The first-time home buying process has seen some accelerated changes in the past few years. Here are 6 tips those just starting out should know:
1. Get a Formal Mortgage Pre-Approval
A pre-approval is the official process of proving you meet the criteria to afford a home of a certain price. Different financial institutions provide different mortgage rate guarantees (ex: Libro has a 120-day guarantee). Based off of this interest rate, your advisor will give you a maximum amount you are able to purchase a home for. It helps with making things smoother and quicker once you’re ready to put an offer in on a home and sign on a mortgage.
A pre-approval is based on your personal financial state at the time of approval. If something changes for you, (even applying for a new credit card at a big box store to get a deal) that could make your pre-approval no longer valid, regardless of which credit union or bank provided it.
Think of it as a pre-approval of you and your finances, not of the home itself. What’s the difference? The example above, that you need to keep your finances in the same state throughout the process. But also, property appraisal; after you’ve put in an offer on a home, your credit union or bank does an appraisal of that property. If it turns out you’ve bid above what the house is really worth, you are responsible for the difference.
2. Focus on Perseverance
You may get lucky and find the perfect home right away, but for many, it’s a longer process that can quickly turn frustrating. Try to give yourself lots of time and positive energy; keeping a level head even during the exhaustion of a long bidding process will help keep you on track to spending within your budget and thinking through contingencies and terms on an offer.
3. Learn About Mortgage Types and Financing
If you have less than 20% to put as a down payment, you may be able to qualify for a high ratio mortgage. The minimum down payment in this scenario is 5%. These types of mortgages require mortgage loan insurance provided by CMHC and Sagen. This may add to the timeline for approval (keep this in mind when considering closing dates).
You should also think about how this may impact your conditions on an offer. Going in without a condition of financing basically means you’ve bought the house regardless of if you get your financing, this can be risky. In the scenario where financing falls through, your offer can still be accepted by the sellers, meaning you offered to pay for the house but don’t have the money. There can be legal ramifications if you cannot come up with the financing, and you’d forfeit your deposit. Ask your realtor for more about this.
4. Navigate Rapid Market Changes
The key is constant communication with your team of experts, in both home financing and realty. It’s great to be educated and learn about what’s going on, but your advisory professionals are also here to have your back through any ups and downs. This is why Coaching at Libro is so helpful and important. Our focus is your financial prosperity, not selling a product, and we pride ourselves on being advice and people focused. We’re here for you.
5. Prepare for the Closing Process
Closing takes time and requires a lawyer. Keep this in mind when thinking of closing dates for an offer; 2 weeks may sound great when you’re excited, but may not be realistic, whereas 30 days could be, but you need to confirm with your lawyer. Closing requires your lawyer to go through all the final paperwork, costs, land transfer tax, home taxes, and releasing the keys. On your closing date you will receive your keys from your lawyer (check with them beforehand on their preferred process) and you get to unlock the door to your new home!
6. Remember: It Shouldn’t Keep You Up at Night
Buying a home should be a happy and exciting process! You get to find a place to make your own, to grow your roots and settle in. Financial Coaching from Libro helps with this. We want you to pay off your mortgage quicker and set up the best future plans for your finances. We’re about transparency and financial education, and we help keep you from feeling overwhelmed.
Keep your head up through the process, you’ve got this!
For more information watch our First-Time Home Buyers’ webinar , visit our Learn Centre or read through our first-time home buyers’ terms and definitions cheat sheet. Or better yet, talk to a Coach!