Buying a house

What to Know Before Buying a House?

Are you ready to move from a confined apartment to a house you can call your own? Buying a house is a dream, but also, it is one of the most significant financial decisions of your life. You don’t want anything to go sideways, right?

Do you need to be a real estate expert to buy a house? Absolutely not! If you go in well prepared, understand all the homebuying steps, and partner up with a kickass agent, you’ll bag the best deal possible. Let’s dig into everything you need to know before buying a house.

What is a Seller’s Market?

Let’s suppose there are five homes available for sale in your locality, but a whopping 100 buyers want to get their hands on them. The demand for homes exceeds the supply, and hence it is called a seller’s market. If you want to sell your house fast, it is a golden opportunity for the sellers but for the buyers? Not so much. 

Tips : Seller’s market creates bidding wars, meaning that there is a pool of bids for the sellers to choose from. 

  • To stand out from the rest, you can customize the offer and add something attractive like a short rent back. You can also offer non-price factors like waiving off home inspection to stack the odds in your favour.
  • You can make an all-cash offer as it eliminates the risk of the mortgage not getting funded, hence better chances of closing the deal with the seller.

Common Mistakes People Make in a Seller’s Market

It is possible to buy in a seller’s market, but the excessive demand makes it a bit difficult. Here are some of the common mistakes people make in a seller’s market: 

People often don’t put in their best offer in a seller’s market. Remember, there is no room for counter offers in high demand. Go in with a strong opening offer and bag the deal!

  •   Another common mistake is that people start bidding without getting preapproved for a mortgage loan.
  • Seller’s market is tricky, and you alone cannot survive through the tides. People often jump in without an experienced agent and lose the opportunity to buy their dream home.

What is a Buyer’s Market?

The whole real estate thing is cyclic. If there was once an excess demand for homes, there would come a time when there are more homes and fewer buyers. This is what a buyer’s market is—more homes and less potential buyers. 

Tips: You, the buyer, have more negotiating power in a buyer’s market. You are in control of the steering wheel, so make the most out of it. Let’s walk through some tips for buying in such a scenario: 

  • Offer less than the asking price as the seller is eager to close the deal.
  •  Ask for concessions! You can ask the seller to pay the closing costs or include some furniture at the same price.

Common Mistakes People Make in a Buyer’s Market

Don’t get too excited in a buyer’s market, as you still need to close the deal successfully at the end of the day. Avoid these common mistakes, and you’ll do fine.

  •  People don’t negotiate after home inspections, and some even don’t consider an inspection. If you spot any repairs or defects, renegotiate the price with the seller. And also, don’t wait until the eleventh hour to ask for credits.
  • It’s a buyer’s market, so let’s go for a crazy lowball offer? People don’t realize that lowball offers are not acceptable even in a buyer’s market. Offer less than the asking price, and you’ll do good. 

Important Questions to Ask Yourself When Buying a House

How Much Do I Need to Put Down on a House?

Before you jump into the market, you need to save some money for a down payment. It is the portion of the purchase price that you pay upfront at closing. This determines which type of mortgage you qualify for and how much money the lender will give you to buy the property. The more you pay upfront, the lower the loan-to-value ratio and interest rates, making your offer much more attractive to a seller. 

Typically, the down payment ranges from 5 to 20% of the purchase price. In summary, you need to put down 5 to 20% of the total purchase price to buy a house. The minimum down payment depends on the purchase price. If it’s $500,000 or less, a 5% down payment will suffice, but if it’s $1 million or more, you need to save 20% of the purchase price to buy that house.

What if my Offer is Rejected?

You might feel disappointed if your offer gets rejected for your dream house. What went wrong? Don’t worry, it’s not the end of the world. Here’s how you can bounce back and possibly close the deal:

  1. Go through the offer again and see what went wrong. Maybe your price was too low or too high. There’s also a possibility that you had too many contingencies or you didn’t meet the seller’s needs.
  2. Once you’ve identified the mistakes, make adjustments and make a new offer. If the price was the issue, offer a higher but realistic one. Don’t make promises you can’t keep.
  3. If you still don’t hear from the seller, wait for a couple of months, and try again.

What is Your Debt-to-Income Ratio?

The debt-to-income ratio is derived by dividing the sum of all monthly debt payments by your monthly pre-tax income. It would be best if you determine your debt-to-income ratio before buying a house, as mortgage lenders use it to evaluate how well you can manage monthly debts. This percentage predicts whether you’ll be able to pay your mortgage bills or not. 

Your total debt load or debt-to-income ratio should not be more than 42% of your gross income—the lower your debt-to-income ratio, the better the chances of qualifying for low mortgage rates.

