Buying A Home

1. Introduction
2. Choosing Your Location
3. Determine What Kind Of Home Suits Your Needs
4. Calculate How Much Home You Can Afford
5. Get Preapproved For A Loan
6. Find A Home
7. Write An Offer
8. Get Properly Insured
9. Going Through The Legal Process
10. Close And Become A Homeowner
11. Conclusion

Introduction:

Many people go through life thinking that they could never buy a home. Maybe they think they can’t afford it, or they think that their credit isn’t good enough. Perhaps the whole process of buying a home is just so daunting and complicated that they wouldn’t even think of dreaming of home ownership.The unknowns of buying a home shouldn’t be a deterrent to you getting your dream home. Research and diligence can unlock the mysteries of the process and enable you to buy a home without feeling too lost or overwhelmed. Fortunately, there are plenty of resources to explain the procedure to you. This tutorial will take you through the entire process of buying a home – from the “simple” stuff, like finding a place that you like, and the complicated stuff, like applying for a loan.

With this chronological, step-by-step explanation of the home buying process, you will know everything you should be thinking about and doing at each point of the process. Sure, the process can still be difficult, stressful and draining, but at least you’ll know what to expect and understand what’s happening at every step along the way. You don’t have to rent forever if you don’t want to. Reading the detailed explanations, advice and suggestions here will prepare you to tackle buying a home without fear.

1. Introduction
3. Determine What Kind Of Home Suits Your Needs
4. Calculate How Much Home You Can Afford
5. Get Preapproved For A Loan
6. Find A Home
7. Write An Offer
8. Get Properly Insured
9. Going Through The Legal Process
10. Close And Become A Homeowner
11. Conclusion

Choosing Your Location:

whether you are purchasing your home as an investment, a lifestyle upgrade or both, one of the most important decisions you will make is where you want to live. Your home’s location will help determine not only the future value of your investment, but also many aspects of your everyday life. Here are some factors you should consider carefully when selecting a location.Geographic Location
The part of the country you choose to live in will have a major impact on your lifestyle. Particularly if you want to stay in your home for a long time, make this decision very carefully, taking into consideration the factors that are most important to you, like average home prices in the area, job opportunities in your field, proximity to loved ones and climate.

City vs. Rural
The setting you choose will affect the amount of peace and quiet you have, lot size (if you’re buying a house), primary and secondary education options for your children, proximity to shopping, entertainment, medical services and anything else you might want or need, and more.

Neighborhood
Within a particular area, different neighborhoods will have different characteristics. You’ll want to pick the one that is the closest fit to your lifestyle and personality – a place where you’ll feel comfortable and where you are likely to get along with your neighbors. You’ll also want to try to live close to the places you visit frequently, like grocery stores, your job (if you plan to keep that job long-term), and, if you have kids, the schools you want them to attend.

School District
If you have or are planning to have kids, school district is certainly an important consideration. Living in a good public school district will save you tens of thousands of dollars that you might otherwise be tempted to spend on private school. And even if you don’t have kids, it may still be a good idea to consider the quality of neighborhood schools when choosing your location in order to maximize your investment. If you have difficulty finding a public school that meets your standards, you may have to pay a premium to live in a neighborhood with good schools. You will have to consider how that premium compares to the cost of paying for private school or sending your children to a sub-par educational institution. (Find out what factors increase property value because your house may not be one of them, check out Do Houses Really Appreciate?)

Proximity to Work
The length of your daily commute can have a significant impact on your disposable income, quality of life and how much time you get to spend at home with your family. How long of a commute can you endure? Are you planning to stay at your current job long-term or do you expect to switch jobs in the near future? If you plan to stay at your current job, how close to work do you want to live? If you plan to switch jobs, what are the job prospects in or near the area where you’d like to live?

Safety
For most people, safety is a top consideration. You’ll often pay less to live in an area with higher crime, but if you’ll have to live in fear or if you one day become a victim, no price discount will be worthwhile. It may also be harder to resell your home or get a good price for it if you decide to sell.

Proximity to Friends and Family
The best home may not feel very homey if you live too far away from your friends and family to see them on a regular basis. On the other hand, your friends and family might end up moving at some point, so make sure this isn’t your only reason for choosing a location.

Proximity to Leisure Activities
What do you enjoy doing in your free time? If you have season tickets for a particular sports team, you may not want to live too far from their stadium. If you love to go out to eat, you might not be happy living somewhere with few restaurants. On the other hand, if your favorite thing to do is stay home, you might have more choices available to you when it comes to this aspect of choosing your location.

Once you’ve narrowed down the factors that are most important to you in a location, it’s time to research that location to make sure you’re getting what you bargained for, assuming you’re not already familiar with the location.

Research the Neighborhood
Facts and statistics are available online through websites, forums and message boards. What do the crime statistics look like? What is the average income? How many people have a college education? Do the statistics reflect the kind of neighborhood you’d feel comfortable living in? It’s usually easy to find these statistics online through real estate websites. Statistics rarely tell the whole story, though, so try talking to current residents and the local police department for additional information.

Visit During the Day and at Night
What a neighborhood looks like on paper and how you feel when you’re in it are not necessarily the same thing. Sometimes little details can make a big difference. For example, some neighborhoods have narrow roads, lots of cars parked on the street or distinctive architectural features that may not suit your tastes. If these things aren’t what you envisioned in your ideal neighborhood, you may not want to live there no matter how great the statistics are.

