The Steps To Buying a House
Are you ready to buy a home in Brampton, Mississauga, or Caledon? While every property type has its advantages, many buyers are committed to purchasing a house. If you fall into this camp, you’ll need to start by understanding the purchase process. Below are the steps to buying a house.
From the steps involved to the answers to common questions, here’s what you should know about the process of buying a house…
Are You Ready To Buy a House?
First things first: how do you know if you’re ready to purchase a home? If you’re like most buyers, a house will be the biggest investment you ever make. That’s why it’s so important to take stock of your circumstances—and ensure that you’re in the best possible position to start your search.
Here are a few signs that you’re ready to begin your homeownership journey.
You’re consistently able to save
For many buyers, saving up for a down payment is one of the most challenging aspects of purchasing a house. Keep in mind that to avoid paying mortgage default (CMHC) insurance, you’ll have to put down 20 per cent.
Setting aside a sizeable chunk of change can be difficult. Fortunately, if you’re able to put money away every month, there’s a good chance you’re on the right track.
Your credit is in good shape
A bad credit score can throw a wrench in a home buyer’s plans. That’s why it’s so important to reduce your debt and make your payments on time—especially if you’re planning to purchase a house in the not-so-distant future.
As part of the financing process, your lender will comb through your finances to help you obtain mortgage financing. If your credit score is good, you may be well-positioned to secure pre-approval and start your search.
You have a sense of the financing you can secure
In addition to your down payment, you’ll want to know how much home you can afford. Keep in mind, your household expenses (including your mortgage payments) shouldn’t exceed 30 percent of your monthly income.
Your best bet is to do your homework. Once you have a good basic sense of how financing and monthly payments work, you’re in a better position to take your next step.
You’re committed to your goal
Many home hunters embark on their search because they believe that buying a house is the next step. That may be true, but it’s important to do a bit of soul searching before you take the plunge.
Have you been planning to buy for a long time? Are you ready to make it your number one priority? If you’re prepared for the commitment, then you can take your next step with confidence.
The Process Of Buying a House
Purchasing a home can be complex. Fortunately, making sure you always know what’s next can help ensure a smooth experience—and a successful result. Here are the steps to buying a home.
1) Save for your down payment
If you don’t have the finances for a down payment yet, the first step will be saving for one. Setting money aside on a regular basis is key—just make sure you have a target dollar amount in mind.
Your down payment will depend on the price of the house you decide to buy. Here’s how the numbers break down:
• If the home you’re planning to buy is $500,000 or less, your minimum down payment will be 5 percent of your purchase price
• If the home you’re looking at is $500,000-$999,999, you’ll pay 5 per cent on the first $500,000. For any sum above that, you’ll pay 10 per cent.
• For a home that’s $1 million or more, your minimum down payment will be 20 per cent.
Creating a plan to save
Saving up for a down payment may require some significant lifestyle changes. Here are just a few of the strategies you can employ.
Reduce your expenses
When you’re cutting costs, the little things can really add up. From opting for less expensive grocery options to parking your car for a little while (insurance can take a big bite out of your pay cheques), there are always ways to save.
Pay down your debt
If you have debt, eliminating it will be one of the keys to improving your saving efforts. Of course, that means making the largest payments possible. However, there are other steps you can take—like consolidating your debt with a balance transfer card to lower your annual interest rate.
Set up a TFSA
Setting up a tax-free savings account (TFSA) allows you to put aside money for your down payment—without being taxed on it (just be aware of the maximum annual contribution amount). You can even set it up so that a specific amount is automatically deposited from each paycheque.
Borrow from your RRSP
Through the federal government’s Home Buyers’ Plan, you can take out up to $35,000 from your RRSP to finance the purchase of your house. To take advantage of the program, you must be committed to buying or building a qualifying home (and have it in writing).
2) Determine your price range
There are few things as disappointing as finding the perfect home, only to discover you can’t afford it. To avoid putting yourself in that position, setting an accurate price range is crucial.
All too often, buyers make the mistake of relying on the amount they’re pre-approved for when they start their search. During the pre-approval process, your lender will look closely at factors like your income and credit score to determine how much financing you’ll likely receive. However, it’s important to verify that the number they provide will work for you.
Do the math
It’s best to view your pre-approval amount as a starting point. To ensure that your budget is accurate, you’ll want to look closely at your spending habits.
Take your monthly household income. Next, add up your ongoing expenses—from your utilities and home repairs to your phone and grocery bills. Subtracting these costs from the amount of money you’re bringing in will give you a sense of how much you have to spend.
Of course, your expenses might change once you buy a new home. Your utilities and repair costs may grow with your square footage, and you’ll want to factor that in. On the flip side, some costs could go down (for example, if you currently live in a condo, you’ll no longer have to pay maintenance fees).
3) Obtaining mortgage financing
One of the most critical early steps in the process of buying a house is obtaining mortgage pre-approval. Through this process, a lender will comb through your finances to assess how much you’re likely to receive. An experienced agent should be able to connect you with the right professional for the job.
Being pre-approved won’t just give you a general sense of what you can afford—it will also help ensure that sellers take you seriously. While the advantages associated with the step make taking it a necessity, be aware that your pre-approval will typically only last from 60-120 days.
One of the most important decisions you’ll have to make is which lender to work with. While your bank may seem like the obvious option, a broker can provide you with a wider variety of mortgage services.
4) Searching for your house
With your pre-approval in place, you’re ready to start your search. Your agent will use their resources and connections to find relevant listings—and ensure that you learn about them as soon as they hit the market. Of course, they’ll have to learn your criteria first. Here’s what you should base it on:
Once you determine your price range, you’ll want to make sure you don’t stray too far from it. Doing so could lead to financial burden down the line.
With what you can afford in mind, consider your neighbourhoods of interest. Your agent can help you find communities that meet your needs within your price range.
Sometimes it’s not just about the neighbourhood you choose, but the street. Whether it’s fantastic schools or pretty parks, the things you want to have nearby should be included in your criteria.
From the number of bedrooms and bathrooms you need to the finishes and appliances you’re dreaming of, the property features you care most about should be on your list.
Some of your must-haves may be negotiable, and others probably won’t be. Your agent can help you understand the market—and which compromises are likely worth making.
5) Making an offer
When you’ve found the right property, it’s time to submit an offer. You’ll need to decide on critical elements—from the price to the closing date to the conditions.
Conditions are things that must happen in order for your deal to be finalized. Adding them to your agreement can protect you from the worst. For example, a financing condition makes your purchase contingent upon your ability to obtain a mortgage. While they may be appealing to you as a buyer, you should be aware that in some cases, choosing to forgo conditions will make your offer more competitive.
When you make a bid, the aim is to make it as attractive as possible to the sellers while also protecting your interests. Your agent can help by providing data-backed advice and expertise.
After your offer is presented, the seller may accept, reject, or counter your offer. If you move on to negotiations, your agent will advocate for you—and help you understand when to push for what you want, and when to hold back.
6) Closing the deal
During the closing, you’ll wrap up your real estate purchase. The process includes meeting with legal representatives, coordinating with the sellers and other relevant parties, performing a final walkthrough of the home you’re buying, and reviewing any documents that need to be signed.
You’ll also need to pay closing costs—which include everything from legal fees to land transfer taxes. The amount you should budget for is between 1.5 to 2 percent of the purchase price.
Understanding The Process of Buying a Home
When you’re ready to buy a house, understanding the steps involved is crucial. An experienced local agent can ensure that you know what to expect—and help you get from the first step to a successful closing.
When you’re ready to buy a house in Ontario, we’re here to help. Get in touch to learn more about our local expertise!