With interest rates so low right now, it seems like a great time to buy a house. And it can be, but you need to make sure that you are aware of everything you can be going in. This means really being sure that the house is for you, even beyond the open house. You should stop by the house at different times of day, and try a morning commute from your potential house. Once you’re sure that you have the right house, here is what to consider as you navigate the home buying process.
Making Your Offer
Step one is making your offer. If you saw the property during an open house and don’t have a realtor representing you, now is the time to find one. You could use the sellers’ agent, but that isn’t always the best idea. You should get a realtor to represent just your interests in the transaction.
When you make your offer, not only do you specify the price you want, but you also specify terms and conditions (also known as contingencies). Many people ask for the sellers to pay the closing costs of the transaction. Other common terms include asking for furniture or appliances. The main contingencies have to do with getting financing, and appraisal, and conducting a home inspection. Unless you are an all-cash buyer, you should include these contingencies so that you can get your earnest money back should something happen.
Getting Financing
The next step in the process is getting financing. This means getting a mortgage and other related items, like insurance. You should make sure that you shop around to make sure that you are getting the best rate and fees. Home insurance brokers offer competitive deals on home insurance. Expect to put at least 3% down, but usually most lenders now require 20% down unless you get private mortgage insurance.
Private mortgage insurance is a special insurance designed to help pay the mortgage should something happen to your income. Many lenders require it if you don’t put enough down, because you are a riskier borrower. However, many government programs, like FHA don’t require it because the government insures the loan. If you don’t qualify for these programs, you will typically need to get PMI (private mortgage insurance).
PMI typically costs about 0.5% of the loan amount, but it could vary. Once you reach 20% in equity in your home, you can ask to cancel the PMI since you have enough equity.
The Inspections
After you get financing, it is time to get the inspections done. This is your chance to “kick the tires” of your new home and make sure it lives up to your expectations. If you’re buying an older home, remember that it will typically have some wear and need some repairs. This is common and shouldn’t be a deal breaker. Typically, you should look for damage and repairs that are going to cost over $500 to repair, such as roof and foundation issues. Don’t bemoan the cosmetic issues, as you will probably change most of it anyway once you move it.
You typically pay for the home inspection based on the square footage of the home. Expect to pay anywhere from $150 for a small condo, to upwards of $500 to $600 for a large home. Make sure that you get a written report of all issues found so that you can negotiate with the sellers if needed. Also, some issues are required to be fixed prior to selling, such as termite issues or missing smoke and carbon monoxide alarms (depending on your local rules).
Closing the Deal
Finally, it is time to close the deal. Once you’ve cleared all your contingencies, and the seller has done all their required work, all that is left to do is fund the loan and record the transaction with the local county or state office.
In order to close on time, you typically need to wire your money to escrow about 5 business days before closing. You also usually have to provide a record of where all the funds came from by disclosing all accounts to the lender (this is part of the Patriot Act). Once you’ve sent the funds, the lender will send all the required paperwork to escrow. You will usually sign your loan and transfer documents about 3 days before closing. After you sign your loan, escrow sends the documents to the lender to review, and the lender funds the loan. Once it’s funded, your purchase will be recorded, and you can usually get your keys at 5pm that day!
Good pointers. Trying the morning commute is especially important. I’m on the other side of the process trying to sell a house and downsize. It definitely is a buyers market still.
Things still seem different in many parts of Canada, with euphoria and people living further out with nightmarish commutes. I wonder how long that’s going to go on for…
This is a very succinct list! We are in the process of buying our first home. I hope to write about our experiences soon covering each of these stages of home buying.
I’d be interested in learning about it! We bought a condo, but might be back in the process in a few years if we go for a house or something a bit larger.
Step 4: don’t buy at the top of a housing bubble. That was the step I missed in 2007!
Good tip; hopefully things don’t get too wild here up north. Most cities have residential real estate prices of $250,000 to $300,000 and up now, with Vancouver of course being even much higher than that.
Thanks for the helpful reminders about the major contingency adjustments as well as the percentage rates to look after in making financial estimations. Great guide.
Thanks Mary!
If you’re buying a condo, you should try to skim through the strata meetings minutes too. It’ll give you a heads up on general building issues and upcoming work.
Great idea, this can really make or break it for some condos.