Owning a home is a dream that many share. It provides a sense of security, pride of ownership, and potential for appreciation. Over the years, Canadian real estate has proven to be a relatively safe investment, with tremendous long term gains. Below is a comprehensive beginner’s guide to purchasing your first home.
You’ve decided that home ownership is right for you. Now what?
The first step should be to determine if you’re financially capable of purchasing a home
This starts with requesting a Mortgage Pre-Approval from either your Bank or a Mortgage Broker. You might feel most comfortable speaking to your Bank, however Mortgage Brokers make up a large portion of the lending industry, and are typically known to find lower rates and better terms. They search several different Lending Institutions to find you the most competitive offers. They also have more flexibility with buyers who have lower income or poor credit. Similar to your Bank, this is a free service available to you. A minimum down payment is 5% of the home’s purchase price, and anything under 20% will be insured by CMHC (Canada Mortgage and Housing Corporation). Your Bank or Mortgage Broker should advise you in this area, and answer any questions that you have. Most Lenders offer a 120 day interest rate hold, so should interest rates increase while you’re searching for a home, you’ll lock in at your current rate. Your Lender will supply you with a Pre-Approval Letter, which may be requested by a seller later on. It’s important to not only determine your budget, but also your comfortable limit, and how that might change when utilities, taxes, insurance, and condo fees are introduced. One of the worst feelings is to fall in love with a home, only to find out that you can’t afford it.
Problematic situations that could affect a successful mortgage application could be poor credit, low income, self employed status, part-time vs. full-time employment, or length of time at your current job. The Bank of Canada frequently revises their rules and regulations, so even if you’ve been Pre-Approved in the past, it’s recommended to get it updated before you start looking again.
You’ve determined a budget that you’re comfortable with, it’s time to start looking at homes, right? Almost!
Now it’s time to meet with a Realtor to discuss your home search
Most buyers find their Realtor by asking family, friends, or colleagues for someone they’ve used in the past. However you could search online for Realtor’s with positive reviews, or drive through your desired area to see if there are any neighbourhood specialists. When you first meet with them, their first item of business is usually to discuss your Pre-Approval and comfortable budget. You and your Realtor should also discuss the current market conditions, the Purchase Contract, communities of interest, types of properties, stigmas, transportation, amenities, costs, and your needs/wants. Together, you’ll determine a list of criteria for your Realtor to search with.
We often suggest to keep a 5 year plan in mind. Young adults’ dynamics change drastically every 5 years, especially with family and work. A conservative budget and 5 year plan will help you save for future endeavours, and ensure you don’t go “house-poor”. Your Realtor will have access to other trusted companies and services should you need, such as: Mortgage Brokers, Home Inspectors, Lawyers, and other trades. In most cases, your Realtor will be paid by the homeowner.
A home search can be completed in 1 viewing, or 100; It all depends on your criteria, and the current market conditions.
When you find the one and you’re ready to pull the trigger, your Realtor will draft a Purchase Contact between you and the homeowners, outlining the details, terms, and conditions of your purchase
A negotiation can take an hour or two, or a week or two. A deposit must accompany your offer and will be deposited into the Seller’s Realtor’s office trust account. This amount is typically between $5,000 – $20,000 depending on the home’s purchase price. This amount gets applied to your down payment should you move forward with your purchase. At this time, you have the opportunity to clarify exactly how you want the home presented on Possession Day, which appliances to stay or be removed, and any repairs or cleaning that need to be addressed before you move in. Extra precautions such as: Disclosure of Death or Illicit Drug Manufacturing or Distribution, extra walkthroughs or holdbacks must be added in separately.
Most first-time buyers also choose to add at least two conditions to their Purchase Contract: A Financing Condition, and a Home Inspection Condition. This will allow for a period usually 7-10 days to perform the necessary due-diligence prior to making your offer a firm sale. If you are unsuccessful in getting financing, or find unacceptable major structural or mechanical issues during the home inspection, you have three options: re-negotiate the price/terms, accept the home as is, or void the purchase entirely, in which case the deposit will be reimbursed back to you. Although you’ve already been Pre-Approved for your mortgage, your Lender usually requires this condition period to perform a final approval. If you plan to exceed a 20% down payment, your Lender may require an appraisal to be done by a third-party, as your mortgage will no longer be insured by CMHC.
We always recommend hiring a Certified Home Inspector, which typically range from $400 – $500. A report will be sent to you outlining any defects or upcoming maintenance required. A Waiver (or Non-Waiver) of Conditions must be signed and delivered to the homeowner before the condition period expires.
Once all conditions have been waived, you’ve officially purchased your new home. Congratulations!
Now that you’ve waived all conditions and are waiting for Possession Day to arrive, it’s time to set up utilities, home insurance, and select a Lawyer
A typical Lawyer fee is between $1,500 – $2,000 and it’s their job to ensure a smooth title transfer from the current homeowners to you. They’ll also deal with any liens or caveats registered on the property, and confirm that the RPR (Real Property Report) is current and has City or Town compliance. The RPR is a surveyors lot diagram, showing the perimeter, home, driveway, fence, shed, etc. Plan to meet with your lawyer a few weeks prior to Possession Day. They’ll request from you: Photo Identification, Proof of Home Insurance, and the remainder of the down payment money (usually in a Bank Draft or Certified Cheque). The deposit which accompanied your offer will be transferred to your Lawyer, and will be included with the rest of the down payment and mortgage funds. Your utilities and home insurance should commence on Possession Day, as the homeowner will remove their insurance and utilities on the same day. The Purchase Contract states that the home must remain in substantially the same condition as when last viewed. If the homeowner fails to fulfill the terms outlined in the Purchase Contract, or were to damage the property, immediately seek advice from your Lawyer, who may in turn request a holdback until the repairs are complete.
Purchasing a home can be stressful and very emotionally involving. There will be sleepless nights and maybe even some tears. But when it’s all complete and you finally get keys to your new home, the sheer rush of excitement is absolutely overwhelming and well worth the ride.
Home ownership isn’t for everyone, but those who embark on this adventure find themselves enjoying a true pride of ownership and sense of security.
CALEB REICH, ccs
RE/MAX Landan Real Estate
c: (403) 922-9955
Over the last 8.5 years, Caleb Reich has gone from being the youngest Realtor in Calgary, at age 18, to an industry leader selling over $100 Million in Calgary and Area real estate. He’s been recognized as a Top 100 RE/MAX Agent across Western Canada, and named by REP Magazine as one of Canada’s Top 35 industry members under age 35. Caleb is a member of several committees, including the RE/MAX Group Advertising Committee where he manages the Online/Social Media portfolio, as well as a Real Estate Council of Alberta forum. Because almost 1/3 of Calgary home sales are condos, Caleb has received his Certified Condominium Specialist designation to ensure any purchase or sale of a condo is handled smoothly and efficiently.