So You Want To Buy A House
It’s been a tough few years if you have been on the hunt for an affordable house in Canada.
While the market cooled slightly at the end of 2022, we are once again seeing a slight up tick in pricing. In some locations, bidding wars, and one-time offer presentations are still happening.
Areas in York Region such as Markham and Vaughan still see elevated offers well in excess of the listing price. Those housing trends are expected to continue in 2023, making it something of a transitional year. Sellers continue to hold an upper hand in various areas, and specialists do not predict a considerable drop in real estate prices or valuations. After a frenzied pace of home sales between 2020 and 2022, the market has slowed in some areas, suggesting the pendulum may swing back toward a buyers market in 2024.
At Leading Your Homeward, we always have our finger on the pulse of current market trends.
We have shared some of our top tips to assist buyers in making more informed decisions when entering the market and comprehending the expectations of purchasing a home.
Why Do You Want To Buy A House?
Purchasing a home is likely the largest investment you will make. If you’re not clear on why or what you want in terms of homeownership, you may end up experiencing “buyer’s remorse”.
Buyer’s remorse refers to negative emotions such as regret, anxiety or guilt that consumers may experience after buying an item. It is typically linked to large purchases like a car or a new home.
Your first objective should be to define your personal and financial goals. Consider your moving plans, desired amenities, location preferences, down payment, pre-approved mortgage amount, and additional expenses. These factors are important in defining your goals. Also ask yourself the following:
Will purchasing a house negatively impact your financial standing?
What are your must-have amenities?
Is the location a top priority?
Are you prepared for the ongoing expenses of maintaining a home?
Credit Score
Your credit score will help determine your financing options; lenders use it (among other factors) to set the terms and rates of a mortgage loan. Having a high credit score leads to qualifying for lower interest rates on mortgages, whereas lower scores result in higher mortgage costs.
In Canada, you can get your credit report and score for free once a year from credit bureaus like Equifax and TransUnion. Banks may also offer free access to your score or credit report. Be sure to read through your credit report for discrepancies; contact the agency to report any errors.
Arranging Your Down Payment
If you’re looking to buy a house in Ontario, keep in mind that the required down payment depends on the price you’re paying. For homes that fall between $500,000 and $1,000,000, you’ll need to make a minimum down payment of 5% on the first $500k, and 10% on any amount over that. For houses over $1,000,000, your minimum down payment is 20%.
These percentages can significantly lower your ability to purchase homes in some price brackets. Be sure to conduct thorough research and shop around carefully based on how much you’re able to pay upfront.
What Is Your Budget?
Consulting with your financial institution’s mortgage specialist is a prudent approach in beginning the process to access your overall financial viability. By helping you understand the highest possible amount you can borrow to buy a house and granting pre-approval, they empower you to set a practical budget. They can also suggest strategies for strengthening your overall finances before applying for a loan. In addition, you may also want to meet with a mortgage broker as they can help you find non-bank products that may better fit your needs.
Your overall budget should not only include a mortgage amount but also how much down payment will be required. Do not forget to factor in the costs of moving, purchasing new furnishings, home insurance, land transfer tax, closing costs and monthly expenses.
Hiring A Real Estate Salesperson
After setting your budget, it is important to seek the services of a competent real estate agent who can not only help you locate your dream home but also save you valuable time and money by negotiating on your behalf with the seller. Agents are licensed professionals who know their markets well and can guide you through your home buying journey.
A dedicated agent will prioritize your wants and needs, reduce your stress load, and get the job done. We have all seen the flashy ads and billboards that catch your eye. To ensure that you find the right match, it’s crucial to reach out to multiple real estate agents from various brokerage firms. Schedule face-to-face consultations to discuss your specific requirements with each of them before finalizing your decision.
Make a list of questions and features you want for your new home. This will help you find the right agent and increase your chances of finding your perfect home. Consider location, house size, budget, needs and wants, and other important things when searching for a new home.
Always See More Than One House
When considering a new home, it is important that you view more than one house in person. On average, most people will look at 5 to 10 homes before making the decision to place an offer.
While online listings may give you a good starting point, nothing compares to getting a firsthand experience of the property and the neighbourhood. Visiting homes in person and exploring the surroundings is essential to finding a residence that truly suits your needs. In some cases, the right neighbourhood might be even more important than the home itself.
It’s important that you have clear communication with your agent about the types of properties you’re interested in when starting your search for real estate. This will help ensure a more successful and efficient search process. By doing so, your agent can concentrate on pinpointing potential properties that perfectly meet your needs, leading to a more effective and fruitful search experience.
Arrange your priorities in a way that the most essential items take precedence over the ones that are merely desirable but not crucial. Be open to the fact that you may not be able to fulfill everything on your list.
Once you find the right property, it is time to make an offer!
