First time buyer guide
Looking for your first home purchase? Let me demystify the process!
Buying your first home can be both exciting and overwhelming. I work closely with buyers to walk them through the entire process and help them navigate the potential pitfalls and stresses to get them into their first home.
Getting prepared
Step 1: Mortgage preapproval
The first place I always start with first timers is with a mortgage preapproval. Why get pre-approved?
There's several reasons. Online mortgage affordability calculators are a decent start. However, starting the discussion with a mortgage broker or bank allows peace of mind about what you will actually get approved for from a lender. I've seen buyers who believe they can afford a certain number, get an accepted offer on a home only to have it fall apart because a lender won't approve them for what they thought they would get. Getting a pre-approval means two things:
1) Shopping with confidence: A pre-approval would still mean a final approval from a lender, but getting pre-approved almost eliminates the guesswork and stress of getting a final approval on your dream home.
2) Streamlining your search: I've seen many first time home buyers start looking above a rang where they would be approved. When they finally get their pre-approval and if it comes in less than they thought they'd get, homes in their price range can look less appealing than the more expensive ones.
Bottom line: Avoid the heartbreak of figuring out financing afterwards and get the process sorted so you can look with confidence!
Step 2: Make your wants and needs list
This is where things start to get exciting! Thinking about what you'd like to have in your first home can make it feel more real. There are a few key tips that I discuss with buyers at this stage.
1) Understand your budget - This is your first home. It's highly unlikely it will be your forever home. So making a list and prioritizing what really matters to you is key. Some things may be less important than others, but try to think about what truly is key for you when you think about your living space. This can be things such as renovated vs a chance to add value through renovations yourself, geographic location (schools, walkability, pace of life etc), specific wants such as a nicer kitchen, more than one bathroom, garage or parking to name a few.
2) Be open minded - What I've noticed with a lot of first timers is that list can change once they actually start looking at homes. It's very common that something that was high on the list gets bumped down lower after viewing several homes, while other criteria that didn't seem as important suddenly become more of a selling point. Staying open minded during the process and keeping in mind that it's not your forever home really makes a difference. I often ask my clients, "can you see yourself living here for 3-5 years?". Often that's the timeline before people start thinking about getting into a bigger and/or nicer home!
3) Don't rely too heavily on advice from outside sources - Everyone can appreciate advice from someone they care about and trust. However, if your parents are giving their thoughts on your first time home keep in mind that the lens they're viewing it from is dramatically different from yours. They may have been in a home for 30+ years, or have bought and sold multiple times so their perspective isn't the sameas someone looking to get into the market. Balancing your budget with your wants and needs list sometimes requires some sacrifices, and ultimately you're the person who needs to make that decision.
Step 4: Make an offer
Again, working with an experienced, qualified realtor is key here. Having someone who is in your corner, guiding you through the process and having your best interests at heart makes this process infinitely less stressful. I do my best to walk my clients through every step of the process before we start looking, and explain any questions that may arise while doing so.
Key tip: Have your deposit ready - once you begin to offer and have an accepted offer (whether conditional or f) you will need to supply a deposit. This amount is usually dependent on the price of the home, but will generally be anywhere from $15,000-50,000 dollars. You'll need access to this as you'll have 24 hours to submit the deposit which is required to confirm the conditional offer. A good realtor will ensure that any conditions you have (inspection and financing being the most common) will require a return of your deposit in full if the conditions aren't met to your satisfaction. The deposit gets removed from the downpayment portion of your mortgage once you 'firm up' as well.
How does a typical real estate transaction work?
1) Shop for homes - Start looking for your perfect place! Your agent will be able to assist with recommendations and searches tailored to your need. Open houses and booking showings are the best ways to find that great first home.
2) Make an offer - Once you've found the perfect place your realtor will discuss the terms of the offer you would like to submit. Some common considerations are price, closing date, conditions and inclusions.
Price is dependent on many factors. State of the market, number of listings currently on market, how many days the home has been listed and how motivated the sellers are to move. More details about the workings of making an offer are below.
3) Negotiate until your offer is accepted - Often there can be some back and forth while you negotiate with some of the factors mentioned above coming into play. Once your agent and the seller's agent come to an agreement you've conditionally bought a house!
4) Work on satisfying the conditions - The most common conditions are an inspection and financing. There's a timeline for conditions that can range from anywhere from 2 days to 2 weeks. A financing condition would require your agent supplying the listing to your mortgage broker/bank so they can confirm they're willing to grant the mortgage. An inspection would require a qualified inspector to do a full inspection of the house. A good agent will have preferred vendors they work closely with and trust. The inspector will usually provide a report after completed for you to review before you decide if you want to move forward or walk away from the home.
- A quick side note on inspections: Every single inspection will turn up issues. Buying a home there is a base assumption that there are things that need to be maintained. Often some of the inspection issues will not be large or concerning, so finding a perfect, flawless home isn't realistic. Be prepared for the inspector to find things that will need to be done. A good inspector will also explain the issue in detail, give their assessment of how concerning it is, timelines of when the issue should be taken care of an a rough approximate cost for the repair.
