FIRST TIME HOME BUYER GUIDE
A GUIDE TO SAVING, QUALIFYING AND PREPARING FOR HOME OWNERSHIP
Congratulations! You`ve made the decision to buy your first home. This is a very exciting time. Buying your first home is a big step. Finding the best location, getting the best price, oh right...and then there`s that down payment. There is a great deal to think about and it can be overwhelming. We want you to know that we think you`ve made a wise choice to purchase a home. Mortgage rates have remained at an all time low year after year making buying a home very affordable. And the purchase of a home might be the most significant investment you will make in your entire life. We are excited for you and we look forward to walking through this process with you step by step. That is why we have prepared this booklet with some useful information regarding the first time home buying process. Inside you will find helpful tips on all areas of home buying including saving, credit, mortgages, and closing. Keep it handy. Fold the corner of an important page. Take a highlighter to it. Write some notes inside. We want this to be a useful resource as you take on the exciting challenge of buying your first home. And as always, we are here to help. We want to answer your questions, explain the process, and make this a positive experience. We look forward to taking this journey with you!
STEP 1: SAVE! If you plan to buy a home, you will need at least 5% of the purchase price for down payment. (Closing costs account for 1.5 % 2% of the purchase price so be sure to factor that into your savings) Here are few ways to save:
Personal Savings– Create margin in your budget wherever you can in order to put away money in a savings account or tax free savings account. Bring coffee in a travel mug, pack a lunch, entertain at home instead of going out. Get creative and find new ways to have fun without spending money. Every penny counts so track your spending and put away as much as possible. RRSPs– Canada Revenue allows first time home buyers to withdraw up to $25,000 each tax free from RRSPs to be paid back in installments over 15 years. Family Gifts- When receiving monetary gifts from family either accumulated or as a one time cash gift for special occasions, apply this to your down payment savings. GICs, term deposits, non-registered equities can be used as down payment. Unexpected income such as a tax refund, work bonus or raise can also be used towards a down payment.
Credit Understand Your Credit Health.
Credit History and Reports When considering you for a mortgage, lenders will want to know your credit history. Information regarding how you pay your bills and what credit products you use is kept on file by reporting agencies.
Your credit report contains information such as:
When you opened your account
How much you owe
Whether you make your payments on time
Whether you miss payments
Whether you go over your credit limit
Mobile phones and internet accounts may be reported
Chequing and savings accounts that have been closed due to money owed or fraud can also be included.
Inquiries from lenders.
Credit Score A credit score is a three digit number calculated using a mathematical formula based on your credit information. Credit scores range from 300 to 900 with 900 being the best score.
Things to Keep in Mind
A credit score requested by a lender may be different than the one you request for yourself.
A strong credit score can be used to negotiate a lower interest as you represent a lower risk to the lender.
Credit Understand Your Credit Health.
Improve your credit score
Always make payments on time. When a full balance cannot be paid, pay at least the minimum payment. If a bill cannot be paid, call the company immediately to make arrangements.
Use less than 35 percent of your available credit. ( if you have a line of credit with a limit of $5000 and a credit card with a limit of $10,000 for a total of $15,000, do not borrow more than $5,250 at a time.)
Keep an older account open even if you don’t use it. Use it from time to time to keep active.
Limit the amount of times you apply for credit in a shorter period of time.
Have a minimum of 3 different credit products but do not let it get out of control.
Obtaining your Credit Report Credit reports, also known as “credit file disclosures” from Equifax or “consumer disclosure” by TransUnion Canada can be obtained with no effect on your score. Ordering by mail, fax or in person are free. There is a fee for online access. Visit equifax.ca or www.transunion.ca for more information.
The Home Buying Process A step by step guide Select a Mortgage Agent Obtain Pre-Approval Analyze Your Needs in a Buyer Consultation Select Properties View Properties Write an Offer to Purchase Negotiate Terms Accept the Contract
Remove Contingencies Conduct Inspections Resolve Any Issues
Conduct Title Search Remove Any Encumbrances
Obtain Mortgage Financing Credit check
Underwriting
Appraisal
Survey
Insurance
Conduct Inspections
Obtain Funds for Closing Close the Property Take Possession Of Home!
The Mortgage and Loan Process Funding Your Home Purchase
Why pre-qualify We recommend buyers are pre-qualified before beginning their home search. Knowing exactly how much you can comfortably spend on a home reduces the potential frustration of looking at homes beyond your means. It also means you are ready and qualified to put in an offer when you find that perfect house for you.
