Step-by-step Guide To Buying A Home
Summarised below is the process of purchasing a home and getting a mortgage. If you are a first-time home buyer or new immigrant in Canada, you may also want to download and read the very comprehensive Homebuying Step By Step CMHC Guide and Workbook we have for you in this website. Having the knowledge helps you prepare everything that is needed in order to significantly lessen the hassles that can occur in your home buying experience.
- Pre-Approval
- Searching for a home to buy
- Getting a Mortgage Commitment
- Ordering the Appraisal
- Home Inspection
- Removing conditions on the Offer to Purchase
- Closing Day and The Final Steps
Step 1: Pre-Approval
Pre-approvals are the place to start, even before house hunting. Getting one means a lender pre-approved you for a specific mortgage amount and interest rate, providing a written confirmation or certificate so you are better prepared to shop for a new home. You'll have a clear picture of what you can realistically afford in terms of price, down payment, fees, and other expenses. Also, real estate agents will often serve you better because they know you are a serious and committed buyer.
A pre-approved mortgage guarantees your interest rate for up to 120 days for the term you select, even if rates go up. If rates go down while you're finding your dream home, you will receive the new lower rate. This protection could save you a substantial amount of money if interest rates are fluctuating while you are house hunting. Best of all, a pre-approved mortgage puts you under no obligation and is available to you at no cost.
In order to be pre-approved, lenders will need to review your personal information and your personal finances. They need to know your income, which determines your ability to make monthly payments. They also need to find out any assets like savings and investments you might have to know how much down payment you can put down, if you can cover the closing costs, and still have reserve money to cover unexpected expenses. They will also look at how you manage your credit, such as car loans and credit cards.
When you apply for pre-approval with Canada Mortgage Hub, you will be required to fill up a mortgage application authorizing us to do a credit check on your file. Once the application form is complete and we pull credit, you will need to submit downpayment and income verification documents. For a list of documents that may be required for your situation, check out our article on Preparing Documents You Need To Submit for Your Mortgage Application.
Step 2: Searching for a home to buy
After getting a mortgage pre-approval and knowing the price of home you can afford, it's time to sit down and determine the type of home you want to buy. You need to come up with a list of things you need, how many bedrooms and bath should it have, at what location do you want it to be, how old should it's maximum age be if you are buying a resale home, etc. Next, you can either search listings of for-sale-by-owners or get a professional realtor to help you find the place you are looking for. A good realtor will negotiate well on your behalf after helping you find a home that fits your needs.
Putting an offer
Once you find a place that you like, your realtor will negotiate the price and conditions with the seller or the seller's realtor. When the offer is mutually agreed upon, an Offer to Purchase is prepared for you and the seller to sign. This contract will contain, among other things, your name and contact information, the seller's name and contact infomation, the agreed price, deposits required, conditions to be met (e.g. satisfactory financing, home inspection, appraisal, etc.), chattels included, condition removal date (which is usually one week to 10 days after the date of the contract) and the closing date. The time frame for the condition removal date is important as it gives you time to do all your due diligence like ordering and doing home inspections, appraisals, submitting the contract for your lawyer to review, making sure the property is acceptable to the lender as collateral, etc.
Presenting the offer to your mortgage broker
You or your realtor will need to submit the Offer to Purchase to us along with the property listing. After we receive it, we will request a mortgage approval from the lender that pre-approved you for the mortgage.
Getting a Mortgage Commitment
A mortgage commitment is usually released by the lender/bank to us after your deal is approved. We'll spend time to review your mortgage commitment with you and let you know any other lender requirements that need to be fulfilled. You then need to submit those requirements in order to get a final mortgage approval and remove financing conditions.
Ordering the Appraisal
Because lenders will want to make sure the property is worth the amount you purchased it for, they will usually require an appraisal. (For insured mortgages, the insurers usually conduct their own using their system.) Each bank/lender has a list of approved appraisers you can choose from. We then order the appraisal from your chosen appraiser for the home you're purchasing. Once you have paid for the appraisal report, it is released to the lender who finds out if the property meets their lending guidelines.
Home Inspection
Home inspection reports lets you know the condition of the property you're buying and what types of repairs and maintenance will be required once you acquire it. It is therefore highly recommended to make your purchase "subject to home inspection results satisfactory to the buyer." While you wait for your mortgage approval, you should start ordering your home inspection. When you are satisfied with the condition of the place based on the home inspection report, you may waive the home inspection condition (if you and the seller agreed to put it in the contract).
Removing conditions on the Offer to Purchase
Once all the conditions of the Offer to Purchase is fulfilled, you can then remove conditions to make the sale final. Additional deposit may be required at this point depending on what is stipulated on the contract you signed. If there is one, it gets added to your downpayment on the property and will be held in a trust account until closing to be released to the seller.
Closing Day and The Final Steps
Because the lender will need to verify the source of your down payment, written verification of it will need to be submitted to us prior to the closing date.
Once the bank/lender receives all the necessary documents required in the mortgage commitment from you, they will send the instruction to your chosen lawyer/notary. Your lawyer/notary will then prepare all the necessary documents and compute the rest of the money you need to pay for the balance of the purchase price and closing costs. They will have you come in their office to sign the documents and pay them the amount required to close the deal. This amount will be held in a trust account before they are released to the seller. After that, they will register the home in your name, provide you with a copy of the deed and the keys to you new home.
Possession of the property usually takes place on the date stated in the purchase contract as long as there are no problems that cause any delay.