Also, a neighborhood might feel comfortable during the day, but seem disconcerting at night. It’s important to visit several on different days, at different times and in different weather conditions to get an accurate picture of the neighborhood’s character. It can be hard to judge a neighborhood’s character in the dead of winter or on a rainy day when everyone is cooped up indoors. You’ll also want to check for things like how well the neighborhood is lit at night, which you can’t observe during the day.

Who Are Your Potential Neighbors?
What kind of people live in the neighborhoods your are considering? Will you feel comfortable in the community? If you’re not very religious, you might not want to live in an area that’s dominated by a particular religious group. If you’re a staunch Republican, you might not want to live in an area that’s known for being particularly liberal-minded. It all depends on your beliefs and how open-minded you are. Some people prefer to live near others who are like them, some people don’t want to live in a homogeneous environment and others don’t care either way.

“Keeping Up with the Joneses” Factor
In some neighborhoods, people keep to themselves, and in others, there is pressure to keep up socially by doing things like joining country clubs, sending your kids to certain schools, owning certain types of vehicles, and the like. If you don’t want this kind of pressure, don’t choose a neighborhood that encourages it.

Once you have a good sense of what kind of neighborhood suits your needs, it’s time to think about what kind of home you’d like.

Back To The Top
1. Introduction
2. Choosing Your Location
4. Calculate How Much Home You Can Afford
5. Get Preapproved For A Loan
6. Find A Home
7. Write An Offer
8. Get Properly Insured
9. Going Through The Legal Process
10. Close And Become A Homeowner
11. Conclusion

Determine What Kind Of Home Suits Your Needs

Once you’ve decided where you want your new home to be located, it’s time to decide what kind of home you want. The three major choices are condos, townhouses and detached houses. Each has its benefits and drawbacks, and entails a significantly different lifestyle and set of responsibilities.Apartment
If you don’t like living in an apartment, this is probably not the type of property for you. You’ll still have shared walls, a shared parking garage and shared common areas. You won’t have complete control over your property, because you’ll be subject to homeowners’ association rules that may control minute details of your life, such as what kind of Christmas lights you can put up or what kind of doormat you can lay out.

Also, buying an apartment may not be as good of an investment as a house. Because a large number of apartments can be quickly built on a small piece of land, it is easy for the number of apartments on the market to increase dramatically in a way that doesn’t happen with houses (unless you live somewhere that still has plenty of open land to develop). And, when it’s time to sell, it can be harder to differentiate your unit from others in your building than it would be to differentiate a house from others in the neighborhood.

If you get along well with others, don’t mind apartment life and don’t mind paying homeowners’ association fees every month for as long as you live in the condo, an apartment might be the right choice for you. The main advantages of living in a condo over a house are that you don’t have to worry about maintaining a yard or the exterior structure. In addition, you may feel an increased sense of security if you live alone. Condos also tend to be more affordable than purchasing a house.

Townhouse
A townhouse is sort of a hybrid between an apartment and a house. These are often two or more storeys, meaning that you don’t have downstairs or upstairs neighbors and therefore can have a bit more privacy and peace and quiet (especially if you can get an end unit, which will only have one set of neighbors). Townhouses also often have attached garages on the ground level, providing greater convenience and privacy than an apartment parking garage, and there may be fewer townhouses in a development than there would be units in an apartment building.

Townhouses may or may not have homeowners’ associations (and their attendant monthly fees). If so, you won’t have to worry about maintaining the building’s exterior. Townhouses are often priced similarly to equally sized apartments but if you’re looking for something with absolute entry-level pricing, you may not find it in a townhouse because they’re generally larger than apartments and may even have small yards.

House
A house can be the most expensive option in terms of both total purchase price and ongoing maintenance, but it also gives you the most independence and privacy. You won’t have any shared walls, floors or ceilings, and you’ll even have a yard and perhaps a fence to act as a further buffer between you and your neighbors. A yard is also great for children, pets, barbecues, private pools, hot tubs and relaxing in the fresh air. Houses are also generally larger than condos, so you’ll probably have more space.

However, whatever goes wrong with the structure (and things will go wrong from time to time), you’ll have to pay to fix it and you’ll also be responsible for maintaining the yard (or paying someone to maintain it). Houses typically have the best investment value and because a house is all yours, if you outgrow it, you will have the option of adding on, whereas if you have a condo or townhouse, the only way to get a bigger living space is to move. Also, while your monthly mortgage payment might be higher, you won’t be giving a couple hundred dollars to the homeowners’ association every month, so a house’s price might be more comparable to a condo than it appears at first glance – although expenses for a house will undoubtedly be higher. However, there are some houses that belong to homeowners’ associations, so be aware of that when you’re shopping.

Size
Regardless of which type of housing you prefer (and can afford), you’ll also have to decide on size. How many bedrooms and bathrooms do you and/or your family need to live comfortably? Is the amount of space you need now the same amount of space you’ll need in the future (ex: are you planning to have kids, take in an elderly parent or start a home business that will require an office)? Do you want an extra space to rent out to help pay your mortgage? Do you want to use the property as an investment property one day, and if so, what size would be best for that purpose? Can you afford the size of property you want, and if not, can you make do with less or should you keep renting until you can afford something bigger?

Be aware that the bigger the property, the higher the purchase price, the higher the ongoing maintenance costs, utility bills and insurance, and the more you may need to spend for things like furniture and upgrades when you move in.

Another consideration is that in some locations, one home size or type predominates. If you need a certain size or type of home, you might actually need to decide on that before you decide on your location rather than the other way around. For example, you may want a two-bedroom, one-bathroom house, but there may not be any houses that small in your chosen neighborhood – your smallest option may be a three-bedroom, two-bathroom house.