1. Pre–qualification or Pre-Approval
Application and interview
Buyer provides pertinent documentation including verification of employment
Credit report is requested
2. Underwriting
Loan package is submitted to underwriter for approval
3. Loan Approval
Parties are notified of approval
Loan documents are completed and sent to title
Rate Hold Talk to your Mortgage Agent about a rate hold. An interest rate can be held for 120 days with a rate hold. That means while you`re searching, you are guaranteed that rate for 120 days. And if the rates go down, you are guaranteed the lower rate within the 120 days.
Pre-Approval is not a green light to spend! It is very important that you do not borrow from your credit or apply for additional credit as this can result in the loss of your approval. Resist that urge to buy all new furniture as soon as you`re approved as it could mean you`ll end up with no house to put it in!
The Mortgage and Loan Process How much can I afford Your Mortgage Agent is here to help. They are working for you with your best interest in mind. A mortgage representative at the bank works for the bank with the bank’s best interest in mind. A Mortgage Agent works to get you approved at the very best rate, terms and type of mortgage available and to get it done quickly, so you are in a position to buy as soon as possible. The math that goes into calculating a mortgage approval can seem complicated. We have included some important calculations below because we want you to be informed about the process. But we also think it is important for you to know that your mortgage agent is an expert at this. They know all the ins and outs of these calculations and will handle it with confidence so you don`t need to worry. If you are unsure about anything along the way, be sure to ask your mortgage agent. They are more than qualified to explain it to you.
Important Calculations to know: Gross Debt Service (GDS) Formula A lender using the following formula to calculate your GDS percentage in determining the mortgage amount you qualify for. GDS requirements vary and must not exceed 39%. Principal + Interest + Property Taxes + Heat + 1/2 Condo Fees Gross Income
Total Debt Service (TDS) Formula The total debt service ratio is used to measure the percentage of gross income required to cover annual payments for housing as well as other debt obligations. TDS requirements vary based on your credit score and must not exceed 40%-44%. Principal + Interest + Property Taxes + Heat + 1/2 Condo Fees+ Other Debt Gross Income
The Home Search Finding the home that`s right for you Fun. Exciting. Tiring. Time consuming. Eye opening. Rewarding. The home search. Finding the home you`re looking for can seem a bit like finding a needle in a haystack. Fortunately, your Real Estate Agent has access to some very efficient tools to help narrow the search and speed up the process. 1. Board Access Real Estate Agents have access to listings as soon as they go on the market. In fact, they can see listings 24-48 hours before you find it on MLS yourself. This means that your Agent can send you a listing, have you in to see it and possibly even prepare an offer before it has even gone public. 2. Buyer Search Your Agent can set up a buyer`s search that is specific to your desired criteria. Inform your Agent of your `wish list`. This includes your budget, desired location, style of home, number of bedrooms and bathrooms, size of garage, etc. The listings would then be sent directly to your email as soon as they become available. You even have the ability to request a showing online through your Agent. 3.Expertise All the tools and online gadgets are great, but a trustworthy real estate agent with experience and a proven track record can`t be beat. Agents know what to look for, what to watch out for, what areas are up and coming, and how to direct you to a home that will work for your needs.
Making An Offer Understanding the process of a purchase agreement You found the perfect home. Now it’s time to make an offer. This is the time to really put your trust in your Real Estate Agent. While much of a purchase agreement is standard, there are some important areas that can be negotiated.
The Price The offer you make on a house depends on a number of factors. Conditions affecting the offer include length of time on the market, buyer activity, and urgency of the seller. Some buyers like to come in low and hope for the best, but this may not be the best strategy to obtaining the house of your dreams. In fact, this could cause a buyer to decide to stop negotiating and move on to other offers. Also, in a seller’s market where competing offers can exist, you need to be prepared to come in with a strong offer or risk losing the house. Your Real Estate Agent has experience in the area of price negotiations and it is important to listen to their recommendations when the time comes to put in an offer.
Deposit It is very common for a seller to request a deposit with an offer. This deposit is placed in a trust account. Be prepared to have funds available for this, keeping in mind that you should not borrow from any credit once you are pre-approved for your mortgage.
Inspection Your Agent will strongly recommend that your offer be conditional on a satisfactory home inspection. Do not skip this step! A qualified home inspector has extensive training and experience in determining areas of concern regarding the structure and function of the home. The cost of a typical home inspection will vary from $350—$700 depending on the size of the home and length of inspection.
Making An Offer Understanding the process of a purchase agreement The Move-in Date Like many areas of the home buying process, flexibility is important when it comes to the possession date. The seller may be more open to an offer with a closing date that is in their favor.
