What I want to talk about today is 3 keys things you need to do before buying a home. This is geared more towards first time buyers as if you’ve bought a home before you've done all 3 of these things.. So let’s dive right in.
#1 - Start Saving your downpayment
It’s common to put 20% down, but you don't have to. Many lenders now permit much less - as little as 5%
If the home costs $500,000 or less, the minimum down payment you can do is 5%.
If the home costs more than $500,000, you’ll need a minimum of 5% down on the first $500,000 and 10% on the remainder. Anything over 1 million dollars will require 20% down.
Putting down less than 20% means you’ll have to pay an insurance premium and the lower the downpayment, the higher the premium.
The insurance premiums are:
5% Down = 4.00% of loan amount
10% Down = 3.10% of loan amount
15% Down = 2.80% of loan amount
20% Down = 0
#2 - Speak to a Mortgage Broker:
Before you actually start seriously looking at houses, you need to know how much you can afford. The best way to do that is speak to your mortgage broker or bank.
They will go over everything related to the finances of a potential home purchase. Examples include mortgage rates, credit score, monthly payment amounts, etc. If you’re a first time home buyer, there may be incentives for which you are eligible.
It’s important that you get a full pre-approval in place. This will require submitting all documentation requested by your mortgage broker. Having a pre-approval in place ensures that no surprises or delays will surface later once you have found, and fallen in love with, a property. Plus, the pre-approval will help when negotiating on a property.
#3 Get a good real estate agent
Once you know how much you can afford and the loan amount you’ll qualify for, it’s time to get a good real estate agent.
1. Your agent will work in your best interest from beginning to end. That includes assessing what a property is actually worth and negotiating on your behalf to get the best price and terms. While price is generally the most important detail in the purchase contract, there are also terms and conditions that should be included to protect you.
2. There are many other people involved when purchasing a home with whom you will need to be in contact. Lawyers or notaries, mortgage brokers and home inspectors are a few examples. During the process, your agent will provide you with recommendations for all of these, including costs for each.
3. Your agent will guide you in completing all necessary due diligence. He/she will identify aspects to the home that may allow for adding value. He/she will also identify potential issues that you should be aware of. Are there any liens or easements on the property? Were renovations completed with permits? Was the home ever grow op? There are many potential issues that must be checked. If you’re buying condo, there are generally hundreds of pages of strata documents your Realtor is going to help you navigate through as well.
You as the buyer do not pay the cost of your Realtor. Rather, the seller pays the commission, which compensates both agents. Similarly, lenders pay commissions to mortgage brokers - buyers do not.