Presenting Your Offer
After choosing a house, your agent will handle the preparation of all necessary paperwork. These documents are typically referred to as an Agreement of Purchase and Sale, although the exact title may vary by region. To be valid, your offer documents must include the following:
Legal name/s – Full name of the buyer/s and the full name of the seller/s and the address of the property to be purchased.
Offer Amount – the amount you’re offering to pay (the purchase price) and the amount of your deposit
List of Inclusions and Exclusions – chattels, fixtures and items that may be included/excluded in the purchase.
Possession Date – the date you want to take possession (also referred to as “closing day.)
Document Requests – such as current land survey, tax bills, liens, rental agreements, right of way etc.
Offer Expiry Date – the date in which the offer will expire
Conditions – other conditions that must be met before the contract is finalized eg. home inspection, financing etc..
Offer Price – amount of money you offer to purchase
There are several types of offers that can be presented. During the pandemic, many buyers engaged in bidding wars by making offers without conditions. This is called a firm offer, or unconditional offer. The buyer has no conditions attached. Once the offer is made, the buyer can’t back out of the deal.
Conversely, a conditional offer requires specific terms to be satisfied for the offer to be valid. These conditions protect the buyer; some common conditions include:
Conditional upon financing
Conditional upon satisfactory Home Inspection
Purchase conditional on the sale of a home
Why Do I Need A Deposit?
In real estate, a deposit serves two purposes:
A deposit makes sure the buyer is committed to the agreement and takes on a risk if they back out or don’t finish the purchase. This also provides security to the seller. A deposit is paid by a buyer on the successful agreement of the purchase/sale of a home, and forms part of the final purchase price.
The deposit can be used as a predetermined amount of damages if the buyer breaches the contract, showing the court the potential harm caused. In Ontario, a deposit is usually paid by certified cheque or money order.
A deposit is expected to be submitted with acceptance of the offer. In some cases, the deposit may be present with an offer when the market is hot.
The standard wording of the Agreement of Purchase and Sale states “24 hours” – not “one business day.”
Your agent can suggest new ways to make the deposit arrangement more attractive or to allow the buyer additional time in the agreement.
Always make certain you have available funds on hand for your deposit. If you do not submit your deposit on time, as laid out in the offer, you will be in breach of the agreement, and the Seller could walk away from the deal.
The deposit is normally held by the listing brokerage, in a trust account. Trust accounts are highly regulated and routinely audited. Deposit money held in trust cannot be used to pay the brokerage’s expenses (salaries, rent, etc.).
Deposits in Ontario are insured up to a maximum of $100,000 per claim. Deposits over $100,000 may require two payments to lower the risk: one to the seller’s brokerage and another to the buyer’s brokerage or seller’s lawyer.If the brokerage holding your deposit goes bankrupt (this is extremely rare), all claims cannot exceed $3,000,000.
Your deposit is applied to the closing costs and forms part of the purchase price at closing. Note that a deposit can only be refunded if both the Buyer and the Seller mutually agree or if a court mandates it. Generally, APS are viewed as being entered into in good faith. However…if the seller thinks that the buyer did not fulfill a condition in good faith, they can refuse to return the deposit. This can become a precarious situation that may require a lawyer.
Home Inspection
A home inspection provides an overall picture of the property’s condition and any mechanical or structural issues it might have. Discovering major issues during the inspection could lead you to make important decisions about your transaction. Consider requesting the seller perform repairs, lower purchase price, or dissolve the deal depending on the APS inspection clause requirements. Ask your agent for qualified home inspectors if you do not have one in mind.
Do a final walk-through
A final walk-through is your opportunity to view the property one last time before your purchase transaction closes. This is your last opportunity to address any outstanding issues before the house becomes your responsibility.
Ask your agent to accompany you on the walk through. They can address your concerns and assist in answering any questions. If there are unresolved issues, your agent should promptly contact the seller’s agent to discuss potential resolutions. Your closing date might have to be delayed to ensure those issues are remedied first.
Closing On the Property
Your Real Estate Lawyer will prepare the necessary closing documents that include a transfer of land. In expectation of the final closing, the buyer is responsible to present all the paperwork they have collected during their home buying process. These papers include mortgage documents with the institution’s contact information, sales agreement, proof of title search, and proof of homeowner’s insurance for full replacement costs. To finalize your purchase, it is necessary for you to confirm your identity and provide valid photo ID containing your legal full name.
Generally, your lawyer will meet with you 2 to 3 days before the purchase closing date. At this meeting, the lawyer will review all documents with you and have you sign the legal papers. Any further monies required for closing will be presented to your lawyer at this time in order to complete the transaction.
On your date of closing, the seller’s lawyer receives the required money from the buyer’s lawyer to close the transaction. Transaction documents are then forwarded to the Land Titles office for registration. Once the closing funds have been received by the seller’s lawyer, the seller agent will release the keys to your realtor. Typically, this occurs before noon on the closing date.
Once you receive the keys from your real estate agent…you are now a homeowner.
