Home Buying 101

Everything you ever wanted to know about the biggest purchase you will ever make!

Welcome to Home Buying 101!  Over the next few weeks I am going to fill you in on some of the terms we throw around when house shopping, talk about some of the important things you may not have considered and just generally explain the process of buying a home.  I will be writing this as if you were a first time home buyer because even if you aren't, it may be your first home in Alberta and every province has its individual quirks. So sit back and be entertained as I help you untangle some of the knotty issues of buying a home. Oh - and if you have any specific questions you want answered, just drop me a line and I will happily answer them for you. So stay tuned and remember, I have a dry sense of humor!

First Time Home Buyers - Yikes!

STEP ONE: It's happened. You have scrimped, you have saved. You are tired of paying someone else's mortgage for them. You are ready to take the leap into ownership. Where to begin? Who to call? What is your first step?

Most people immediately start looking at www.realtor.ca and scoping out what is on the market or they head for an online mortgage calculator and start punching in numbers. STOP! Taking time now to do this first step right will save you a lot of heartache later on.

Now is the time to head to your bank. Not a mortgage broker you ask? Relax, I will get to them. Your bank has quick access to all of your financials, and can sit down with you and discuss your options with them for a mortgage. They are going to throw around terms like: gross debt service ratio, total debt service ratio, stress test and amortization period. They should pull a credit check to make sure you haven't accidentally bought a 20 ft boat that you have forgotten about. This is called qualifying and lately the Government has taken it one step further with its new Stress Test.

Our interest rates have been at an all time low for several years now but they are starting to creep upwards.  Rather than qualifying using today's low rate, buyers are now having to qualify at the posted Bank of Canada rate which is about 2 points HIGHER than the bank rate. The Government wants to make sure that you as a buyer can still afford your home if the interest rates start to climb. Depending on what price point you think you might be in - 2% makes a huge difference. It can knock your price range down by $100,000 depending on your down payment and debt ratio and there is nothing worse than falling in love with a $450,000 home when the bank tells you that you can only afford a $350,000 home.

Mortgage Broker or Bank?  Tough call on this one.  It really depends on your comfort level.  Some people prefer to use their bank where their accounts and car loans and RRSPs are sitting, while others prefer to have a Mortgage Broker shop around on their behalf for the lowest rate.  Now I am not saying that banks have higher rates than Mortgage Brokers.  What I am saying is that usually the bank is looking to sell you ITS mortgage product, while a Mortgage Broker is just trying to find the cheapest rate.  You may not want the cheapest rate.  You may want a cash back mortgage that puts a few thousand dollars back in your account a few weeks after you take possession to help you change the flooring or counter tops or you may want one that gives you travel points so that you can have your house and vacation too. In the end the choice is yours so explore your options, and get a proper qualification with a full credit check so that you can carry on to STEP TWO!

Oh The Trees We Will Kill...

Congrats! You have been to the bank or your Mortgage Broker and you have qualified! Now it's time to pick up the phone and contact a REALTOR (R)...but which one?!? There are dozens of them! How do you choose! The same way you do most things in life, ask around, talk to your friends.  Who did they use?  Were they happy with the work their Agent did on their behalf?  Were their phone calls returned promptly, did the Agent explain everything clearly and find the answers to their questions? But most of all: did they feel comfortable with their Agent?

This is likely the most expensive purchase you will make in your lifetime. You need to know that your Agent is there for YOU and is ready, willing and capable of answering all of your questions and sometimes answering the questions that you didn't even know to ask. Sit down in the Agent's office and have a discussion with them about the process, what you are looking for in a home, what your timeline is, get a feel for them.  Do they share your twisted sense of humor? Is this someone you could spend a few hours with in a car going from house to house? But most importantly: did they listen to you?

Once you have chosen your Agent they should then go over and have you sign two forms.  One is the Consumer Relationship Guide which spells out the basics of working with a REALTOR (R). The second is a Buyer's Contract and will be either an Exclusive Buyer's Representation Agreement or a Non-Exclusive Buyer's Representation Agreement

What are those you ask? I am so glad you did! Both agreements spell out what you are looking to buy, where you want to buy and can also outline what kind of information that you expect your Agent to find out for you on any house you decide has made your shortlist.  You know, the basic stuff like: Has anyone run a meth lab recently? Did Al Capone host a Valentine's Day Party in the basement? That sort of thing. They also outline what happens in any conflicts of interest between you as a buyer and any sellers that your Agent or their Brokerage represents.  The 2 agreements set a timeline on the relationship but most importantly, and this is where the two agreements diverge, they set out compensation.

Compensation? you say, isn't the satisfaction of finding you a home enough? Uhm...while you are awesome, I still like to eat. Generally speaking an agent representing a buyer does not get paid by the buyer.  They are paid by sharing the commission that is paid by the seller to the seller's agent. That is one of the core principles behind the Multiple Listing Service(TM) that is now Realtor.ca.  However, sometimes buyers may want to view homes that are listed as For Sale By Owner and in that case you may have discussions with your Agent about compensating them for handling the contracts. Fine and dandy you say, but what is the difference? 