The Great Outdoors
Finally, consider what kind of outdoor space comes with the property. If it’s a condo or townhouse, does it have any private balconies or decks or a little patch of lawn to call your own? Is there any common green space, a play area for kids, a pool or a hot tub? Do you plan to make use of these things, or will your homeowners’ association fees just be wasted on their upkeep? Are you willing to share these facilities with other people or do you want the private ownership and use of them that may only come with a house? Do you have pets and what kind of indoor and/or outdoor space do you need for them? Will the homeowners’ association allow you to have the pets you want? Do you want to be able to entertain outdoors?

Once you’ve considered in detail what kind of home best suits your needs, you’re ready to calculate how much home you can afford.

Back To The Top
1. Introduction
2. Choosing Your Location
4. Calculate How Much Home You Can Afford
5. Get Preapproved For A Loan
6. Find A Home
7. Write An Offer
8. Get Properly Insured
9. Going Through The Legal Process
10. Close And Become A Homeowner
11. Conclusion

Determine How Much Home You Can Afford

So you’ve picked out some locations you’re interested in and thought about the style of home that suits you best. Now it’s time for some planning of the less fun variety. Before you start looking at houses and, somewhat counterintuitively, before you start shopping for a loan, you need to figure out how much home you can afford.Why Do It Yourself?
The reasons for doing your own affordability calculations are twofold. First, you don’t want to look at houses you can’t afford. This will give you unrealistic expectations about the type of home you want to live in and will make homes that actually fall in your price range look less appealing. It’s better to start looking at the bottom of your price range or even below your price range and work your way up. That way, you’ll really appreciate what say, $600,000 can get you that $550,000 can’t.

Second, you want to do your own math because the bank may say you can afford more house than you would actually be comfortable paying for. While the bank will ask for very detailed financial information when you apply for a mortgage, it will not know the amounts of quite a few costs that eat away at your disposable income, like what your monthly grocery expenses are, how much you spend on gas, what your health insurance premium is, if you’re diabetic and have high ongoing medical costs, what your water bill is and how much you spend on entertainment.

What the bank will know about are your monthly debt payments (like credit cards and student loans), the four major components of your home payment (property, interest, taxes and insurance) and any amounts you are legally obligated to pay (like child support or alimony). You want to make sure you don’t borrow more than you can actually afford based on the bank’s partial picture of your financial situation. (Buying too much house is one of the most common financial mistakes)

Here’s How
The following steps will break down what may seem like a daunting process so that you can easily figure out how much you can afford to spend per month on your home.

Figure out your household’s take-home pay after tax.
What do you and any other income-earners who will be contributing to the household bills bring home each month after tax? Look at your last pay stub, ask your HR department or use an online paycheck calculator to get this amount. This is how much money you currently have to spend each month. The good news is that this amount will actually increase with your homeowner tax breaks.

Make a list of your household’s recurring monthly expenses.
This should include bills you pay every month, like the electric bill, and bills you only pay some months, like car insurance. If you don’t already have a budget where you’ve been keeping track of these expenses, look at your chequebook, bank statements and credit card statements to help you figure out what you’ve been spending. Note which expenses are necessary (like the electric bill), which are totally optional (like going out to eat for fun and buying new clothes for fashion’s sake) and which are necessary but flexible (like your phone and grocery bills).

Make a list of the expenses that you will add when you become a homeowner.
These expenses will vary depending on the type of home you purchase. In a condo or townhouse, you will most likely have to pay monthly homeowners’ association fees, which will cover things like landscaping of common areas, upkeep of indoor common spaces (like hallways, stairwells, and elevators), upkeep of recreational areas (like pools or clubhouses) and water, sewer and garbage costs. In a house, expenses you’ll have that you don’t have as a renter include water, trash and home maintenance. In any type of property, you’ll pay property taxes and hazard insurance and if you’re moving farther from your job, your transportation costs may increase.

It can be hard to estimate these expenses accurately when you’re not familiar with how they are calculated, but if you can get some answers from people who live in your target neighborhood, from a real estate agent who is familiar with your target neighborhood or by making a few phone calls to city agencies and insurance companies, you can get a reasonable idea. Also, if you’re going to make a down payment of less than 20%, you’ll need to factor in the monthly cost of private mortgage insurance (PMI). Remember, it’s best to estimate high when planning your budget to be on the safe side.

Figure out what expenses will go away.
For example, if you’re paying renters insurance, you’ll be able to cancel that. If you’re planning to cut back on certain fun activities (like going out to eat or an adult education class that isn’t related to your career) in order to free up more funds for the house, note these as well. If you’re moving closer to work, your gas costs will go down.

Determine how much you have left after expenses to spend on housing.
Once you know what you take home and what you spend each month (excluding your current rent payment), determine how much you have left over each month to spend on housing. When you make this calculation, don’t forget to leave room to save for emergencies, retirement and whatever else you want to have money saved up for. In other words, count savings as a non-negotiable “expense.”

Figure out how much house you can buy.
An easy way to do this yourself is to play with mortgage payment calculators online to figure out the purchase price you can afford based on the monthly payment at different interest rates. Take today’s posted rates for your loan type and calculate your payment for 0.5% above and below that rate. If today’s rate is 3.5%, calculate what you can afford at 3%, 3.5%, and 4%.

Interest Rate Breakdown
Interest rates fluctuate multiple times a day and the interest rates available at the time you actually purchase your home will affect how much house you can afford. The higher the purchase price, the bigger the difference the interest rate will make. The lower the interest rate, the more expensive the house you can afford, and the higher the interest rate, the less expensive the house you can afford.

