This past weekend I was reorganizing my chaotic office and came across an old issue of Mike Holmes’ magazine. In it, there was an interesting article about first-time buyers called “The first time home buyer’s guide” published in the May 2011 edition. In the article, Nathalie Rodriquez outlines a step-by-step process to buying your first home. Some of the content jumps between content relevant to Ontario residents and US citizens hence I have translated the information into what is important in Quebec plus added my two cents.
Save cash to build a down payment nest egg. Clearly, this shouldn’t be a surprise to anyone. We’ve discussed this issue on several radio shows and I’ve blogged about it.
Get a pre-approval letter. I agree a pre-approval is critical as it is an initial review of your finances, credit and ideally creates a proper budget for buying that first property.
- (A) All banks and mortgage insurers in Canada base their income to debt ratio based on your “total debt service ratio” or TDS. The TDS accounts for your gross declared income and takes a walk into the future by accounting for annual future mortgage payments, property
taxes, home heating, and all outstanding debts. In short, between 42-44% of your gross income can be diverted to managing these total debts. Clearly, the TDS calculation does not account for all household debt and other personal obligations. I like how the article emphasizes other debts and obligations but also future anticipated debts. This is
something I always try to explain and drive home to clients that are
looking to buy. Buying has to make sense now but also in the future. - (B) Another great point the article mentions is that if you have a
pre-approval with a bank you are not obligated to stick with them. The
only time pre-approval becomes binding is when your mortgage actually becomes notarized. Something not mentioned is that even if you’ve signed for the mortgage in-branch it isn’t binding yet either. I have a client that went to “mortgage signing” at a branch and was so badly taken care of that she walked out and we moved the mortgage to a virtual lender that same day. - (C) A pre-approval I will add also is very helpful in that any problem areas such as credit, income taxes owed and filing your taxes can be quickly identified and addressed. Nothing worse than being under a
financing deadline for a purchase and losing that dream house because your paperwork wasn’t in order. Work with a realtor and start house hunting. Find the right realtor that genuinely works for you. Don’t be shy and interview realtors if you must. Also, Buying your first time house is a contact sport. In other words, get out there and see what you like and don’t like. I also like how the article mentions shopping smart. Do your homework on the property and area, i.e. drive past it during the night, get a feel for the road traffic around, research the quality of schools in the area, check out neighborhood websites. If any major renovations have been completed why not research the permit history.
Order an inspection & make an offer.
A proper inspection can take 3 to 4 hours and you should have a report in your hands within a few days. The report should outline any fixes, current problems or even potential future problems. Rodriquez is correct in that both lenders and insurer won’t provide a mortgage on a property if there are major issues such as foundation concerns. Given my experience, if your inspection report highlights major foundation issues and you go back to the vendor to adjust the price, the bank will probably see the price amendment and they could ask questions. Rodriquez is not a fan of offering more than asking price. I agree that this could go against your pre-approval and all prior budgeting. Second, don’t feel pressured by anyone. Keep in mind that there are many other options out there on the market. More and more properties will be put on the market in the coming weeks.
If you’ve never put in an offer on a house your real estate broker hopefully will help you out. With your inspection completed, you may also be able to
renegotiate that offer price. Don’t be afraid to request a final walk-through
before closing at the notary. Ensure that the property is in the same condition that you saw when you made your initial offer.
Closing & occupancy (aka act of sale or notary).
A week or two prior to the closing date on the property your notary will call you to book your appointment and give a checklist of things to bring with you (photo ID, certificate of location and proof of property insurance). Some notaries host one meeting for the title and the hypothecary loan, while most will split them up into two separate meetings.
Overall Nathalie Rodriquez’s article is useful for first-time buyers. Some of the article is confusing as she flips between US and Ontario-relevant content. Having said that I like that she distinguishes between going with a bank or mortgage broker. I disagree with her point that through a mortgage broker banks won’t be as willing to overlook credit issues. Lastly, I completely disagree with her that through a mortgage broker mortgage terms can be “riskier.” As a mortgage broker, I look out for my client’s interests now but also help them plan for the future. You’re not gonna get that experience at the bank.
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