Buying your first home is exciting! However, it can also be a confusing process. I am here to provide an overview and some great tips on buying your first home. Let’s get started!
Here are all the steps involved, start to finish:
- Find out what you can afford
- Go house hunting
- Put in an offer on a house you like
- Offer accepted
- Closing with a real estate lawyer
- Possession day – party time!
Of course there are a bunch of little steps that make up those steps, so let’s explore each step in more detail.
1. Find out what you can afford.
The first thing we need to do is find out what the max price of the house we can buy is.
How do we do this? Well, we need what is called a mortgage “prequalification”. A prequalification, in my opinion, should be advising a homebuyer of their maximum purchase price based on substantial documentation presented by the borrower. That way you know with a great degree of certainty the prequalification is accurate.
Unfortunately, at many institutions a prequalification simply consists of “guessing” what you can afford based on what you tell them, without confirming it with any documentation. I’ve actually created a calculator that can do this for you in less than a minute, if you just want an estimate of your affordability:
The issue with prequalifying a homebuyer without documentation is this painful scenario that we unfortunately see alllll the time. You are told you can buy a house for a certain price. You put an offer on the house. The documentation for your mortgage transaction now needs to be collected, and it shows for whatever reason you don’t qualify to purchase a home at that price. For example, maybe you’re still on a probationary period at work, but whoever prequalified you wasn’t thorough enough to discover that, and now your income may not be able to be used to qualify.
Now instead of moving into your dream house, you’re disappointed, distraught and have to cancel your offer. A total homebuying fail, to say the least!
The take home point from this is (that’s kinda punny), when you get prequalified, make sure whoever is prequalifying you is using your actual documentation as the basis for the prequalification. The more the better.
At Houski we have solved the inaccurate prequalification problem by doing your initial prequalifying based on your banking history. Does it give perfect prequalifications? Absolutely not. Is it better than simply guessing what someone can afford based on what they say? Ten times better, at least.
The real benefit is that we can prequalify you with some amount of accuracy without pulling your credit report and harming your credit rating, unnecessarily.
That said, accessing your credit report is a necessary step for any truly accurate prequalification. You should be wary as to the accuracy of your prequalification numbers if your credit report has not been accessed. Your credit report contains the exact expenses that will be used in your affordability calculation, and it’s very difficult to get those numbers totally correct any other way.
So in terms of actionable steps to find out what you can afford:
1. You should collect as many of your mortgage related documents as you can. They can be used to make sure your prequalification is accurate.
I’ve created a list of documentation that is typically required for mortgage transactions. You can use that list for reference.
2. Find a mortgage professional.
I would highly recommend a mortgage broker for your prequalification. They will be happy to do a thorough prequalification. Mortgage brokers really like knowing whether or not their clients can afford to buy the houses they want, because if their client doesn’t buy a house, the broker won’t make any money. Mortgage brokers are paid by mortgage lenders for bringing them your business.
Of course we recommend ourselves, Houski, for prequalifications as well. One of the benefits of our technology is that we can do a super quick initial prequalification by analyzing your banking history. Depending on the number that comes back from that initial prequalification, you can choose whether or not to pull your credit report to increase the accuracy of your prequalification.
3. Get prequalified!
So at this point you should know your prequalification numbers and have a good idea of what you can truly, actually afford – no unpleasant surprises for you!
So, after we know our maximum purchase price, the natural follow up question is “what will my mortgage payments be?”.
It’s very likely that your mortgage professional went over what to expect in terms of what your monthly payments will be like at various price points, but if they didn’t that’s no problem!
We can calculate your monthly mortgage payments with this handy-dandy calculator I made:
2. Go house hunting!
Ok, so now that we know our affordability, it’s time to find a real estate professional. Often people have a friend or a relative that they choose to be their real estate agent, and that’s great!
If you’re using Houski, we automatically get you in touch with a trusted real estate agent in the area you are buying. You may have figured us out at this point – Houski helps first time homebuyers through the entire process, start to finish.
This is the part of the process many of us are familiar with – the fun part!
You tell your real estate professional what price range you’re interested in, what you want your house to be like, and all that fun stuff. They then show you a bunch that fit your criteria – a wonderful time is had by all!
3. Put in an offer on a house you like.
Once you’ve found a property you love, it’s time to put in a purchase offer! Your real estate professional will walk you through this process.
You will fill out some paperwork with the price you are offering and any conditions you have, which will then be sent to the seller’s real estate professional. The offer will either be accepted by the seller as is, or some back-and-forth haggling may occur. The seller may want to debate the price or specific conditions of the offer.
Some conditions that are fairly standard are that the house passes an property inspection, and that mortgage financing is firmly in place before a certain date. The date by which you must have your mortgage financing firmly in place is called your condition of financing date. You will probably hear that term come up a few times during the process.
We highly, highly recommend you do not do conditionless offers when buying your new home – even if you’re in a hot market and it’s the “cool thing to do”. Any issues that arise obtaining financing for the property could result in a lawsuit instead of just the cancellation of your purchase offer. Not a great situation.
4. Offer accepted?
Once your purchase offer is accepted by the seller, either yourself or your real estate agent will forward it to your mortgage professional.
Your mortgage professional will check that the offer doesn’t contain anything that will not be acceptable to mortgage lenders. Occasionally we’ve seen real estate professionals get a bit carried away while negotiating… one real estate professional tried to include the seller’s yacht in the purchase offer for the property. Turns out the mortgage lender didn’t want to own a random yacht (who knew?). Needless to say, the purchase offer had to be redrafted.
5. Closing with a real estate lawyer
This is the part of the process that people tend to be the most unfamiliar with.
You must visit a real estate lawyer to finalize and actually “do” your mortgage transaction.
Typically your mortgage professional will be able to recommend a real estate lawyer to help close your mortgage transaction. Of course you can also just search Google for a highly related real estate lawyer near you and give them a call, as well! They will schedule a date with you prior to the closing date of your mortgage to go over a bunch of legal stuff with you.
These are the main things the real estate lawyer will do:
- They will check and verify your ID and that you’re who you say you are and there’s no shenanigans happening.
- They will check to ensure that you have property insurance in place for your property (which is required by law).
- They will change the title on the property to your name.
- They will move the actual mortgage funds around from all the correct bank accounts to all the correct bank accounts.
6. Possession day – party time!
On your possession day (you can find this date on your purchase contract), your real estate professional will give you the keys to your new home.
Now all that’s left to do is party!! Well, after you’ve potentially moved literally hundreds of boxes of stuff, that is.
If you used Houski for your mortgage, this is the point we donate part of the proceeds of your mortgage transaction to a Canadian animal charity – so that animals can find homes too!
Final Words
So that’s pretty much all there is to getting your first home – see? It’s not as scary when you break it down into little steps. That said, at Houski we’re working really hard to make the homebuying process more transparent and less stressful for all Canadians, because we know it’s “a lot”.
If you have any questions about becoming a new home owner, we’re always happy to help! Feel free to email us at hello@houski.ca or you can call me directly anytime at 1-587-707-2911.