Here’s a chart showing how this works:

Purchase Price Interest Rate Loan Term Monthly Payment (Principal and Interest)
$550,000.00 4% 30 Years $2,615
$575,000.00 3.5% 30 Years $2,573
$550,000.00 3.5% 30 Years $2,461
$525,000.00 3% 30 Years $2,208

Now that you’ve figured out on your own what you can afford, it’s time to apply for a loan.

Back To The Top
1. Introduction
2. Choosing Your Location
3. Determine What Kind Of Home Suits Your Needs
4. Calculate How Much Home You Can Afford
6. Find A Home
7. Write An Offer
8. Get Properly Insured
9. Going Through The Legal Process
10. Close And Become A Homeowner
11. Conclusion

Get Preapproved For A Loan

You know how much you can afford, but what does the bank think? It may be willing to lend you an amount that could get you into trouble financially; on the other hand, it may not be willing to lend you as much as you would like.You don’t want to think you can afford a $650,000 house, start looking, and then find out that you can only get a loan for $550,000. The features that come with the $650,000 house won’t exist in the $550,000 house and you’ll be setting yourself up for disappointment. Finally, a seller isn’t likely to accept an offer from a buyer who hasn’t already secured financing. Why should they waste valuable days taking their home off the market while waiting to see if you can get a loan?

Getting pre-approved is pretty easy. It’s just a matter of calling a few lenders and giving them about 20 minutes worth of personal and financial information, then following up with supporting documentation and waiting for a decision from an underwriter. To streamline the process, gather the following data before you call.

Getting Pre-Approved for a Mortgage
In order to get pre-approved for a mortgage, you will need to provide information for everyone who will be a borrower on the loan (for example, both you and your spouse):

Down Payment
This is the amount you’re putting down (as a percentage). The minimum lenders require will depend on current market conditions and the type of loan.

Social Insurance Number
The bank will use your SIN to run a credit check during the application process – this can be done instantly while you’re on the phone. The purpose of the credit check is to determine your monthly debt payments, which will affect how much additional debt the bank will let you take on for your mortgage, and to determine your credit score, which will determine what interest rate you’re eligible for (or if you’re eligible to borrow at all). The lender is required to tell you your credit score, so there’s no need for you to pay for your own credit report to get this information. If there is more than one borrower, the lowest credit score is the only one the bank will count.

Employment Information
You will need to tell potential lenders where you work, including contact information for your current employer. The lender needs detailed employment information on all borrowers to determine whether the mortgage will be paid reliably. You should also know the number of years you’ve worked for your current employer, your job title or line of work and the number of years in your current line of work (if your job title or line of work isn’t cut and dried, pick the one that will give you the longest track record in that field because lenders look favorably on a longer amount of time in the same line of work).

Income
Know your base annual or monthly income before taxes if you work for someone else, after taxes if you’re self-employed (no, it’s not fair), anticipated for the current year and actual for the previous year. Also calculate your annual or monthly overtime hours. This has to be consistent for two years to count. If you made $30,000 in overtime this year and $20,000 in overtime last year, the lender will consider you to make only $20,000 in overtime, reliably, each year when considering how much home you can afford. The same reliability test applies for your annual bonus (so if you got a $5,000 bonus this year and a $0 bonus last year, as far as the bank is concerned you don’t make a bonus). The same goes for any other sources of income (such as interest and dividends).

Insurance
You should research and bring estimates for homeowners’ insurance and tax rates to your lender when you are looking to get pre-approved. The lender can estimate these for you, but the lender’s estimates often will be quite inaccurate. If you’ve done your research, you can supply the lender with your own numbers.

Net Worth
Add up how much money you have in all your accounts (one by one): retirement, savings, checking, brokerage, etc. You do not need to supply account numbers at this point.

Pre-Qualification
Usually, at the end of this conversation, the loan officer’s computer will spit out a purchase price that you can afford. This is commonly referred to as pre-qualification. The terms pre-qualification and pre-approval are often used interchangeably, but for the purposes of this article, we’ll use pre-qualified to mean that you’ve just completed the quickie application process over the phone/internet, and pre-approval to mean that an underwriter has reviewed supporting documentation of your financial situation (such as previous years’ tax returns and two months of bank statements) and generated a final number for the maximum amount the bank will lend you. You want to obtain pre-approval, not pre-qualification, before you start shopping for a house.

At the pre-qualification stage, lenders will usually give you a preliminary good faith estimate that will list the loan amount you might qualify for, interest rate you might qualify for and what your closing costs might be. These numbers are all estimates and, despite the name of the form, the lender can give you any numbers they want to try to get your business, so take these numbers with a healthy dose of skepticism. What you’re really trying to do here is judge different loan officers. The most important thing in choosing a lender is not choosing the one that gives you the cheapest good faith estimate, but choosing the one that seems the most trustworthy, knowledgeable and reliable and tries to give you the most realistic good faith estimate possible at this point. If you have a friend or relative who can recommend a lender, that’s a great place to start.

Mismatching Estimates
The bank may say you qualify for more or less than you think you should. If the bank says you qualify for less than you think you should (or less than you know you need to buy the type and location of home you want), don’t take this as a final answer. There are things you can do in a relatively short time to improve your attractiveness to lenders such as repairing your credit, decreasing your debt, increasing your savings and getting a higher-paying job in the same line of work.

