best. In the years that I’ve spent in the industry, homebuyers have always asked me “What do I need to do when I buy a house?”. I’ve composed a step-by-step guide that organizes the buying process to make buying a house simple and fun!
Step 1: Determine Your Budget
Before you start house shopping, calculate your current living expenses to determine what kind of mortgage you can comfortably afford. Don’t forget to include things like transportation, phone, Internet and groceries. When you buy a house, you need to have enough money to cover both your mortgage and your lifestyle. Determining how much per month you can afford to spend on accommodation, will then help to determine the size of mortgage you can handle. Don’t forget, that as a homeowner, you may have other expenses which you don’t have right now, such as property taxes, home insurance, heat and hydro (electricity), monthly maintenance fees (if purchasing a condo), etc. These will also have to be taken into account. Getting into the market can be expensive. One of the best ways to offset costs is to consider turning your potential home into an income property by either purchasing one that has (or has the makings of) a secondary suite, or living with roommates. While these scenarios might not suit every homebuyer, they are definitely worth considering for anyone who wants to get in the market, but can’t make it work financially on their own.
Step 2: Determine Your Down Payment Early in the Process
If you’ve been planning to purchase a home for a while, you hopefully have a decent down payment saved. An absolute minimum down payment is 5% of the purchase price … and having a larger down payment is obviously better, as it will reduce your monthly mortgage costs. If you don't currently have more than 5% of a probable purchase price, figure out how much additional money you may be able to access, and how it will affect your monthly mortgage payments. Do this early in the process, so that you can get a realistic idea of what you can afford, and if you need to step up your saving program.
Step 3: Don't Forget Closing Costs
Many homebuyers either forget, or don’t realize that they must pay closing costs when they purchase a property. Closing costs include such things as lawyer’s fees (you must engage a lawyer to process the purchase of property), land transfer taxes, title insurance, moving expenses, etc. While closing costs can vary, they’re often between 1.5 and 3.5 percent of the purchase price.
Step 4: Get Pre-Approved
One of the smartest things you can do, if you're a first time homebuyer, is to get pre-approved. What this means is working with your bank, or with a mortgage broker, to ensure that you have all your financial ducks in a row. The mortgage officer/broker, will use the information that you put together about your income and expenses, and will calculate exactly how large a mortgage they would be willing to give you. You’re then pre-approved for that amount, and an interesting benefit is that as part of the pre-approval, the mortgage interest rate quoted will be held for you, usually for 120 days, in order to give you time to find a house/condo. This is a great feature of a pre-approval, especially in an environment where interest rates are rising. Additionally, there is no cost or obligation in getting pre-approval. Not only will it set the right expectations for what you can afford, but it might also give you an edge over the competition. When it comes time to make an offer, yours may not have to be conditional on financing, if you have a pre-approval.
Step 5: Do a Practice Mortgage
Once you decide you want to buy a home, you may want to start putting aside the amount of a mortgage payment every month (if you’re currently paying rent, “top up” the rent amount to the mortgage amount, and put the difference in a savings account). After a year of doing this, not only will you be more confident and comfortable with what you can pay, you’ll have an extra chunk of money to put towards your down payment.
Step 6: Make A "Needs and Wants" List
Before you start looking at properties, you should have an idea of what you want, ranking your top “must have” items right down to the “nice to haves.” Think about location, size, number of bedrooms, parking, exterior space, storage, and so on. You may not get everything you want the first time out, but you need to start somewhere.
Step 7: Contact Me!
Before you even consider buying, you should CONTACT ME to discuss your budget (remember, you are pre-approved, have a down payment and know how much you can comfortably spend) and your requirements (bring your wish list!). I can then research the market in the neighbourhoods that you would like to live in, so that I can provide you with a sense of what is available, and what homes/condos are selling for. While you might like to live in a certain neighbourhood, my research will prove whether you can or can’t afford a home in it. Keep an open mind … Toronto has many great neighbourhoods, and one that you haven’t thought of might actually be just right for you. Let me be your guide … it’s one of the many advantages of working with a well-informed Realtor!