Additional Property Often, the seller plans to leave major appliances in the home. However, the items that stay or go are negotiable. These items are written into the offer by your Agent.
Offer Presentation Typically, a buyer does not attend the offer presentation. Your Agent will present the offer to the selling Agent/seller at which time the seller will do one of the following:
Accept the offer
Reject the offer
Counter the offer with changes
The Counter Offer The counter offer is an important part of the process. This is when your Agent’s expertise really comes in. They will work with you to review the specific details of the counter, and move forward with your goals in mind. They will use their negotiating skills to represent your best interests and reach an agreement satisfactory to both parties so you can obtain your dream home.
Closing 101 The closing day: What to expect Be Prepared The day of closing marks the end of the home buying process and the beginning of your exciting adventure in your new home. To make sure everything goes smoothly that day, it’s important to know a few details to be prepared.
Municipal/Provincial Tax Ask your Realtor or Lawyer about current calculations for your region as well as available rebates. The land transfer tax, property transfer tax, or land registration fees are based on the purchase price of the home and are calculated differently by each province and municipality. First Time Home Buyers qualify for rebates in Ontario.
Insurance You must insure your home against fire/damage for at least the replacement value. This must be effective on closing day. Cost will vary depending on the provider and the type of coverage Be sure to obtain documents proving your insurance as the lawyer will want this before your final appointment.
Prepaid Adjustments If the seller has prepaid costs such as property taxes, water bills or utilities, the buyer is responsible to cover this cost.
Closing 101 The closing day: What to expect Legal Fees A lawyer will review the Purchase of Sale Agreement, search the property title and ensure all documentation is completed properly while protecting your interest. You will require a meeting with your lawyer to review and sign documents, typically a week before closing. Your lawyer will have a list of items you will need to bring to the meeting including proof of insurance, photo IDs, and most likely a certified check for closing costs. Be sure to listen carefully to instructions and come prepared with all requested information to ensure that you do not cause unnecessary cost to the lawyer`s fee or slow down the process.
Moving Costs It can cost up to $5000 for a professional moving service. You can cut costs by renting a truck and doing it yourself. Get all your friends involved, order them some pizza and make a fun day out of it! Also, consider the cost of connection fees for services such as phone, internet and cable. Call your provider in advance to set up a date and be sure to ask about the connection fees.
Own it Once the buyer`s funds are delivered, the deed ownership is transferred and delivered to the clerk`s office, the next step is giving you the key.
Checklist Don’t miss a step! Real Estate Check List:
Choose Real Estate Agent
Meet to discuss search criteria
Sign buyers agreement if you choose to work with the Agent
Review buyer`s website (from Dave) and select homes of interest for showings
Select home and place conditional offer
Book home inspection ($300-$500)
Secure Mortgage Agent, Home and Fire Insurance and Lawyer
Remove conditions and firm up offer
Place deposit cheque into trust account of Realtors Brokerage
Once keys are released from lawyer, do a walk through of the home to ensure all conditions have been met according to agreement and home is in appropriate condition at time of possession. Test all inclusions such as appliances that day to ensure proper working condition.
Mortgage Checklist
Discuss affordability with Mortgage Agent and obtain pre-approval
Save 5% of purchase price for down payment
Save 1.5% - 2% of purchase price for closing costs
Submit application with income documents
Obtain appropriate life insurance coverage
Review and sign mortgage commitment
Provide Mortgage Agent with lawyer`s contact info
Checklist Don’t miss a step! Lawyer Checklist
Call to get a quote from lawyer for closing services including land transfer fees, legal fees, borrowers title insurance, and to secure for the closing process
Book lawyers appointment for approximately one week prior to closing
Bring remainder of down payment in the form of a certified cheque and supporting documents (ie. Insurance binder) as well as photo ID to final appointment. Be sure to have sufficient funds within at least 3 days prior to appointment to cover certified cheque.
Moving Checklist
Contact utility companies to arrange for new accounts
Contact phone, cable, internet provider to transfer services
Contact post office to have mail forwarded to new address
Contact Ministry of Transportation and Health Canada to change address on license and health card
Inform professional services of address change including doctor, dentist, bank, Revenue Canada, and schools
Book a moving van or moving company for moving day
Pack, pack, pack! Use this time to purge anything you don`t need.
Moving Self : schedule at least 3 friends to help order food to be delivered to appropriate address (lunch might be at old residence, but dinner might be at new home.)
Pack a few necessities in separate suitcase for easy access