If the bank says you qualify for more than you think you should, ask how the estimate was calculated. That’s a perfectly reasonable question that any competent loan officer should be able to answer easily. You shouldn’t take the lender up on an offer that doesn’t match with your estimates, but the good news is that you shouldn’t have any trouble getting the loan amount you actually can afford.

Once you’ve pre-qualified with a few lenders and decided which you might prefer to work with, you’ll want to pass the underwriting test so you have a genuine pre-approval that will allow you to make an offer on a home as soon as you find one you want. All lenders will want similar paperwork from you for this process, so get it together before you apply – it may take longer to gather than you think. Here’s a list of commonly requested paperwork:

  • Last two months of statements for all asset accounts (savings, retirement, brokerage, and checking if you keep a lot of money there)
  • Last two years’ T-4s
  • Last two years’ tax returns
  • Most recent month’s pay stubs (your last two pay stubs if you get paid every two weeks and your last pay stub if you get paid monthly)
  • If you’re self-employed, a year-to-date profit and loss statement
  • Copy of driver’s license
  • Copy of Social Insurance Number

Expect to wait at least a week to get your real pre-approval. It may take longer depending on the underwriter’s work ethic, work load and whether additional documentation is required from you. The entire loan pre-approval process, from gathering your information and paperwork to calling several lenders and passing underwriting will probably take you a bare minimum of two weeks unless you have nothing else to do. When you’re trying to juggle applying for a loan with work and your other day-to-day responsibilities, it’s easy to spend even a month or more in this stage because you can’t find time to work on your loan every day.

Once you have a written pre-approval letter in hand, you’re almost ready for the fun part – home shopping!!

Back To The Top
1. Introduction
2. Choosing Your Location
3. Determine What Kind Of Home Suits Your Needs
4. Calculate How Much Home You Can Afford
5. Get Preapproved For A Loan
7. Write An Offer
8. Get Properly Insured
9. Going Through The Legal Process
10. Close And Become A Homeowner
11. Conclusion

Find A Home
While working on any of the previous steps, there’s nothing to stop you from driving around neighborhoods you think you’d like to live in. Look for “for sale” signs and note the addresses so you can call us or look them up online and get a sense of the going price for properties in the neighborhoods you’re looking at (but remember that home prices can vary substantially even within a single neighborhood).The Area
Note any amenities you’d like to live near, like a bike path or park, or things you’d prefer not to live near, like car dealerships or railroad tracks. Also note if there are certain streets you think are particularly nice or that you’d prefer to avoid. Neighborhoods aren’t always consistent – sometimes one street might be nicer than the next. And if you don’t want to live in a neighborhood like that, that’s another important decision to make.

Agent-Buyer Responsibilities
Before we begin looking at homes together, you need to discuss with us what kind of home you’re looking for. Make sure we are clear on what things you must have and what things are deal breakers so we’re not spending time looking at things that will never work. A printed list that your we can keep never hurts.

Traditionally, we will do all the looking for you. You just sit back and relax while your agent puts together a list of properties to show you. Once you’ve viewed all the properties already on the market when you first get started, if none of them suits you, we will do the work of continually bringing new properties to your attention until you do find one you like. (

With the prevalence of detailed real estate listings on the internet these days, you no longer have to rely completely on us. If you want, you can take charge of the search process yourself through websites that provide consumers with access to the multiple listing services (MLS). You won’t have access to some key information that is only available to Realtors®, but you’ll have access to the basic information – price, the neighborhood, number of bedrooms and bathrooms, square footage, lot size, any photos that are available and the like.

When we go to view properties, we will arrange the appointment and provide access for you. For homes that are occupied, consider the situation from the seller’s point of view – you wouldn’t want random strangers walking up and asking to come into your home just because there’s a “for sale” sign in your yard. The lockbox system limits the viewing to serious buyers and that credibility is what having a Realtor® signifies.

Step Inside
Once you’re inside a home, think about how, and if, it could work for you. Where would you put your furniture? Which bedrooms would be used for what purpose? Are there any obvious repairs that need to be made or changes that you’d want to make and how much would they cost? What about the yard (if you’re looking at a house)? Is it big enough to suit your needs? If you want a pool, does it have one (or the space to put one in)? Is there enough privacy from the neighbors? Is there room for a garden or a swing set? Would the existing landscaping need a lot of work, or is it already in good shape? Also examine the exterior structure of the home. How does the roof look? Does the house need a paint job?

The breadth and depth of issues with a home won’t be revealed solely by your untrained eye – you’ll need a home inspection for that. But if there are problems you can see yourself, you can tack those on to how much you’ll be paying for the home (unless you can coax the seller to make the repairs), and assume that there are probably additional problems that you can’t see.

The Learning Curve
Once you actually start looking at homes, you may start to change your mind about what you thought you wanted. A 1,000 square-foot house for two people might sound OK on paper, but once you see how small the bedrooms are, you might realize that you had something slightly larger in mind. Or you might think you’d like a double lot, but once you see how big the yard actually is, you realize that you have no interest in caring for all that grass.

You might also learn that you need to spend more or less than you originally planned in order to get what you want. You’re going into the search with an idea of how much you can afford to spend and how much the bank is willing to lend you. Once you’ve seen a few properties, you’ll get a sense of how much bang you can get for your buck. You’ll also start figuring out what floor plans you like best.

Also, once you start looking and getting more familiar with the neighborhoods that interest you, you might change your mind about what streets you’re interested in living on and what neighborhoods suit your taste.