5) Re-negotiate or firm up - Assuming the inspection found some issues that are of concern you have options at this point. If you're relatively happy with the state of the home and the inspection report, you can waive your conditions and 'go firm', meaning you're moving ahead with the offer and have essentially bought the home. Alternately if there are larger concerns - for example an aging roof or furnace that needs some attention you have the opportunity to renegotiate the terms of the agreement. You can ask for the sellers to take care of the outstanding issues, or ask for a reduction in price. Keep in mind that the seller can always refuse, or provide a counter-offer to what you were asking for. Your agent will prepare the needed paperwork for you to sign in that case. Provided that negotiation goes well, next step is to firm up!
6) Choose a lawyer and count the days until you can move into your new home - At this point you'll need a qualified real estate lawyer to handle the closing documents and work with your mortgage broker to ensure all needed funds change hands on closing day. Once your lawyer informs you everything is a go, you can get the keys and enjoy your new home!
Step 3: Start looking!
Here's where the rubber hits the road! Having a qualified real estate agent can hugely assist this process. They can advise on neighborhoods, pricing, set you up on automated searches so you don't miss any great potential homes, and sometimes even find off market properties through their network or even door knocking a preferred neighborhood. As well, as a buyer you aren't responsible for paying their commission. Commissions generally come out of the seller's portion so more often than not using a realtor as your buyer agent doesn't cost you a penny!
A couple of notes about the searching process. I recommend my clients start to actually physically go through houses as soon as they can. Understanding what's out there in your price range, and seeing the layout and finishes of homes often will shift the wants and needs list we discussed earlier. Clients often find that something that was less important to them becomes more important and vice versa. Seeing homes is incredibly informative, and the more information you have the more comfortable you'll be when you find the right place!
Lastly, I have to comment on something I sometimes hear from parents of first time home buyers. "Never buy the first house you look at". I believe that's terrible advice, as the first home you see may be an absolute perfect match for you. Seeing other homes is helpful, but don't write off a place that checks most of all of your boxes just because you "saw it first".
A few additional notes about offers
Signing your first offer can be a little frightening. When I signed my first offer as a home buyer I felt like I was signing my life away. A good agent will clarify your obligations and potential pitfalls before you put pen to paper. Here's some additional considerations:
What's an irrevocable?
You will hear this word tossed around quite a bit. When a buyer submits an offer to a seller, there's a timeline where the offer is valid, called an irrevocable. Usually this ensures sellers don't drag their feet and contemplate for days before getting back to a buyer. It can also be used as leverage, as giving sellers less time to contemplate an offer can accelerate the process. Some sellers can specify how long of an irrevocable they want by signing an additional document. Sometimes they work shifts, or one person isn't available due to travel. Either way, understanding the timeline of irrevocability is important. Once the date and time has expired, the offer is now considered null and void. It doesn't mean another new offer can't be submitted but it ensures an offer will be dealt with in a timely fashion.
Once I have an accepted offer, how does the deposit work?
The listing brokerage is responsible for holding the buyer's deposit. Every brokerage has their own criteria around how a deposit must be submitted. The most common are direct deposit (if you bank with the same bank the brokerage does), submission of a certified cheque or wire transfer. Wire transfer has been gaining in popularity since covid, but there's usually an additional fee for this. Your agent should receive deposit instructions from the listing agent and can discuss the best method for you to submit the deposit. Once completed they'll ask for a picture of the deposit receipt to prove it's been done which they'll forward to the listing agent.
What happens if my financing gets rejected, or I don't like the results of an inspection and want out of the conditional deal?
This is the entire reason to include conditions in an offer. If either of those two scenarios take place, the language of the clause should be such that you receive your deposit back in full with no deductions. It generally takes 7-10 business days from when both buyer and seller sign what's called a Mutual Release which states both parties have agreed to not proceed with the deal. As a buyer if you do want out and sign the release, the seller cannot withhold their signature.
I'm not sure when I should buy? Is this a good time?
That's a moving target and always a wise thing to discuss with your agent. A well informed agent will understand the market, your needs and budget and be able to advise accordingly. As long as you can afford your payments with some cushion, 9 times out of 10 it's always better to be an owner than a renter long term. Not only are you paying your own mortgage down and not someone else's, with more time in the market as an owner you should also reap the benefits of value increases. As well, if you're a handy type using your sweat equity to upgrade and improve your home not only gives you more pride in the place, but also adds value.
If you're not sure that you can afford a mortgage yet, I highly recommend contacting a mortgage broker and discussing with them. Even if you're not quite in a position to buy a home yet the information you'll get will be key in coming up with a game plan to ensure you'll get into your first home in the future!
In Conclusion...
Finding and getting your first home doesn't have to be an overwhelming process. Through understanding the steps I hope to give my clients peace of mind that they'll be informed and taken care of every step of the way.
Working with a great agent who can guide you to your destination will help ensure you wind up in a place that fits you at a price that also works for you!
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