If you’re like most people during the current Covid-19 pandemic, your “normal” everyday life feels like it’s on hold. From avoiding small habits like touching whatever you want to at the grocery store, all the way up to major life changes like buying a home.
If you were thinking of buying a home before, don’t let the current unique circumstances turn you off. There are still plenty of ways to go about that process. When you’re ready to buy, it’s good to have as much information as possible. Here’s a guide to the steps you should take, and some of the terminology you may not yet be familiar with.
Before you buy
Find yourself a REALTOR®. Buying a home is an exciting process, but it’s also complex, so contacting a REALTOR® should be one of the first steps you take.
Real estate is designated an essential service, and the buying and selling of homes is still happening. Your local REALTOR® is well apprised of current best practices in the real estate industry to keep you and your family safe, from limiting the number of people viewing a home to virtual tours, showings or live streams.
A REALTOR® can bring you peace of mind thanks to their experience and professionalism. From helping you find a home that meets your needs and price range, to negotiating your purchase price, or directing you through complex contracts, a REALTOR® is an important part of your home buying journey.
While it’s exciting to start looking at houses, you must first determine how much a mortgage lender is willing to let you borrow to purchase your first home.
A mortgage is a loan that can help you cover the cost of buying a home. How much you’re able to borrow will depend on factors including your total current debt, monthly household income, how long you’ve been at your current job and how long it will take you to pay it back. You’ll want to understand the amortization period. A longer amortization period means lower monthly payments but higher interest rates.
Mortgage lenders use Principle, Interest, Taxes and Heating (PITH) as a tool to ensure mortgage affordability by determining the monthly payments that can be made by the home buyer. Online mortgage affordability calculators can help you perform your own PITH test to estimate affordable mortgage payments. One you can try is at www.winnipegrealestatenews.com
When taking out a mortgage, home buyers grant the bank a lien on the property. This gives the bank the right to seize your property in the event you don’t repay your mortgage.
There are several types of mortgages to consider:
• Fixed-rate mortgage — Your interest rate is locked in for a specified period called a term. Your payments stay the same for the mortgage’s term so you will not pay more even if interest rates increase over time.
• Variable rate mortgage — The rate of interest you pay may change if rates go up or down.
• Conventional mortgage — Requires a down payment of 20% or more of the property’s value. You’re not required to get mortgage default insurance with a conventional mortgage.
• Closed mortgage — The mortgage cannot be paid off early without paying a prepayment charge.
• Open mortgage — A mortgage that can be paid off at any time during the term, without having to pay a charge. The interest rate for an open mortgage may be higher than for a closed mortgage with the same term.
Now that you know how much you can afford, your REALTOR® can help determine what type of neighbourhood you want to live in and what type of house you want to buy.
Buying a home
You’ve found your dream home, so now what? It’s not time to pack your bags just yet. There are many expenses you must consider beyond the purchase price (the price you’re willing to pay for the house).
You need to consider how much of a down payment you can afford. This refers to the initial up-front portion you pay against your home purchase. The larger the down payment, the smaller your mortgage. Are you a first-time home buyer with a Registered Retirement Savings Plan (RRSP) account? You can now withdraw up to $35,000 without paying income tax through the Home Buyers’ Plan.
Other factors you may want to consider at this stage are:
• Property taxes — This annual fee, imposed by the local government, pays for services like public education, local police and libraries.
• Home insurance — This is a form of property insurance protecting you financially in the event of damages or losses to your home and its contents. In most cases, you can include these payments in your monthly mortgage payment.
• Home inspection — Even if the home appears to be flawless, many home buyers arrange a home inspection as a condition of their purchase. Hiring a professional to inspect the overall condition of the home can cost a few hundred dollars, but can reveal any serious defects.
Now that you have figured out all of the costs associated with your purchase, you’re ready to make an offer. An offer to purchase is a formal, legal agreement made between the buyer and seller which often contains certain conditions. This is commonly known as a conditional offer and includes factors that must be met in order for the sale to be successful such as financing terms, appliances and fixtures, inspections and the physical condition of the house.
Generally, the seller has between 24 and 48 hours to accept, reject or counter-offer. This is known as irrevocability of the offer, the length of time the seller has to consider your offer.
Once your offer is accepted, you will need to determine your closing costs. This includes your mortgage broker’s fee, real estate commissions, moving costs, title insurance — an insurance policy protecting you against challenges related to the title of your home — and more.
Buying a home doesn’t need to be intimidating. While there’s still more to learn, hopefully you now have a better understanding before taking the plunge into one of the biggest single purchases you’ll ever make. REALTORS® continue to serve you and your families during these unique circumstances. When you’re ready to make a move, don’t hesitate to contact a REALTOR® or search for a local expert at www.winnipegrealestatenews.com