By Kimberly Greene | 11 Aug 2016
Once you’ve decided that you no longer want to rent (or freeload in your parents’ basement), it’s time to get serious about getting a home and a mortgage. If you’re not sure where to start or how long the process takes, keep reading.
>12 months before buying:
Do the math
You already know that buying a home is a major purchase, and whether you view it as shelter for you and your family or as more of an investment, you have to be practical and honest with yourself when it comes to how much home you can afford and how much disposable income you can spend. There are some great budgeting tips and strategies out there, and once you’ve tracked your spending and know how much money you have coming in and going out on a monthly basis, then you can use anaffordability calculator. There’s a catch, though: While the calculators take into account your debt, they don’t take into account all of your other monthly costs, such as going out for dinner or fuel costs.
Where’s the money?
If you need to curtail your spending in order to buy a home, there’s no better time to start than the present. The easiest method of increasing your savings is to pay yourself first. Automatically debit a set amount from your paycheque each month, and put it into an account separate to that of your everyday banking. It’s hard to commit to saving aggressively, but a larger down payment can mean a smaller mortgage as well as lower monthly payments, which will make things easier for you in the long run.
Saving the large amount of cash that you need upfront when purchasing a home can be one of the most difficult parts of the home buying process. Not only do you need it for the down payment, but for the deposit, the land transfer fees and taxes, the tax on mortgage insurance if you’re putting down less than 20 per cent, fees for your lawyer, and moving costs. In addition to getting money from your savings for these upfront costs, there are also other options available, such as the First Time Home Buyers’ Plan.
12 months before buying:
Time for a credit check-up
The Financial Consumer Agency of Canada advises that you check your credit report once each year. Even if buying a home is just a twinkle in your eye at this stage, you still want to look at your report and make sure that everything is correct. If there are any errors on your report, reviewing it far in advance means that they should be cleared up by the time you apply for a mortgage and won’t affect your application. Are you paying your debts on time? If not, rectify that immediately; lenders like to see a history of timely payments as well as a long credit history. The longer credit history you have and the less debt you have make you a better candidate for a mortgage, qualifying you for the best mortgage interest rates. Negative information can remain on your credit report for up to 14 years, depending on the information, the credit reporting agency, and the province in which you live, so the sooner you start showing positive behaviour, even after a blemish on your report, the better.
3-6 months before buying:
Where are you going to get your mortgage?
You can get your mortgage from a number of sources, including banks, credit unions, monolines, and private lenders. Some lenders you can access directly, while you’ll need to go through a mortgage broker for others. If you’re going to go through a mortgage broker, you can find one here or ask around for recommendations. You’ll probably want to talk to a couple of brokers before choosing one, the same as you would when hiring any professional. They’re instrumental in helping you through the mortgage process, so you want to ensure that the broker who you choose to work with understands your short term and long term goals and is working to get you the best mortgage product available that helps you achieve those goals.
Get a mortgage pre-approval
A mortgage pre-qualification and a mortgage pre-approval aren’t the same thing. A pre-qualification can be a good way to start a conversation with a mortgage professional, but you won’t get much information when it comes to the amount of your mortgage. Think of it as a theoretical discussion of affordability based on the income information that you provide. If you’re on the earlier end of this timeline, then a pre-qualification may be all that you want at this stage. But if you’re prepared to move ahead and get to looking at homes, then you’ll need a proper mortgage pre-approval.
In order to get a pre-approval, you’ll have to provide proof of identity and income, as well as the source of your down payment. You’ll also have to provide information on your debts and give permission for your lender to check your credit report. Your lender will assess you as a borrower and give you a mortgage interest rate based on a fixed mortgage, which is guaranteed for somewhere between 60 and 120 days. You’ll usually get a letter from your lender verifying that you have been pre-approved, which, in theory, will make the final approval process move faster since you’ve already been vetted. It may also prove to be a benefit when you put an offer in on a home, as the seller will see that you’re motivated.
1-3 months before buying:
Find a real estate agent
Just like you did when you shopped for your mortgage broker, you’ve going to want to ask for recommendations from family and friends when it comes to choosing your real estate agent. You want an agent who not only understands your needs and wants, but someone who also knows your target area like the back of his/her hand. The agent is paid by the seller, so there’s nothing to be gained by not using one. A good real estate agent will help you know the market and most importantly, determine fair market value for a property.
Look for a home
Finding a property can take anywhere from one week to one year, depending on the market in which you live and how willing you are to compromise. Giving your real estate agent a list of things that you have to have as well as things you want to avoid is a great way to get the search going, but keep in mind that you may have to bend your rules a bit depending on the properties available. However long it takes you to find a property that you want to buy, you’ll eventually want to make an offer and draw up Offer to Purchase. Your real estate agent will help you decide what price to offer, negotiating with the seller if necessary, and arrange a home inspection, if desired.
1-4 weeks before buying
Getting a home inspection
It’s advisable to get a professional to inspect your home before purchase in order to uncover any red flags that may be lurking behind the walls, under the floors, or that are otherwise not visible to the naked eye. In some hot housing markets, however, a home inspection isn’t done. Instead, prospective buyers will enlist an inspector to provide a pre-offer inspection, which is done prior to putting forth an offer, or a seller provides a pre-home sale report so that buyers can see any potential issues without having to shell out their own cash or include a home inspection clause in their offer.
Finalizing your mortgage
Once your offer has been approved then you go back to your lender to finalize your mortgage. They’ve already vetted you as a borrower, but now they’re able to look at the purchase price of the home. They’ll want to get the home appraised to verify that the home is worth what you’ve offered to pay for it, and if it’s not, then you’ll have to come up with the difference. You’ll also finalize the details of your mortgage, such as the amortization period and loan type and term.
Find your lawyer
It’s common for a real estate professional to be able to refer you to a lawyer that will handle your home purchase. Any real estate lawyer should be able to finalize your purchase, although the benefit to using someone recommended by your real estate professional as opposed to someone recommended by your aunt who lives in the next town over is that your real estate agent may be able to point you to a lawyer who has handled closings of several other units in your condo building, for example, or someone who has worked with .
Everything comes together on your closing date, which was set forth in your Offer to Purchase and agreed upon by you and the seller. At closing, you’ll need to arrive with all of the necessary closing costs, along with any other specified documents that your lawyer may request. Your lender releases your loan, and your lawyer handles the transfer of funds and walks you through all of the documents that you need to sign.
Every home purchase is different, and sometimes the process takes longer than desired or shorter than expected. But whether the process takes three months or three years, you’ll be grateful that you look the time to prepare properly at each stage along the way.
Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate