Buying a home can be one of the most rewarding experiences in life. Homeownership provides a sense of comfort and pride and can help create a feeling of security. In today’s hot housing market where the interest rates are low and competition fierce, it pays to be prepared when entering the market.
Here are 7 ways you can be prepared:
1. Consider how much you need for a down payment
A down payment is the amount of money you put towards the purchase of a new property. The lender will deduct the down payment from the purchase price and your mortgage covers the rest of the home price. The minimum down payment amount needed depends on the purchase price of the home. Any down payment under 20% requires an insured mortgage, so if you can provide a larger down payment, it looks good to a lender and saves you thousands of dollars in interest. If you are self-employed or have a poor credit score, the lender might require a larger down payment.
Many first-time homebuyers receive a gifted down payment to help purchase their first home, but it can only come from an immediate family member, not from friends. So keep this in mind when either requesting or receiving a gifted down payment.
Lastly, if you are purchasing a home that is in need of some major renovations, a larger down payment would be required and the mortgage program would have to allow the expenditure.
2. Factor in the Closing Costs
Before you get the keys, you will need to sign loan documents and paperwork that transfers the ownership from the seller to you. What many home buyers are unaware of is that when saving up for a down payment, they also need to have the savings to pay the closing costs.
Closing costs are the fees and charges incurred over and above the purchase price of the property and are due at the closing of the real estate transaction. Closing costs include legal fees, land transfer tax, brokerage fees, and appraisal fees, and property inspections. Typically, closing costs can range from 1.5-4% of the purchase price. This can add up, so it’s always important to make sure you have enough for your closing costs in ADDITION to your down payment before making an offer.
3. Learn The Difference Between Title Insurance vs Home Insurance
It’s important to educate yourself on what exactly title insurance and home insurance are in order to avoid any hiccups down the road. Title insurance means that you have legal ownership of a property. You receive the title to a home when the previous owner signs the deed and transfers the property ownership to your name. Title insurance is a one-time fee and is typically purchased at the same time that you buy your home.
A home insurance policy covers any loss and damage to your property and includes coverage for natural disasters such as fire, wind, and lightning, and offers structure coverage for sheds, fences, and detached garages. It also provides coverage for personal property inside your home including furniture, electronics, and jewelry, and personal liability protection in the event someone gets injured on your property. Unlike title insurance, home insurance requires a monthly payment.
The best way to protect yourself from unexpected costs related to your home is to invest in both title insurance and home insurance.
4. Know the Benefits of a Financing Waiver
A financing condition is a clause in the purchase offer that gives a period of 5-7 business days to confirm you are able to get a mortgage approval. The most important tip we can give to homebuyers is to request at least a 5-day financing waiver when working with a realtor. This helps you retain your deposit with no penalties and protect yourself in the event your financing is denied or the financing terms are not desirable.
5. Be Aware if the Owner is Listed as the Realtor
When purchasing a home, you want to ask lots of questions! A home purchase can be an exciting but overwhelming time and you might forget to ask some key questions to ensure it’s the right home for you and your family for years to come.
As such, we recommend that homebuyers have their own personal realtor to work with because they will have your best interest at heart. This is especially important when dealing with a realtor who is also the current property owner. When the realtor is listed as the owner and you are dealing with them directly, you might not find them to be very transparent and they might try to take advantage of dealing with someone with no real estate negotiating experience. Hence, having your own realtor will act as the middleman and will ensure that all the necessary questions and concerns are addressed, avoid any closing cost issues and ensure everything goes smoothly.
6. Your Job Matters To Lenders
When determining your ability to pay and in calculating how much house you can afford, a lender will calculate your average income over the past 24 months. Your income and employment need to be stable and you cannot be on probation. Some lenders would want to see at least 3 years NOAs within the same industry. If you have had a job change, the lender is going to request the following from your employer: an offer letter, a role change letter and/or compensation change letter, and a most recent pay stub and confirmation of employment. Due to the strict requirements regarding employment, you might want to get in touch with a mortgage broker early in the process to ensure you meet the conditions in advance and get pre-approved to avoid any problems prior to house-hunting.
7. Do You Need a Home Inspection & Home Appraisal?
A home appraisal is a report produced by a professional appraiser that informs the mortgage lender of the monetary value of the home you are looking at purchasing. Appraisals ensure that all parties in a real estate transaction get a fair assessment of the value of the property. Property appraisers generally look at square footage of the home, number of bedrooms, the condition of the home, if any upgrades or repairs have been made recently, and the neighbourhood and close proximity to amenities. Learn more about the main factors that impact a property’s value.
A home inspection on the other hand is conducted to ensure there aren’t any issues with the home that could present a problem for the owner down the road. The home inspector looks for things like mold or water damage, a leaking roof, cracks in the foundation, building code violations, and any issues with the plumbing or electrical equipment. A home inspector does not report on the home’s worth, but rather, its physical condition.
Both services benefit you, the buyer by providing negotiating power. By booking a home inspection, you can avoid costly repairs in the long run and by enlisting the service of a home appraisal, you can be knowledgeable about the ‘real worth’ of the property and if it matches the sellers asking price.
Whether you are a first-time homebuyer or are purchasing a second property, our trusted team here at Burke Financial can help you through every stage of the process. Get in touch with us today to get started.