Should I Talk With a Bank Before Looking at Homes?

Yes, Yes, Yes! Get in touch with a bank before looking at homes as it’ll tell you how much you can borrow hence putting up realistic expectations. Depending upon your debt-to-income ratio, the bank will discuss the available loan options.

There is no need to look at homes that cost more than you can afford. Some banks also have first-time homebuyer programs that can make your journey easier. Moreover, coming in with a preapproved loan offer makes it easier to close the deal.

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Do’s and Don’ts of Buying a House

Do: Calculate the Amount of House you Can Afford (Get pre approved)

It’s important to determine your home buying budget and know how much you can afford to spend every month on your new home in the form of debts. The first thing you should look at is your debt-to-income ratio and then get in contact with a lender to approve your mortgage loan. This also shows your creditworthiness to the seller for the proposed purchase price.

Do: Programs for First-Time Home Buyers

First-time homebuyer programs can bring you many benefits, including low to no down payments, down payment assistance, grants, forgivable loans and much more. You can qualify for these programs if you haven’t purchased a home within the past 3-4 years. RRSP Home Buyer’s Plan, Land Transfer Tax Rebate, GST/HST New Housing Rebate, and Provincial first-time homebuyer programs offer great benefits to make your journey a bit easier. 

Do: Go for Open Mortgage

An open-term mortgage is great if you plan to pay off your mortgage in the near future. You can repay the mortgage whenever you want without fines. You can pay whatever you want toward the mortgage. It offers much more flexibility than a closed mortgage, but the interest rates are higher here. Despite that, you can avoid fines, enjoy added pre-payment flexibility, and pay off the loan earlier or refinance.

Don’t: Buy Without Doing an Inspection

Putting in so much money without proper inspection of the house is an injustice to yourself. Even if you get an inspection report from the seller, conduct an inspection yourself. Hire a professional to inspect the house for structural damage, repairs, drainage issues, and everything you can think of—even the local weather and neighbours.

Don’t: Using Up your Savings

Yes, buying your dream home is important but is it the only thing you want in life? A flat out, stone cold “no.” What about renovations, emergency funds, unexpected medical problems, and the list goes on. Savings for the down payment, closing costs, moving expenses, and repairs should be separate so that you always have some extra bucks in your emergency fund.

Don’t: Get Pressured by Other People

Buying a house is one of the most significant financial decisions of YOUR life, not the people’s. Evaluate your current financial situation and ask yourself, “Am I ready to buy a house?” Think about it, stay calm, and don’t get pressured by others. If you don’t understand something, ask questions and clear your doubts. Don’t just buy a house if everyone around you is doing so.

Costs Associated with Buying a House

Prior to Closing the Deal

You need to ensure that the property is top-notch before closing the deal. Here are some of the costs you need to bear prior to closing the deal: 

Home Inspection

A pre-purchase home inspection helps you examine the property in every way possible. You might want to renegotiate the price if you uncover hidden structural damage or other issues. It costs around $500 for a 1,800 to 2,200 sq. ft. home. 

Appraisal Fee

The lender will order an appraisal before finalizing a mortgage loan agreement. This is to get an estimate of the property’s value. A certified appraiser will cost you between $350 to $700.

Other Costs

You need to pay for title insurance, property survey, escrow account, property insurance, mortgage default insurance, CMHC insurance on a down payment under 20 percent, and water quality inspection before closing the deal.

Closing Day

Phew, it’s been a long journey, but you still need to deal with some final costs on the closing day.

Land Transfer Tax

You have to pay land transfer tax depending on the total purchase price of your home or the fair market value of the land. Firsttime homebuyers may also get relaxation or a complete refund with the land transfer tax. The marginal tax rate for first $55,000 is 0.5% and 1.0% for $55,000.01 to $250,000.00 in Ontario.

Legal Fees and GST/HST

 If you are buying a newly constructed or a renovated house, you have to pay about $500 plus federal goods and services tax (GST/HST). 

Other Costs

You need to pay for prepaid property taxes, utility bills, documentation fees, and finally, the moving costs.

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Conclusion

Buying a house is a bumpy ride—full of stress, anticipation, and boredom. Why? Because it involves a lot of factors, unlike renting an apartment. Down payment, mortgage loan, appraisal fee, bid war, and whatnot. 

You don’t have to do all this alone! Get in touch with a professional real estate agent who knows all the ins and outs of home buying and make an offer the seller can’t refuse! Finding an agent is not easy but, we got your covered with some tips for finding the right real estate agent.

Now that you know what to do before buying a house, the only thing that left is picking the right home for you.

Have everything planned out from the number of bedrooms to your garden space? That’s it! You’re ready to buy a house!

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