2023 Home Buying: A Step-By-Step Guide with Timelines
Have you been considering buying your first home but are the issues of affordability, getting the right home, and that ungodly paperwork burden just too much to handle? Being a homeowner in Canada has immense benefits but we agree, the shift from renting to owning a home is not an easy one to make.
According to Statistics Canada, over 1.3 Million Canadians bought their first home in the last 5 years. If you fall in this category and have been planning to make the shift and be a homeowner, fret not, we are here to make this gargantuan task a little simpler.
That’s where ipresalecondos comes in to save the day and give you a [step-by-step guide on how to get started, and close on your first home. With a helpful, 12-month timeline, you can avoid common pitfalls like choosing a wrong house, paying too much interest, or just not having the right preparations necessary to close the deal.
12 months out
Check & Improve Your Credit Score
No matter which credit union you choose (Equifax, Experian, or TransUnion), they are all required by law to give you one free credit report per year. This not only helps you assess where you stand financially but it is crucial to thoroughly check the report to make sure there are not any errors which might lead to higher loan rates later on when you’re applying for Mortgage. This is also the time to start making wiser financial decisions and try to pick up your credit score to the required range
Determine Your Affordability
Wanting something and being able to afford something are two totally different things. You do not want to fall into the trap of buying something that you cannot afford only to get tied up in exorbitant monthly payments.
This is the time to really ask yourself how much debt can you afford to take on for the new house.
Lenders will usually require you to have a Total Debt Service Ratio (TDS) of no more than 44% of your total household income. This should include any future mortgages and other debts such as student loans, car loans, or any other credit cards you may have.
You can use this handy calculator to help you figure out just how much you can afford with your current income.
Plan For the Down Payment
A down payment is a sum of money that a buyer pays in the early stages of purchasing a home. The down payment represents a portion of the total purchase price, and the buyer will often take out a loan to finance the remainder.
Most lenders will require you to pay a 20% down payment which is a good idea to go for, if you can manage that sum. That way, your loan will cost you much less and you’ll be able to save some money on your monthly payments.
However, if setting aside that much money for a down payment is not possible in your case, there are many different programs that can help you as a first time home buyer.
First off, you can check with your credit union or your employer as they might have an assistance program.
BC housing also offers many non-profit housing assistance programs that you can enrol in.
Finally, if you need to get started on the deal with a lower than 20% down payment, the Canada Housing & Mortgage Corporation is a government agency that lets you put down a smaller initial payment but with mortgage insurance.
Following are the minimum down payments required to get a mortgage insurance (depending upon the price of the house):
- For a home that costs $500,000 or less, you need a minimum down payment of 5%.
- For a home that costs more than $500,000, you need a minimum down payment of 5% on the first $500,000 and 10% on the remainder.
- For a home that costs more than $1,000,000, mortgage loan insurance is not available and the buyers must pay a minimum 20% down payment.
Do keep in mind that when you choose to go with a lesser down payment, and pay loan insurance, your monthly costs will go up.
9 Months Out
Make a list of things you want in your new home
What is important to you in a home? Do you like a big backyard? Or would you rather sacrifice that for a spacious living space and a masterchef worthy, sizable kitchen? It is YOUR new home, so it is important that you prioritise what you want in this new living space.
If this is a joint decision between you and your partner, then it is even more important that you sit down and select the desired features that both agree on and work out any differences you might have well ahead of time.
Location! Location! Location!
The answer to the question “Where do you live?” might hold a lot more weight than you’d think. Location is what can make or break a property. This includes the preference of being inside a bustling city or choosing to live in a quiet suburban area. This is where (personally) our favourite part comes in – House Hunting!
You can go look at listings on popular directories in BC like www.ipresalecondos.com in localities that you have earmarked. Do your research about the area like what are the future projects coming in that area, how well connected is it with transit, what is the cost of living and are there any conveniences nearby.
Use the website Walk Score to find out how accessible the address of the potential home is for walking, transit and biking!
Start visiting the homes that pass your initial research criteria – getting into the field and physically walking through the home is the best way to get yourself excited and motivated to save & plan for your new home.
Budget For Upfront Costs
Let’s be honest, we have all been in the situation where we went to the store, bought a bunch of tiny non-costly items, only to see a large number while billing!