Okay, so let's say you meet with an agent, you begin working with them but it's kind of like speed dating, you thought it was a good fit but after a time or two you just don't feel that magic and you want to use a different agent.  Depending on which of the two agreements you signed you may not have that option. If you signed an EXCLUSIVE Buyer's Representation Agreement your hands may be tied and losing your freedom of choice is a horrible feeling. Most agents prefer to use the NON-exclusive because frankly, we want our clients to want to use us not be forced to use us. So make sure that you ask the tough questions right from the beginning, yes, I know we are Canadian and we are all very polite but trust me, this is the time when you want to start asking as many questions as you want.  A good REALTOR (R) will happily answer them all.

PS: REALTOR (R) and Agent and Associate and Representative are not interchangeable.  The term: REALTOR (R) signifies that your Agent/Associate/Representative is a member of the Canadian Real Estate Association - it's not a job title but a designation that we/they are a member of a professional association. 

Tell Me What You Want, (what you really, really want)

Step 3. We have a saying in real estate and at first it may sound offensive: "Buyers are liars." Sounds horrible doesn't it? What it really means is be truthful with yourself about what you really want. Oh and if there is a significant other involved in the looking, make sure you are on the same page.

Do you want a spanked out kitchen while he is looking for the ultimate garage? Is having 3 bedrooms on one floor important to you because you are planning an addition to the family but he wants a wet bar in the basement for the Stanley Cup Playoff parties he is planning? What about resale? Chances are that this is not your "forever" home and the most important thing to you is resale-ability. There is a lot to consider when figuring out what you are truly looking for in a home and sometimes it helps to take a pad of paper, make a pot of coffee and have a frank discussion of wants, needs and absolute must haves. 

Now that you have determined what is truly important to you and you think you have a handle on what you want, we will need to sit down and make sure that it all fits in your budget.  I know that you have gone to be pre-approved and the bank has given you a number, but please remember, that number is the maximum and just because you are approved to that doesn't necessarily mean you will be comfortable with that payment. So let's take a look and see if we can make your list fit within a price point that keeps you comfortable. Be prepared! You may not find everything you are looking for at a price you like. This is when you will have to decide if granite counters are a nice to have or a must have item.

Even after all of that you may still not know exactly what you are looking for. That's okay, we have a plan for that. No one is expecting you to buy the first house you walk into (yet you would be amazed at how often that happens).  On the first outing with buyers who aren't sure what they want, I will often book what I call "the best of the best" at different price points within your budget and different styles of homes that way you can get a better feel for what you like and what price point is a better fit. Once we have narrowed the field we can then get serious about viewing homes so grab some slip on shoes and stay tuned for: STEP 4: Showing Etiquette or Miss Manners meets Super Realtor!

STEP 4: Showing Etiquette or Miss Manners meets Super Realtor!

 

Remember when your mother used to say things like: "Take your shoes off in the house!" or "If you can't say anything nice, don't say anything at all!"?  Well this post is kind of like that.

 

 #1 Make sure that you are actually available to view homes when you tell your REALTOR to make appointments. Viewing homes when trying to find your next home is central to the process and as a REALTOR, I understand that I will likely be working around your work schedule in order for you to view homes. Your REALTOR (me hopefully) has taken the time to set up appointments for you to view homes that fit your criteria and your price point. We have called other REALTORs who have called their clients and let them know to have the home ready for viewing at a specific time.  People have lives, they have kids, they have pets, they work shift work.  Very few people have the luxury of staging their home for viewings and then walking away for 2 months while their REALTOR sells it.  They need the time to prepare the home and it is frustrating to work like crazy and then have the showing cancelled. There is nothing worse than booking 10 homes for Saturday starting at 10 am and then calling to cancel everything at 9 am.

 

#2 Come prepared and if you can, leave the kids at home.  We are going to see a lot of homes in a short period of time. We usually make appointments 15 to 20 minutes apart because most people know within 5 minutes whether or not a home is on the "maybe" list. That makes for a lot of buckling and unbuckling child seats, dealing with shoes and jackets and let's not talk about the temptation of toys. Okay, let's talk about it. Some houses have some very cool toys (some for kids but increasingly more for adults) and collectibles. It is not fair to ask your children to resist temptation for so long. It makes for a long, frustrating day for both them and you, and frankly, you need to be concentrating on the homes you are seeing. We can always bring them to the second showings if you wish to include them in the decision making process. Oh and before I forget: easy on shoes, because yes, we are taking them off in every home.

 

#3 If you can't say anything nice... Don't get me wrong! I want your honest feedback, but we need to be respectful.  With today's upswing in Smart Home Technology you would be amazed how many homes have cameras and security systems that are recording what is being said. You may not like dusty blue walls with cabbage rose wallpaper borders and that is fine, not everyone has the same style or taste. Just say "It needs some updating." rather than "Good Lord there isn't enough primer in NATO to cover those walls!". Once we are back in the car you can tell me how you truly feel!

 

#4 Only ask to see homes you are actually interested in and capable of purchasing. Sellers list their homes in order to sell their homes, they are not an interactive Pintrest. They are expecting that when a REALTOR asks to show the home they have bonafide buyers who are interested in purchasing it. Please do not ask to see a home just because you have always wanted to see inside or you have always wondered what the current owners have done to your friend's old house.

 

When we view a home consider it a special invitation. They have gone out of their way to tidy, bake cookies and may have suspended a planned family activity so that we can be there. Someone is sharing a glimpse into their private haven, let's do them the honor of being respectful of their home.