Buying your first home is the ultimate in adulting - which can be a little overwhelming for those who have not had to think about things like home insurance and interest rates before. But don't let that put you off, owning your own home is extremely rewarding and for most people, surprisingly attainable. I won't delve into too many details about qualifying for a mortgage as those are topics of other posts, read up on mortgage readiness for millennial's or how much down payment do I need for details on getting yourself ready. Or better yet, just call me!
Step 1 - Contact a mortgage broker (preferably me), we will go through your current financial situation and make sure you are a good candidate to purchase. We will also do a full document review and pre-qualification. This gives us an idea of what your credit score is looking like, if there is anything that we need to work on to improve your score, what your monthly finances look like and debt servicing ratios, how much down payment you have saved or what kind of options you have for down payment. We will talk about different types of mortgages and all the different types of insurance you will hear about during the home buying process. We will also go over your maximum purchase price and what that looks like in a monthly payment as well as other monthly costs you will want to factor in when choosing the purchase price you want to shop at (property taxes, insurance, condo fees, utilities etc).
Step 2 - Now that you have an idea of exactly how much you want to spend, you get to call your favorite Realtor! (If you don't know one already, I know some pretty fantastic ones that I can recommend for you). Time to go shopping, this is the fun part! You will work with your Realtor until you find the perfect property and make an offer on it.
On your offer, you will want to include a couple of conditions like financing and inspection (there may be more conditions depending on the property which would be advised by your Realtor). 'Conditions' are basically stating that you are committed to buying the property as long as the conditions are fulfilled and you are satisfied with them.
A financing condition means that you will purchase the property as long as you can obtain a mortgage for it, this is a very important condition because without it you are legally required to purchase the property, even if you can't obtain financing.
Lenders look at mortgages in 2 stages, first they approve you as a borrower, and then they approve the property as security for that loan. So even if you are a perfect candidate, if there are issues with the property the lenders may not wish to lend on it so unless you have the purchase price in cash in the bank, a financing condition should always be a mandatory part of your offer.
Step 3 - Now that you have an accepted offer on a home, you will send the accepted offer to your broker to start the financing process. The broker needs to work quickly at this stage due to the limited amount of time to satisfy any conditions and ensure your financing is guaranteed. We will talk about different lenders, current rates and choose the product you want to apply for at this time.
Once we have an accepted offer from a lender you will sign what is called a commitment letter. This is the bank stating they are committed to providing you with a mortgage as long as you meet their conditions. We will work through the conditions which could include everything like employment verification to an appraisal on the home and get everything accepted by the lender before we are ready to remove the financing condition.
During this stage you will also want to decide on a lawyer for your legal requirements in the home buying process. Once again, your broker and your Realtor will have a lot of recommendations you can call for quotes and see who you prefer.
Step 4 - You are ready to remove financing condition, you should also be ready to remove your inspection condition and any other items you had put as conditions on the offer. Once the conditions are waived, the lender will send the legal documents of your file to your chosen lawyer for the legal portion of the purchase.
Step 5 - Time to shop around for a homeowner insurance policy. You will need to take a copy of this policy with you to your lawyer meeting. You will also now want to ensure your down payment money is all in one bank account. This means you will want to time the withdrawal of RRSP money or TFSA money (if applicable) to ensure it is all in your account at least a day or 2 before your lawyer meeting. Your lawyer will call you with a dollar amount to bring with you to your meeting in a bank draft or certified cheque.
Step 6 - Your lawyer signing will usually occur about a week before you take possession of the property. The lawyer looks after the legal signing package for the lender, they distribute the funds to the sellers and the Realtors and they also register the new ownership on the title of the property. Once you have signed with the lawyer you are ready to get serious about packing, call to arrange utilities, set up your property tax payments (if you are not doing this through a lender) and get all of your closest friends ready to help you move!
In addition to these main steps, there are plenty of other items that could come up along the way. You may hear about mortgage insurance, title insurance, default insurance, appraisals, inspections, condo doc reviews, first time home buyer RRSP program, moving expenses, lawyer fees etc.
If this sounds like a lot, don't worry, the job of a good broker and a good Realtor is to ensure that you are looked after each step of the way and that we guide you through these items to ensure that you understand every part of the process.