In a tight market, be prepared to move quickly. The better idea you have of what you want, the more properties you look at and the faster you finalize your idea of what you actually want, the better position you’ll be in to put in an offer when you find a property you like. That being said, don’t get too attached to a home you like; you may not get it. There are lots of hoops to jump through between finding a house you like and ending up as its owner. In the next few sections, we’ll explain what happens once you’ve found the right home.

Back To The Top
1. Introduction
2. Choosing Your Location
3. Determine What Kind Of Home Suits Your Needs
4. Calculate How Much Home You Can Afford
5. Get Preapproved For A Loan
6. Find A Home
8. Get Properly Insured
9. Going Through The Legal Process
10. Close And Become A Homeowner
11. Conclusion

Writing An Offer

If you’ve found that perfect home, congratulations! You’ve potentially reached the end of the searching process – but first you’ll have to write an offer and the seller will have to accept it. Here are some important factors to consider when writing your offer to maximize your chances of getting the property you want at the price you want.Consider Market Conditions in Your Submarket
When evaluating the market, ignore the national and even regional and city news. What you need to know about is the market for the house you’re buying. What is the market like for the neighborhood, price range and housing type you’re buying?

Home prices may be depressed overall, but perhaps you’re in the market for a noncondominium townhouse or duplex and that’s the only segment of the market that’s seeing multiple offers within days of listing. There are submarkets even within submarkets. We will be an indispensable source of valuable information on this topic.

What Are You Willing to Pay?
Think about how much you’re willing to pay and what is a fair price for the home. By examining what are called comparable sales (homes similar to the one you want to buy in terms of location, size and amenities) you can get a sense of what the market says is a fair price for the home in question.

But what is a fair price to you? If the home is uniquely valuable to you, you might see nothing wrong with offering full price (or even more than the asking price) to make sure no one beats your offer. In many situations, simply offering full asking price with reasonable terms will be enough to get your offer accepted immediately.

Or maybe, if you like the home well enough but you don’t love it, you could be convinced to love it at a low enough price. In this case, you might want to make a low ball offer and see what happens. Low balling can be risky, though, so for a house that you really love, it may not be a good strategy.

Determine Your Highest and Best Price
You usually won’t know if there will be other people placing offers on the home when you’re writing your offer. If the seller gets multiple offers, he or she may go back to each potential buyer asking for highest and best offers. Decide at the outset, while you are still thinking somewhat rationally and before a potential bidding war arises, what the maximum you’d be comfortable and happy paying for the home is.

What Do You Want From the Seller?
In a slow or average market, it is normal to ask the seller for some perks in your offer. These could include a cash-back for any required repairs or replacements, professionally cleaned home or having the carpets professionally steam-cleaned. Some condominium sellers may even pay for a few months or even a year of your condominium contributions. If you’re going into the home buying process with a limited amount of cash in the bank, you may decide at the outset that you’re not going to buy a home until you find a property that requires absolutely no work.

The seller won’t necessarily give you everything you ask for, but it doesn’t hurt to ask unless you make such a ridiculous request that you offend the seller into not entertaining your offer at all. In a seller’s market, though, you won’t have much bargaining power.

Choose Your Closing Date
Your offer will state how quickly you want to close on the home. You may be thinking, “I’d like to move in tomorrow!” but because of the legal and financial aspects of purchasing a home, 30 days is standard. Also, a closing date at the end of the month will reduce the amount of cash you need to close the deal because of prepaid interest.

If the mortgage payments are made on the first of the month to cover the previous month, then your February 1 mortgage payment will pay for the month of January. But if you buy a house on December 20, you won’t make a partial payment on January 1 – instead, you’ll pay that money on December 20 then make your first mortgage payment on February 1. There’s nothing wrong with prepaid interest, because you’re getting what you’re paying for – it’s just that many home buyers are tight on cash and would rather have that 30 day cushion before they start making any mortgage payments.

Decide on Your Conditions
To protect yourself, we will include conditions in your offer. These are clauses that let you walk away from the purchase without financial or legal penalties in certain situations. An inspection condition means that if the home inspection reveals substantial problems, you can walk away. A financing condition means that if you can’t secure financing, you can walk away. There will also be a time limit on the conditions, ~2 weeks, to keep the process moving along and prevent the seller from losing too much time if you have to back out.

Understand the paperwork you will be required to sign. Your offer to purchase may contain 10 pages or more(especially if you’re buying a newly constructed home. Make sure you understand everything you’re signing, because it’s a very important contract.

Be Prepared to Negotiate
Plan for a counteroffer. Sellers will commonly not accept the first offer you write, but come back to you asking for more money, different terms, or both. You then have the option of countering the counteroffer. It’s usually a good idea to be reasonable during these negotiations as sellers can get emotional and not want to work with you if they think you’re trying to take advantage of them. On the other hand, it’s just business, and if you want to play hardball, there’s no reason not to as long as you’re willing to accept that some sellers may not want to deal with you as a result.

Once your offer gets accepted, you’ll be under contract. You’ll need to write a cheque, get a cashier’s check or a certified cheque which is then held in our trust account as good faith money showing that you’re serious about the purchase. The deposit(s) will be counted toward your down payment.

Back To The Top
1. Introduction
2. Choosing Your Location
3. Determine What Kind Of Home Suits Your Needs
4. Calculate How Much Home You Can Afford
5. Get Preapproved For A Loan
6. Find A Home
7. Write An Offer
9. Going Through The Legal Process
10. Close And Become A Homeowner
11. Conclusion

Get Properly Insured

When you are legally responsible for something as expensive as a home, not to mention when it’s your residence, you’ll want to make sure you have reliable protection against anything that might substantially damage it. A hailstorm could damage your roof, faulty wiring could burn your house down or a pipe could burst and ruin all your carpet and some of your furniture.To guard against worst-case scenarios, you’ll want to purchase homeowners insurance. In fact, if you have a mortgage, the lender will require you to purchase insurance until the loan is paid off. But really, you’d want to have this coverage anyway.

