Buying a house is a huge accomplishment for any hardworking Canadian. It is also a good opportunity to build up equity. However, the housing market is very competitive these days. Moreover, there are so many steps, tasks, and requirements, that buyers can easily become overwhelmed and end up making an expensive mistake. Like any other purchase, a successful home buying experience is all about getting the details from start to finish. The following tips will help you navigate the process, save money and close your purchase.
Some buyers make the mistake of only considering the down payment while forgetting about the closing costs. Closing costs include legal fees, land transfer tax, title insurance and more. Do your homework and prepare yourself to manage these expenses in advance.
For most cases you can avail a mortgage up to 80 percent of the property’s value. You will need to put down the remaining amount. You should start savings prior to your purchase so you will have enough funds to complete your purchase. When people do not plan for expenses effectively, they end up having to choose expensive private lenders to cover the shortfall. Interest rates are significantly high when it comes to the private lenders. This will not help a home buyer.
If you have been struggling to save money for a larger down payment, you should go for an insured mortgage rather than a conventional mortgage. Insured mortgage requires a down payment of as little as 5%, in contrast to conventional mortgage where a down payment of 20% is needed. However, insured mortgages require you to be approved for insurance which adds another level of approval. Insurance premium depends largely on the purchase price.
Your credit score is one the most vital factors when it comes to obtaining a mortgage. Credit score will determine whether you qualify for a mortgage and the amount. It is also the deciding factor for your interest rates. The higher the credit score is the lower will be the interest rate for your mortgage payments.
For strengthening your credit score you should pay all your bills right on time. Paying your bills with consistency is key when it comes to building up a strong credit score. You should try to keep your credit card balances as low as possible. Do not close a credit card because it will increase the portion of available credit you use, which in return can lower your score.
If you are starting from the scratch, you should consider applying for a pre-paid credit card. Then use it and pay it off each month. The key is not to max out the card, but to consistently use and pay off the balance.
A mortgage pre-approval can jump-start the buying process. A pre-approval involves submitting a mortgage application and providing your lender with supporting documentation. This includes tax returns, paycheck stubs, financial statements, and a credit check. The underwriter reviews this information and determines how much you can afford to spend on a property.
A pre-approval does not guarantee financing, but it is a lender’s way of saying they will likely approve you, provided you meet other loan conditions. A pre-approval is one of the most important steps before house hunting. You will know what you can afford before you enter the market and start searching for a home. It is really helpful because it prevents you from wasting time while looking for the houses you cannot afford. Moreover, some Realtors and sellers will only work with pre-approved buyers because it lets them know that you are a serious buyer.
Weigh the pros and cons of different types of homes, given your lifestyle and budget. A condominium or townhome may be more affordable than a single-family home. However, shared walls with neighbors will mean less privacy. Do not forget to budget for condominium fees when shopping for condos and townhomes.
Do not let your emotions cloud your judgment. Always make rational decisions when it comes to picking a house. If you find a house in the market that seems like your dream home, do not skip the home inspection just to win a bidding war. It can really hurt you financially if you end up spending your hard earned money in repairs.
Think about your long-term needs and whether a starter home or forever home will meet them best. If you plan to start or expand your family, it may make sense to buy a home with extra room to grow. Check out potential neighborhoods thoroughly. A great neighborhood should also include important amenities such as grocery stores, shops, and restaurants. If you have kids, try targeting the areas with good schools nearby. Choose one with amenities that are important to you, and test out the commute to work during rush hour.
When you have found your dream home and decide to make an offer on it, you must submit an offer in writing. Your offer includes details about yourself, the price you are willing to pay for the home and more. It should also include a deadline for the seller to respond to your offer.
Most offers also include an earnest money deposit. An earnest money deposit is a small amount of money, typically 1% – 2% of the purchase price. Your earnest money deposit goes towards your down payment if you buy the home. If you agree to the home purchase and later cancel, you typically lose your deposit.
Your agent will almost always write the offer on your behalf, but you can write it yourself if you choose. Your agent will then get in contact with the seller or the seller’s agent to submit the offer.
From here, the seller can respond in one of three ways:
· If the seller accepts the offer, you can move onto the next step.
· If the seller rejects your offer. You can choose to submit another offer or move onto another home.
· The seller can also come back with a counteroffer of their own. They may change the purchase price or the terms of the sale. You can accept the counteroffer, reject it, or make another counteroffer.
Negotiations may go on for some time after you submit your initial offer. Let your real estate agent help you manage negotiations. Do not be afraid to walk away if you cannot reach an agreement. Once you and the seller agree to an offer, it is time to move on to the appraisal and inspection and closing of your house purchase.
After going through the above mentioned discussion we can conclude that by improving your credit score, saving up for a substantial down payment, minimizing costs, and budgeting well, you will be able to land the home of your dreams. You should start saving for your down payment in advance so you have enough money in reserves. It will also help you for your mortgage approval.
Build up a good credit score and try to maintain it over the course the purchase of your house. Best way to do that is pay all your bills on time. Try to keep your credit card balance as low as possible. Good credit score is inversely related to interest rates. The higher your credit score is the lower may be the interest rate that you will be offered for your mortgage.
Do not bury yourself in debts. Assess your situation. If you think you cannot afford a single family residence, go for a condominium. An important factor is neighborhood. Try to go for something that has public transports, grocery stores and good schools nearby, especially if you have children. If you are buying on a long term planning, make sure it has some extra space or rooms for expansions in case you plan to have kids in future.
Go for a pre-approved mortgage. A pre-approved mortgage will also help you narrow down your search for the house. Because you will already know what your financial boundaries are. You will not end up wasting time for the houses that you will not be able to buy in the first place. Moreover, sellers may prefer buyers with pre-approved mortgage letters because it gives them a message that you are someone looking for a home seriously.
When you have made up your mind for a house, always make a written offer. Before making an offer, you should try to understand the price the seller will be expecting. Do not make a low offer that the sellers decide to reject and accept another offer. Do not get emotionally attached with a house and make an offer that is more than the actual worth of the house.
By keeping all the factors in mind and not skipping the small details, you are ready for the purchase of your next home.
Assistant Manager, Real EstateTreadstone Associates