1) Choosing An Agent
It is very important to choose the right agent to work with, as purchasing or selling a home is usually the biggest investment in a persons life. You want to get yourself slightly educated on the real estate industry and have a rough understanding of your real estate needs. Once you select your agent, you should meet them in person to discuss your unique situation and use their expertise to narrow down the type of home you wish to purchase. You should discuss the price your willing to spend, the area's you want to live, and determine if you are planning to use this property as an investment or a long term home. A good real estate agent will further educate you on the real estate processes that take place in a transaction and help you finalize the features your looking for in a property. This is by far the most important step in the process; choosing the right agent will make the transaction smooth as possible.
Once you pick a professional to work with, they may ask you to write a Written Service Agreement. This agreement is a legally binding document that makes the client obligated to work with the chosen agent. The time on the agreement may vary, and can be presented at different steps in the process. Always discuss this with your agent.
2) Determine How Your Going To Pay
Are you going to pay for the amount in full with your own money or through a lender? The most common method is to purchase a home through a lender. A lender can be a financing institution, a bank, or a private investor. Whomever the lender is, the debt you owe to them is all secured as a mortgage against your title.
Mortgage: There are typically 2 ways to get a mortgage. The first option is to go through the bank directly and the second is to go through a mortgage broker. Going through the bank directly usually limits the buyer to a few options of obtain financing. It is most commonly done through the same bank the client already deals with. Terms on the contract are very particular while the flexibility of these terms are hard to change. However, if your credit score is good and the bank offers a set of terms and conditions that meet your particular needs, this option can be pursed.
With that said, the most common method is to go through a mortgage broker. Going through a mortgage broker gives you the ability to choose from a variety lenders including banks and private investors. This option gives you the ability to find a unique set of terms that meet your needs while allowing you to have the greatest flexibility to change these terms. Mortgage brokers can choose from the largest selection of lenders.
For first time home buyers, being pre-approved before you start looking at properties is arguably a necessity. There is no cost, nor any obligations. All there is is benefits. Having a pre-approval is the amount the bank approves you for purchasing a home based on your income and debt levels. It however, doesn't mean you have to spend that amount purchasing your home. In my experience, purchasing a property at a slightly lower price allows you to cope with stresses and emergency situations that can happen much easier, such as missing work due to illness and unplanned repairs. You will have a greater surplus of money put aside to deal with events such as these.
You shouldn't focus entirely on fluctuations with interest rates. In the last decade, they have only moved up and down at the smallest increments to date. Rarely postpone a home purchase because you believe the interest rates are slightly higher than normal. Instead, you should focus on the area's demographics, and determine if real estate improvements in this area are adding values to the properties. Ask yourself if the value of the area is going up or down. Doing this will save you a lot more money in the long run rather than worrying about changing interest rates.
First time home buyers also qualify for the First Time Home Buyer's Tax Credit. It is a non refundable tax credit in which you can claim $5000 of your down payment on your tax return. Each eligible individual will be able to receive $750 in tax relief at one time in their life. The link above has more details on the qualification guidelines for the credit and how to apply.
Closing Costs: Closing costs represent a small amount of money you will need when purchasing a home. It is roughly 1.5% of the total investment and takes into consideration the legal fees, home insurance, the transfer of utilities and potentially hiring movers. The closing costs can also include a property inspection if you chose to get one, and in my opinion is highly recommended.
3) Find Your Home
As you now know how you are going to pay for your home, the price you are willing to spend, and the key features you wish to have, you now can start the searching process. This process usually starts off with a property search being set up for you by your agent to notify you when specific property enters the real estate market. They will define the search criteria as determined by step 1 and the client will receive notification by email or text on properties similar to the features you want in a home. You will now start to select homes to view while disregard others. The ones you choose to view should be consistent with the ideal features you chose in step 1. This will save you major headache by avoiding 100's and 100's of property viewings. You should also remember that some properties you see online will be displayed in excellent conditions relative to the actually home viewing. Some properties will be the opposite, so don't be scared to view these as well. Always keep in mind your ideal home.
4) Write The Offer
Before writing the offer, look into the history and condition of the property. Determine how long ago it was listed, what it sold for at that time, and the problems the property currently has. This will allow you to have the greatest negotiating power when it comes to making an offer. When the research is done, the buyer and agent must determine the price of the property and submit an offer.
When writing the offer in the Purchase Contract, you will have to agree to uphold Terms and fulfill Conditions
Terms are promissory clauses within the contract that must be agreed to and will be upheld. If they are not, it is a breach of contract. You have the option to add in whatever you wish, such as your desired possession date and what appliances you wish to keep. Both parties have to agree.
Conditions are clauses that must be fulfilled, such as a condition for the buyer being approved for financing and/or obtaining a home inspection. The buyer or the seller is then restricted to a few days or potentially a few weeks to fulfill the conditions. Buyers most commonly have more conditions than sellers.
Now the offer is ready to be presented to the seller, which is most commonly done by the agent acting on your behalf. While presenting the offer, you will need a deposit to show that you are committed to purchasing the home and are acting with your best intention to do just that. The deposit is always refundable if the terms or conditions are not met between the parties. It however, becomes non refundable when both parties are satisfied and remove the conditions in writing. The deposit amount varies in relationship to purchase price, and should be discussed with your agent.
The offer may be accepted, the conditions may need to be changed, or a negotiation process may take place until both parties achieve satisfaction and accomplish their goals.
5) Satisfy The Conditions
Once the offer is accepted by the seller, your deal is now Pending. If the seller or buyer is not satisfied with their outcome or results when they are trying to satisfy their conditions, they can walk away from the offer at no cost. The deposit check is returned and there is no further obligation by the parties. Once all conditions are satisfied, both parties sign and agree to purchase and sell the home. Now you wait for position date. Remember, while you wait for possession, get ready to start transferring the utilities and your mailing address well in advance to make the possession process a whole lot easier for you. If you need movers, schedule them as well.
6) Get Ready For Possession And Move In
On possession date, you and your agent will walk through the property to make sure that the property is not damaged and everything agreed to in the contract is upheld. If both parties agreed upon leaving the appliances, you better make sure they are still there. If there is any issue that you notice before the keys are exchanged and the money is sent to the seller (by your lawyer), the buyer is responsible to take action and notify the lawyer during the walk through. The real estate agent will help you or do this on your behalf. If everything is good and the keys are exchanged, the HOME is yours!
Feel free to ask me any questions relating to the entire process. I'm always available to help!
Chloe Pleckaitis - RE/MAX River City
This home buyer's guide is based on information relating to Edmonton Alberta and the surrounding area.