Truth is, small expenses add up; and a huge investment like a house has some miscellaneous upfront expenses. These include but are not limited to:
- Home Inspection
- Title Search
- Property Survey
- Home Insurance
These costs can vary quite a bit depending on the locality, the kind of product you’re going for and many other factors. Make sure to budget these items and if you don’t have the cash, start saving now.
6 Months Out
Prepare For Your Mortgage
Banks require a lot of paperwork to get you started on your mortgage for the new home.
Following are the categories of documents needed for mortgage:
- Government Identification
- Proof Of Income
- Basic Financial Information
- Proof Of Downpayment
- Property Details
Start collecting these documents now itself – you do not want to be in a situation where a single document can delay or even make the deal fall apart!
Related Topic: Your Complete Guide To Mortgage Approvals
Reasearch Lenders & Realtors
Start looking for professionals that will represent your interest in this transaction. Specifically, you would need a buyer’s agent that works with you to find you the right property, negotiate with the seller’s agent and be your guiding light throughout the closing process.
We work with some of the best mortgage lenders in the industry that are familiar with and have helped first-time home buyers in the past.
3 Months Out
Get Your Mortgage Pre-Approval
By now, you should have your paperwork ready, your credit score in check, down payment out of the way, and you found yourself a rockstar buyer’s agent. Hooray! You’re almost there, being a first-time home owner! Now, we need to start working on getting you pre-approved for your mortgage.
At this point, the mortgage broker will run a credit check on you and tell you how much loan you are approved for. Keep in mind that it is a good practice to borrow less than the maximum that the lender allows you so you are living comfortably and not under pressure of high monthly payments. Revisit your budget and add your mortgage payments, insurance, maintenance and any other major expense you might have in your life.
Start Shopping!
Next step is closing the deal. Closing period can be several weeks to a month. If you have a set move out date, you should allow enough time for the deal to go through so that you’re not dealing with any last minute hassles and hiccups.
No one wants a delayed move in date when you’ve been working so hard to close on a home!
2 Months Out
Make An Offer On A Home
Once you are pre-approved for a mortgage, based on your finances and situation, the buyer’s agent will be able to show you homes that meet your priorities. It is always good to start shopping after you’ve had your affordability checked by a mortgage agent so that you’re not looking at homes that you cannot afford or may become a burden down the road.
Time for Home Inspection
After the seller accepts your offer, the immediate next thing you should do is get a thorough home inspection done by a professional inspector.
There are two goals of the home inspection:
It gives you a very good idea about the condition of the house including structural soundness, conditions of mechanical systems, appliances and any other defects the building might have.
In case of a problem in the house, it is brought to everyone’s attention before closing on the sale. This allows you to either request repairs before closing or in some cases, if the seller is not willing to resolve the problem, you can lower the offer price to account for these renovations
Although some people think home inspection can be done on their own, we highly recommend a professional as sometimes there are things that their trained eye can catch in a glimpse that you might overlook. We work with top of the line home inspectors that take their time walking through the whole property with you and cataloguing every single detail and deficiency.
The Last Month
Triple Check Your Finances / Review Documents
We are almost there! Soon you will have the joy of walking through your new home as a new owner for the first time.
If you have been following along with this guide and keeping all your documents up to date, the final steps are not too much of a challenge. Mortgage and legal documents are probably the most difficult task for someone not acquainted with them or the industry. At this time, your agent is your best friend and they can guide you through all the paperwork.
Get Your New Home Insured
Make sure you secure the home insurance before closing. You will need to bring the proof of home insurance to closing.
Final Walk-Through
Do a final walk-through of your new home a few days before closing. This ensures that the home is in the shape that you and the seller have agreed upon.
Arrange Cash Needed For Closing
Just like miscellaneous upfront costs, buying a home has some closing costs that you must account for. Make sure you have the exact amount of cash needed for closing.
Cashier’s check can be a convenient way to do this, or you can arrange to have money wired.
CONGRATULATIONS! First-Time Home Owner!
Time to take a deep breath, grab your evening tea and sink into the couch in your brand-new living room!
Your reward for the last 12 months of hard work is a brand new home, that you can call your own.
A great way to get started on buying your very first home is to book a FREE first-time home buyer consultation with us.
In this success strategy meeting, we will go over market stats important for you as a buyer, and we will carefully look into your specific situation to educate and guide you so that you make a wise buying decision.
Click here to book a FREE first-time home buyer consultation!
