10 Steps Of Home Buying
Step 1 - Choose a Mortgage Specialist
You decide that it’s time to buy. The first step is to contact your mortgage broker or bank to figure out how much you can afford based on your income and your down payment. They will usually send in your application to hold the current rates for 90-120 days. This is called a pre-approval and it requires minimal documentation. Some home buyers don’t fully understand pre-approvals. Even if you obtain a pre-approval, it does not guarantee you will qualify for the financing.
The main benefit of a pre-approval is that it will give you a good idea of how much you can afford in addition to holding a rate for up to 120 days (this varies by Lender) thus protecting you from any sudden rate increases.
Step 2 - Choose a REALTOR®
Contact your REALTOR® and let them know what you’re looking for so they can keep an eye out. Giving them your maximum price range will save a lot of frustration down the road. In addition to getting to know your needs and searching for the perfect home for you, most agents can set you up on auto-emails that fit your search criteria, and you can monitor them at your convenience.
Step 3 - Choose a property
You find a property that you love and you write an offer with conditions to protect you, and give you the opportunity to do your due diligence on the property.
Once the sellers accept your offer, usually there is small period of time (1-2 weeks usually) where you can withdraw from the agreement if certain "subjects" or "conditions" aren’t met. Standard "subjects" are: Financing Approval, Insurance, Home Inspection, and if its a strata property, you will have the opportunity to approve the strata documents. (Bylaws, fees, depreciation report, etc). There are standard contracts that are used in BC, but all contracts can have added clause, subjects, conditions and amendments if needed.
Step 4 - Do Your Homework
During this 1-2 week period it's your responsibility to do your due diligence and "remove" these subjects one by one. Time is of the essence here!
The most common subject is ‘subject to financing’. Until now, you either haven't spoken to a lender at all, or you only have a pre-approval which is not a full approval. Many first time buyers make the mistake of assuming since they have a pre-approval, they will get approved. The problem is that until now, lenders haven’t actually seen any of your documentation. Certain issues may come up which is why it’s important to have a financing subject in your offer.
As soon as you’ve made an offer, contact your broker or bank. Since the subject removal period is usually very short, it’s crucial to get the most important documents to the lender first. Usually this includes paystubs, notice of assessments, bank account screenshots, or job letters. Your REALTOR® will send them the purchase contracts. Other than sending your lender the contract or purchase of sale and receiving financing approval, the REALTOR® stays out of your personal finances.
A common subject is "subject to inspection". Usually, the purchaser hires an inspector to go through the property and make sure there are no major defects. It is smart to set up the inspection towards the end of the time period because inspections cost $350-$450. Why spend money until you have secured your financing? Sometimes, lenders will also require an appraiser to confirm the value of the property – your broker can help you arrange the appraisal.
Another common subject is "subject to insurance". All you have to do here is call a home insurance company and tell them you are buying a home. Tell them you need to verify that the property and home are insurable. This is usually just verbal confirmation to give you piece of mind that you can in fact insure this massive investment that you are about to make from fire, theft, earthquake, etc. Sometimes your lender wont approve a mortgage on a property without knowing the property is insurable.
Step 5 - Subject Removal
The subject removal date is a very important date because until that point, you aren’t locked into to the contract. As soon as you remove subjects, you are officially proceeding with the purchase of the property. That’s why you want to make sure that you don’t miss anything. Once the most important documents are signed off by the lender, they will issue an official approval and if you have done the rest of your homework (inspection and insurance) you can remove subjects. This is a 1 page document requiring a signature. Your REALTOR® will prepare this for you. Once subjects are removed, you have successfully completed the most stressful part of the purchase!
Step 6 - Deposit
Usually a deposit is due within 24, 48 or 72 hours after subject removal document is signed. The deposits usually $5000, $10000 or more depending on purchase price, and forms a portion of your down payment. Usually in the form of a bank draft or certified cheque, you will give this to your REALTOR® and it will be made out to, and held by their brokerage in a trust account until the purchase actually completes.
Step 7 - Choose a Lawyer
You’ll need to use a lawyer or notary to help you with the paperwork involved. Although notaries are less expensive, its recommended that first time home buyers use a lawyer. They’ll make sure everything goes smooth and they’re only a couple hundred more. Your REALTOR® can recommend one that is least expensive. Your REALTOR® and or lender will send them the contract, and you will call them to arrange your future appointment.
Step 8 - Wait
The lender will send the mortgage details to the lawyer or notary that you have chosen. The lawyer/notary will take care of all the background paperwork, and they will arrange a time for you to come in and sign the final documents. Usually this appointment is made a few days prior to completion, and it takes about half an hour. In the meantime there is nothing to do other than possibly organizing your move and inform utility companies of your upcoming move.
Step 9 - Completion Day
You’re officially a home owner now!
Step 10 - Possession Day
Meet with your agent to get the keys and MOVE IN!