Uninsurable Homes
In some cases, a home may be uninsurable. For example, if a previous homeowner filed a large claim for mold or water damage, insurance companies may see the home as too great of a risk and refuse to write insurance on it. If this turns out to be the case, you should be able to get out of your purchase contract unharmed.

Umbrella Policies
Homeowners insurance also protects you if someone gets injured while on your property and tries to sue you, but if you want maximum protection against lawsuits, you should purchase an umbrella policy. Once you have a home, you have more to lose if someone comes after you – they can try to get your house taken away to help raise money for you to pay their damages. An umbrella policy picks up where your homeowners insurance and auto insurance leave off and can offer you protection up to $1 million or more.

If the hazard report reveals that your home is in any sort of special hazard area, your lender may require you to purchase additional insurance. For example, if your home is in a special flood hazard area, you’ll have to buy flood insurance. You’ll also have to pay for this extra hazard insurance until your mortgage is paid off.

Life Insurance
If you’re buying the home with others who will be dependent on your income to get the mortgage paid each month, such as a spouse and/or kids, now is the time to purchase life insurance, if you haven’t already. If you were to die unexpectedly, you wouldn’t want your family to lose their home, especially at the same time as they were mourning your death.

At the very least, buy a policy that will allow them to keep paying the mortgage for long enough to find a roommate or sell the house, but if you can afford it, you might want to get a policy large enough to allow your family to pay off the house completely so the long-term loss of your income won’t affect them too dramatically.

You should also consider disability insurance, which pays you monthly instead of in a lump sum if you get injured so badly that you can no longer work.

Setting Up Your Insurance
You’ll need to line up all of the lender-required insurance during the legal process. The optional ones, like life insurance, can wait, but you really don’t want to wait since the very nature of calamity is that its timing is highly unpredictable. Something could happen the very day you take possession of the home.

Your lender might recommend particular insurance agents, but feel free to choose whatever agent and company you wish. Make sure to choose insurance companies with financial strength and high customer satisfaction because insurance is useless if the insurer can’t or won’t pay you when you file an insurance claim. Also, just like with any other type of insurance, you should shop around to compare prices as there can be significant variation.

Back To The Top
1. Introduction
2. Choosing Your Location
3. Determine What Kind Of Home Suits Your Needs
4. Calculate How Much Home You Can Afford
5. Get Preapproved For A Loan
6. Find A Home
7. Write An Offer
8. Get Properly Insured
10. Close And Become A Homeowner
11. Conclusion

Going Through The Legal Process

Once you’ve met with or spoken to your lawyer, you’re in the home stretch, but what a long stretch it is. The days until you get the keys to your new home can’t go by quickly enough, yet at the same time, you’re so busy doing everything that needs to happen to close that it feels like there aren’t enough hours in the day. Here’s a general overview of what to expect during this stage.

Steps in the Appraisal Process

Appraisal
The lender may require an appraisal for the home. The lender ask you to write a cheque for this up front rather than waiting until closing to pay the fee. (We urge you to have them pay for the appraisal. They may say they won’t or they may beat around the bush. If you push them hard enough, or threaten to change lenders, they will most likely swallow this expense.) The appraisal protects the lender from lending you more money than the home is worth (in case they end up repossessing the property because you stop paying your mortgage and have to resell it to get back their loan money).

The appraisal equally protects you however. If the value the appraiser gives to the home is lower than the purchase price, the seller will either agree to adjust the price downward or you will have to pay cash for the difference. Otherwise, the transaction will fall through. The appraisal will help you, though, by preventing you from overpaying.

Secure Your Financing
If you followed the advice in part 5, your financing should already be secure, but the lender may ask you for more paperwork if the underwriter requests it. It never hurts to be proactive and ask the lender if anything else is needed to secure the loan.

Obviously, you don’t want to release your financing condition until you’re 99.9% sure your loan will fund. Otherwise you could lose your earnest money deposit (often several thousand dollars) and possibly be subject to other damages, depending on the terms of the purchase agreement.

Home Inspection
This inspection is technically optional (meaning that the lender doesn’t require you to get one, and you can choose your own inspector), but you should consider it a requirement because it’s so important.

A home inspector will examine the readily visible components of your home (and that covers quite a lot of ground) looking for problems that your untrained, first-time-home buyer’s eye probably would never catch. Did you know that the wall attaching the garage to your house is supposed to have a certain fire rating? Do you know how to tell if the roof is likely to leak? Do you know how to test the home’s water pressure to check for possible problems with the plumbing?

A home inspection can protect you against nasty, expensive surprises later on and sometimes give you some bargaining power to get the seller to lower the price if anything major needs to be fixed. In some cases, the inspection might reveal that you’re better off getting the seller to make the repairs or even walking away from the home than dealing with all of its problems. In other cases, a home inspection will give you the peace of mind of knowing that you’re purchasing a sound structure that won’t be a major headache or money pit.

Secondary Inspections
If the home inspection reveals any potential major problems, you may decide to have some secondary inspections done. While home inspectors are extremely helpful in diagnosing any problems, they are often generalists, not specialists. And even if they do have expertise on one area, like plumbing, they won’t have it in every area that matters (like plumbing, electrical, roofing, and so on). If the home inspector identifies a possible problem, they might recommend that you have a more specialized professional examine the item further before proceeding with the transaction. Expect to pay~$400 for each inspection (but remember that major problems can cost thousands of dollars to fix).