Step 8: Don't Look at Houses/Condos You Can't Afford
Now that you know what you want and what you can afford, it’s up to you to make the two work together. I will send you information on properties that fit your requirements and budget. DO NOT fall into the trap of looking at properties you can’t afford on realtor.ca or other websites. When it comes to buying your home, especially if it is your first property, you have to think mostly with your head, and not so much with your heart. Falling in love with a house that’s out of reach will only result in disappointment.
Step 9: Get Out and Look!
As your Realtor, I will send you listings of available homes/condos in your price range. Many of these will have photos and virtual tours attached. These aids are great for cutting down a list of potential properties, but they are no substitute for actually going out and seeing the place. Photos can be very deceiving … they can make a small place look huge, or vice versa. And some listing photos are just plain bad … they don’t give you a real indication of what the property looks like. So when you do see a listing that has possibilities, contact me and I’ll arrange a viewing appointment at your convenience. But be prepared … if you are serious about purchasing a house/condo, it’s important to see it as soon as it’s listed (remember, you’re not the only person in Toronto looking for property), which means quickly contacting me for an appointment and being flexible with your schedule.
Step 10: Try Not to Get Too Emotional
No matter what your situation, buying a house/condo is always an emotional process. But it’s really important that you don’t let those emotions dictate your decisions. You have to fall in love with the numbers as well as falling in love with the house.
Step 11: Making An Offer
By law, all offers for purchasing real estate must be made in writing. This may sound simple, but it is not. The offer must contain certain legal language in order to protect you, the buyer. This legal language is embedded in the forms used by licensed Realtors in Ontario. Aside from this “boilerplate,” I, as your Realtor, will add clauses into the offer specific to your situation, to protect you, my client. Such clauses can specify exactly what items are included in the purchase (such as appliances and light fixtures), whether the offer is conditional on a good inspection report, whether the seller is to make certain repairs before closing, etc. If we decide to make an offer that is less than the seller’s asking price, I will then act as your negotiator, to convince the seller that your offer should be accepted. My task is to obtain the house/condo for you, at or below market value, not above.
Step 12: Surviving Bidding Wars
Sometimes, the house/condo you want to purchase will be the subject of a bidding war. Although the number of bidding wars have slowed down of late, they are still pretty common in Toronto, so you need to be prepared. Often, the tactic that a listing agent will use to create a bidding war, is to price the home considerably below market value (i.e. the price that similar homes have recently sold for), in order to attract more buyers. In these types of situations, the most important thing is to stick to your budget. You may lose the house/condo, but there is nothing worse than the stress of being saddled with monthly payments that you cannot make. Even if the house/condo seems perfect and you desperately want it, it’s not worth it. Another one, that won’t cause your budget to go up in smoke, will eventually come along. And don’t worry, I will be there with you, all the way, no matter how long it takes to find the right home at the right price.
Step 13: Get a Home Inspection
In today’s market, it’s not uncommon for people to forgo a home inspection in order to make their offer more appealing to the seller (sellers are looking for offers with the fewest negative conditions as possible). It is always best to get a home inspection, even though an inspection cannot detect everything that might be wrong with a home (home inspectors are not allowed to make holes in walls and ceilings to check for insulation and vapour barriers, for example). The inspection should check major items like the condition of the roof, windows, look for signs of mould, test the HVAC system, etc. Some sellers will have had a home inspection done, as a tool to prove to prospective buyers that their home is in good condition - if that is the case, then you may feel comfortable relying on that. If you’re interested in making an offer on a home where a bidding date has been specified, it may be possible to arrange for your own home inspection BEFORE making an offer. That way, if the inspection is good, you can make an offer that doesn’t contain this condition. While every situation is different, if at all possible, get a home inspection.
Step 14: Accept that Your New Home Won't Be Perfect
While a home inspection will help you to identify certain issues, it’s important to remember that no home is perfect. There may be issues you need to fix. or there may be things you have to sacrifice. Don’t let this discourage you. Stick with the things that really matter to you, and be willing to compromise on others.
Step 15: Set Aside an Emergency Fund
No matter what kind of property you purchase - old or new, house or condo - there is always a chance something could go wrong. An appliance could break down, the roof could leak, or something else totally unexpected could happen. Make sure you’ve got an emergency fund to handle these issues. Remember, once you’re an owner and not a renter, there’s no landlord to come to your rescue.