Review the Seller’s Disclosures
The seller and his or her agent are legally required to disclose any known problems with the home. They may have to fill out a detailed questionnaire asking them to specifically comment on the condition of various components of the home. However, if the owner is the bank, it will be able to get out of this part of the deal because it can’t be expected to have any prior knowledge of the home’s condition.

Avoid Title Trouble
Get a title search and title insurance. A title search checks to make sure there are no claims to the property other than the current owner’s, such as a tax lien. You want to own the property free and clear, and a title report will make sure that can happen. If there are any caveats on the title, they can (and must) be resolved in order for the transaction to go through.

Conduct a Final Walk Through
Just before closing, we will revisit the home to make sure no damage has occurred since we wrote the offer. If it has, you’ll want to make sure it’s fixed before you take possession.

Back To The Top
1. Introduction
2. Choosing Your Location
3. Determine What Kind Of Home Suits Your Needs
4. Calculate How Much Home You Can Afford
5. Get Preapproved For A Loan
6. Find A Home
7. Write An Offer
8. Get Properly Insured
9. Going Through The Legal Process
11. Conclusion

Close And become A Home Owner
The closing process basically consists of reviewing and signing your loan documents, but it’s not as simple as it sounds. You’ll be relying on multiple parties to do their jobs correctly and promptly and the only part of the process you can control is the part that you’re responsible for. This section will discuss that process.The Next Step For Your Loan
At this point, you’ll need to review and understand the closing costs you’ll be responsible for paying.

Sign the Loan Paperwork
The loan documents could very well be 100 pages long and the other people at the signing might pressure you to get through them quickly, but ignore them. These are some of the most important documents you’ll ever sign in your life. You need to review them carefully to make sure there are no mistakes or unusual clauses. Make sure your mortgage broker is readily available by phone to answer any questions you may have. After you sign the loan documents, the lawyer will execute the closing instructions and your loan funds will be distributed to the seller. At this point, the transaction is almost complete.

Then, the property gets recorded in your name. Once the funds have exchanged hands, the city will be notified of the transaction and record you as the new owner of the property. However you won’t receive the keys until the actual day of possession, sometimes later if there was a problem or miscommunication. The first thing you should do is change the locks – who knows how many copies of that key are floating around?

Say Goodbye to Your Rental
When should you give notice at the place you’re renting? To be safe, wait until you have removed all of your conditions and your new home is technically ‘SOLD’. Then consider how long it will it take you to move. Are there any repairs or remodels that you need or want to do before moving in? It will be easier to do them in an empty house, if you can afford the extra month’s rent.

It’s not a good idea to give notice before the purchase transaction is complete, because there are so many things that can go wrong during the process and cause the sale to fail. You don’t want to end up having to find a new place to live on just a few days’ notice. It’s impossible to buy a house that quickly, so you’ll have to rent a new place or even stay in a hotel. And because rent is due a month in advance and mortgage payments are made after the month you’re paying for (i.e., your December 1 mortgage payment covers the month of November), you can probably afford to go that month between giving notice and moving in without having to make two housing payments in the same month (even though you will technically be paying double for housing that month).

Right-Away Repairs
Fix any significant maintenance problems, like a leaky roof, right away. If any problems were revealed during the home inspection that the seller didn’t fix, you should repair them immediately. Now that the house is yours, these problems are your problems and you don’t want them to get any worse.

Keep Cash on Hand
You’ll probably have a lot less cash after closing because of what you’ve forked over for the down payment and closing costs. You may or may not have a lower monthly housing payment than you did when you were renting. However, it’s more important than ever to keep what cash you have left available and rebuild your cash savings. One day you’ll need a new roof, air conditioner, furnace, eventually a rental property 🙂 and you’ll have to pay for other expensive repairs.

It’s also important to keep cash on hand in case you lose a job or fall on some other hardship so that you can keep paying your mortgage. Not losing your house and keeping it in good condition should be priorities if you want to protect your investment. Unlike a rental unit, your home is more than just a place to live – it can be a significant source of future wealth.

Congratulations! You just bought a home!!!

Back To The Top
1. Introduction
2. Choosing Your Location
3. Determine What Kind Of Home Suits Your Needs
4. Calculate How Much Home You Can Afford
5. Get Preapproved For A Loan
6. Find A Home
7. Write An Offer
8. Get Properly Insured
9. Going Through The Legal Process
10. Close And Become A Homeowner

Conclusion

Hopefully this has made the process of buying a home seem a little less intimidating and a lot more manageable. There’s no question that it’s complicated, time-consuming enough to feel like a second job and often stressful, but millions of people have gone through the exact same process and come out relatively unscathed.Owning a home can be a significant source of wealth and at least as importantly, a significant source of comfort, stability and happiness. And if, after owning a home for a while, you don’t find yourself in the majority of people who love owning a home, you can always sell it and try again with a new place or even go back to renting.

The important thing is to educate yourself before you do it – don’t let the mystery factor or the intimidation factor of the home-buying process scare you away from your dream of home ownership. We’re here for you, use us as a resource, ask us as many questions as you want.

Remember, the only foolish question is the one you don’t ask!

Back To The Top

The Real Estate Kings would like to thank Amy Fontinelle for providing some clarification on a few of the above points. You’ve most likey read some of her articles on Yahoo! Finance, Forbes.com, SFGate.com, Investopedia.com SavingAdvice.com or other financial websites.

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